Human resource management 9788131724842, 8131724840

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Human Resource Management Pravin Durai Associate Professor of Commerce St Joseph’s College (Autonomous) Tiruchirappalli

To My Parents

Acquisitions Editor: A. Maran Senior Development Editor: Jonaki Ray Associate Production Editor: M. R. Ramesh

Composition: Mukesh Technologies Private Limited, Pondicherry Printer: Sheel Print N Pack

Copyright © 2010 Dorling Kindersley (India) Pvt. Ltd This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without the publisher’s prior written consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser and without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above-mentioned publisher of this book. ISBN: 978-81-317-2484-2 10 9 8 7 6 5 4 3 2 1 Published by Dorling Kindersley (India) Pvt. Ltd., licensees of Pearson Education in South Asia. Head Office: 7th Floor, Knowledge Boulevard, A-8(A), Sector-62, Noida 201309, India. Registered Office: 11 Community Centre, Panchsheel Park, New Delhi 110 017, India.

Contents

Preface

ix

3

PART I HUMAN RESOURCE MANAGEMENT— A CONCEPTUAL FRAMEWORK

1

Introduction to Human Resource Management

Strategic Human Resource Management—A Framework Introduction 23 Meaning of Strategic Human Resource Management 24 Features of Strategic Human Resource Management 25 Differences Between SHRM and HRM 25 Models of Strategic Human Resource Management 26 Terms in SHRM 28 Steps in the Strategic Management Process 28 Levels of Strategy 30 Strategic Management and HRM 33 Types of HR Strategies 35 Benefits of a Strategic Approach to HRM 36 Barriers to Effective SHRM 37

Introduction

1

43

44

A Brief Outline of HRM

44

The Human Resource Management Environment 48

1

Environment Perspectives

Introduction 1 Meaning of Human Resources 2 Uniqueness of Human Resources 3 Objectives of HRM 4 Scope of HRM 5 Functions of HRM 6 HRM and Personnel Management (PM) 10 HRM as a Profession 11 Qualities of an HR Manager 13 Line Versus Staff Authority of HRM 14 The Future Role of HRM 16

2

The Evolution and Environment of Human Resource Management

58

Environmental Scanning—An Over view 59 The Environmental Scanning Process 60

PART II HR PROCUREMENT 4

66

Job Analysis and Design Introduction

66

67

Features of Job Analysis

67

Important Terms in Job Analysis Goals of Job Analysis Job Analysis Process

23

68

69 73

Techniques of Data Collection in Job Analysis 76 Job Description

81

Job Specification

83

Challenges Affecting the Effectiveness of Job Analysis 85 Job Design

87

Environmental Influence on the Job Design 88 Critical Components of Job Design Limitations of Job Design

98

Recent Trends in Job Design

5

99

Human Resource Planning Introduction

92

107

Characteristics of Human Resource Planning 108 Significance of Human Resource Planning 108

106

iv

CONTENTS

Factors Affecting Human Resource Planning 111 Human Resource Planning Process 113 Requirements for Effective HR Planning 124 Benefits of HR Planning 124 Barriers to the HR Planning Process

6

Socialization

The Socialization Process

125

131

Features of Recruitment Recruitment Policy Recruitment Process

PART III HUMAN RESOURCE 9

132 134

191

Objectives of Career Planning 135

Process of Career Planning

145

Introduction 150 Differences Between Recruitment and Selection 151 Phases of the Selection Process 151 Employment Application Forms/ Blanks 153 Selection Tests 155 The Selection Interview 160 Strategy for an Effective Interview Process 163 Weaknesses of the Interview Method 164 Reference Checks 165 Physical Examination 165 Job Offer 166 The Selection Process in India 166

Merits of Career Planning

199

Limitations of Career Planning

201

Measures to Improve the Effectiveness of Career Planning 202 Career Guidance

10

204

Employee Training Introduction

209

210

Significance of Employee Training Assessing Training Needs Scope of Training

210

212

214

Steps in an Employee Training Process 215 Methods of Training

218

Audio-visual Aids in Training

171

223

Evaluation of a Training Programme 223 Design of Evaluation Studies

173

194

Responsibility for Career Planning and Development 198

150

Orientation, Socialization and Placement

192

Important Terminology Used in Career Planning 192

137

Selection

190

190

Features of Career Planning

135

Introduction 172 Purpose of Employee Orientation Types of Orientation 174 Process of Orientation Programme Development 176 An Effective Orientation Programme 178

190

Career Planning and Guidance Introduction

Recruitment Practices in India

8

185

DEVELOPMENT

131

Steps in the Recruitment Process Sources of Recruitment

Placement

131

Recruitment Organization

182

Dimensions of Organizational Socialization Strategies 184

130

Definitions of Recruitment

180

181

Differences Between Orientation and Socialization 182

Recruitment Introduction

7

Problems in Orientation

224

Effects to be Measured in Evaluation 225 Issues in Training

225

Conditions Necessary for an Effective Training Programme 226 E-learning—An Overview

227

v

CONTENTS

11

Management Development

234

Selection of the Evaluator for Conducting the Performance Evaluation 278 Performance Evaluation Methods 280 Issues in Performance Evaluation 292 Steps to Overcome the Problems in the Evaluation Process 294 The Post-performance Evaluation Interview: An Overview 294 Job Evaluation 295 Characteristics of Job Evaluation 296 Objectives of Job Evaluation 296 The Job Evaluation Process 296 Methods of Job Evaluation 298 Benefits of Job Evaluation 302 Limitations of Job Evaluation 303 Measures to Enhance the Effectiveness of Job Evaluation 304

Introduction 235 Significance of Management Development 236 Goals of Management Development 236 Steps in a Management Development Process 237 Methods of Management Development 238 Evaluation of the Development Programme 243 Management Succession Planning 244

12

Organizational Development

252

Introduction 253 Characteristics of Organizational Development 254 Key Concepts in Organizational Development 254 Objectives of Organizational Development 255 The Organizational Development Process 256 Approaches to the Study of Organizational Development 258 Types of OD Intervention Programmes 260 Benefits of OD Intervention Programmes 264

PART IV HR EVALUATION AND COMPENSATION

13

14

Introduction

311

312

Objectives of Compensation Administration 312 Types of Compensation

314

Theories of Compensation Concept of Wages Pay Structure

316

318 319

Factors Influencing Compensation (Wages and Salary) Administration 323 Steps in Compensation Administration 327

269

Challenges in Compensation Administration 329

Performance Evaluation and Job Evaluation 269 Performance Evaluation: An Introduction 270 Performance Evaluation: An Overview 270 Performance Management: An Overview 271 Objectives of Performance Evaluation 271 Uses of Performance Evaluation 272 Determining the Criteria for Performance Evaluation 275 The Process of Performance Evaluation 276

Compensation Administration

Executive Compensation

15

331

Incentives and Benefits Introduction

342

343

Objectives of Wage Incentives

343

The Wage Incentive Planning Process 344 Prerequisites for a Good Incentive Scheme 346 Types of Incentive Schemes Evaluation of Wage Incentive Schemes 363 Fringe Benefits

365

349

vi

CONTENTS

PART V HR MAINTENANCE AND 16

MOTIVATION

373

Employee Well-Being

373

Introduction

Obstacles Faced by Effective WPM 430 Employee Empowerment

19

374

Steps in an Employee Safety Programme 375

Objectives of Promotion Criteria for Promotion

377

Kinds of Promotion

Demotion Transfer

Stress

387

388

Stress Management

Types of Welfare Measures

398

400

Theories of Employee Welfare Merits of Welfare Measures Social Security

404 406

408

Limitations of Welfare Measures

409

410

21

Workers’ Participation and Empowerment Introduction

460

421

Features of WPM

421

Objectives of WPM

422

Levels of WPM

423

WPM Methods

423

Achieving WPM

424

Essential Prerequisites for Effective WPM 428 Significance of WPM

429

420

Industrial Relations Introduction 460 Characteristics of Industrial Relations 462 Objectives of Industrial Relations 462 Major Players in Industrial Relations 463 Approaches to the Study of Industrial Relations 465 Industrial Relations Trends 470 Factors Influencing Industrial Relations 472 Essentials of Effective Industrial Relations 473

401

Employee Welfare Responsibility

452

20

399

Objectives of Employee Welfare

448

460

399

Features of Employee Welfare

446

PART VI HR INTEGRATION

392

Employee Welfare and Social Security Introduction

443 443

450

Employee Separation

382

Employee Health

442

Essentials of a Sound Promotion Policy 447

Behaviour-based Safety Management and Approach 381 Industrial Accidents

442

Characteristics of Promotion

Statutory Provisions Concerning Employee Safety and Health 380

18

441

Introduction

Essentials of an Effective Safety Programme 378

17

Job Rotations

Objectives for Providing Employee Safety 374

Need for Employee Safety

431

Discipline and Disciplinary Action Introduction 478 Characteristics of Employee Discipline 479 Objectives of Discipline 480 Types of Discipline 482 Symptoms and Causes of Indiscipline 486 Types of Disciplinary Action 490 Steps in Establishing a Disciplinary Action Procedure 492 Essential Steps to Enhance the Effectiveness of Discipline Meetings

478

494

CONTENTS

Elements of a Good Disciplinary System 495 Douglas McGregor’s Hot Stove Rule of Discipline 497 Code of Discipline 497

22

Employee Grievances Introduction

Types of Trade Unions 546 Trade Union Goal Accomplishment Strategies and Actions 547 Why do Workers Join Trade Unions? 550 History of Trade Unions 552 Challenges Facing the Trade Union Movement 557 Union-free Organizations 559

502

502

Characteristics of Grievances Sources of Grievance

503

503

Techniques of Grievance Identification 505 The Grievance Procedure

507

PART VII HR CONTROL

565

25

565

Benefits of the Grievance Redressal Procedure 512 Statutory Provisions Concerning the Grievance Redressal Procedure in India 513 The Model Grievance Procedure

513

Industrial Disputes and Collective Bargaining Introduction

518

26

519

Objectives of the Industrial Disputes Act, 1947 520 520

Types of Industrial Disputes Outcome of Disputes

522

522

Investigation and Settlement of Disputes 524 Collective Bargaining

530

Classification of Collective Bargaining 531

27

The Collective Bargaining Process

534

Essentials of Effective Collective Bargaining 537

24

Trade Unions Introduction 543 Features of Trade Unions Objectives of Trade Unions

542 543 544

The Human Resource Information System (HRIS) 582 Introduction 583 Objectives of an HRIS 584 Components of an HRIS 584 Types of HRIS 585 Implementation of an HRIS 586 Applications of an HRIS in Human Resource Management 589 Benefits of an HRIS 594 Conditions Essential for an Effective HRIS 596

Characteristics of Industrial Disputes 519

Causes of Industrial Disputes

Human Resources Audit Introduction 566 Features of an HR Audit 566 Objectives of an HR Audit 567 Scope of an HR Audit 568 Levels of an HR Audit 569 Steps in an HR Audit 571 Approaches to HR Auditing 575 Essential Conditions for an Effective HR Audit 577

Essentials of a Good Grievance Procedure 511

23

vii

Human Resources Accounting Introduction 602 Objectives of Human Resource Accounting 604 Approaches to Human Resource Accounting 605 Uses of Human Resource Accounting 612 Weaknesses of Human Resource Accounting 614

602

viii

CONTENTS

PART VIII HR SPECIAL TOPICS 28

619

Ethical Issues in Human Resource Management Introduction Types of Ethics

29

619 621

Ethics and Human Resource Management 621 622

Approaches to Ethical Issues in Organizations 623 Factors Influencing Ethical Behaviour at Work 625 Role of HRM in the Development of Ethical Behaviour 627 International Business Ethics

630

Guidelines for International Business Organizations on Ethical Issues 631 Ethical Dilemma in Global Wage Payment 632

637

Introduction 638 Features of International HRM (IHRM) 639 Differences Between IHRM and Domestic HRM 640 Reasons for the Growth of IHRM 641 Challenges Facing IHRM 641 International HR Practices 642 Strategic International Human Resource Management 649 Cross-culture Management in IHRM 651 Factors Determining the Outcome of International Assignment of Employees 652 List of Dos and Don’ts in Developing and Implementing Global HR Practices 653

619

Need for Ethical Policies and Codes

International Human Resource Management

Index

659

Preface

During the course of my teaching and research career of more than twenty years, I have seen the emergence of a workforce that is a well-informed, dynamic and diverse entity. To be successful in effectively handling such a workforce, employers, managers and supervisors need to be up to date with the current trends as well as possess a strong theoretical foundation of human resource practices. The contents of Human Resource Management have been developed, therefore, to provide students as well as practicing managers with allinclusive, multifaceted information in a highly readable and understandable form. Besides adopting a userfriendly format, each chapter in the book has several unique real-life examples to support its theoretical discussion and help readers understand the subject matter easily.

Organization This book has 29 chapters to enable readers gain complete insights into the different domains of HRM. Based on the role and responsibilities of HR managers, these chapters are divided into eight parts. The parts and their purposes are: Part I—Human Resource Management—A Conceptual Framework familiarizes the reader with the elements, evolution and environment of human resource management, and also elaborates on strategic human resource management. Part II—Procurement provides an insight into the topics connected with recruitment, selection and placement of human resources in the organization. Thus, this part includes job analysis, HR planning, recruitment, selection and placement, orientation and socialization. Part III—Development focuses on the topics relating to employee training and management development. The areas of discussion under this part are career planning and development, employee training, management development, and organizational development. Part IV—Evaluation and Compensation comprehensively deals with the core and critical areas of HR management such as employee performance evaluation, compensation administration, and incentives and benefits management. Part V—Maintenance and Motivation discusses matters relating to employee motivation and retention. This part covers employee well-being, employee welfare and social security, workers’ participation and empowerment, and job rotations. Part VI—Integration offers an insight into the activities that foster employer-employee relations. This part thus includes chapters on industrial relations, discipline and disciplinary action, employee grievance, industrial disputes, and trade unions. Part VII—Control discusses emerging topics that facilitate effective control of the human resources of an organization. This part contains chapters on human resources audit, human resource information systems (HRIS) and human resources accounting. Part VIII—Special Topics discusses in detail the emerging areas of human resource management such as ethical issues in human resource management and international human resource management.

x

PREFACE

Each part in this book received equal weightage in terms of treatment and coverage. Thus, the readers will find an elaborate discussion even on newer areas of human resource management such as HR accounting, HR auditing, ethical issues in HRM, and international human resource management.

Features Each chapter includes some unique features that help readers gain an in-depth understanding of the concepts in the chapter. Learning Goals The learning goals of each chapter are stated upfront in terms of chapter objectives.

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the significance and character of human resource planning 2 List the factors affecting human resources planning 3 Elucidate the process of human resources planning 4 List the barriers to effective human resource planning

Chapter-opening Vignettes The practical relevance of the concepts of each chapter is provided through a chapteropening case.

Real-world Examples Numerous boxes highlight the unique HR practices of Indian companies and provide students with real-world applications and perspectives.

Summary Key topics are provided as a summary at the end of each chapter.

TVS Motor Company of Chennai has an annual turnover of U.S. $1 billion. It is one of the top ten automobile companies in the world. This company is engaged in the production of a wide range of two-wheelers like mopeds, scooters and motorcycles. It has a strength of nearly 5,000 employees. It has adopted several HR practices to promote employee well-being. In fact, it has not lost even a single day to industrial disturbances for several consecutive years. TVS Motor believes in offering to its employees not just jobs but careers with long-standing companionship. The HR practices of the company are strongly oriented towards addressing each employee’s aspiration to grow professionally and personally through efficient career development programmes. The company employs continuous training and development programmes as an HR strategy for attracting and retaining the best

Box 10.3

talents. For instance, it has institutionalized the leadership development programmes as part of the career development for senior executives. It also conducts career development workshops to recognize individuals with high-growth prospects periodically. Its organizational career planning activities are supported by healthy career progression options with due recognitions and rewards. As part of its long-term career development programmes, TVS Motor has developed tailormade master’s degree programmes in collaboration with the premier educational institutions in India. Similarly, it ensures periodic job rotation for its employees to help them develop varied perspectives. The systematic career development efforts of TVS Motor indicate the importance of career planning for the success of an organization in terms of employee performance and commitment, and we discuss it in detail in this chapter.

Performance Management: A Tool for Training-Needs Assessment at ACC

An assessment of training needs is a complex task for any organization simply because it has to be made for various categories of employees—new entrants, experienced employees–both at the managerial and non-managerial levels at different points of time and on a continuous basis. The objectives of training programmes can be accomplished only when the training addresses the real problems of the employees. However, the success of the assessment depends only on the accuracy of the information collected about the employees and the reliability of the utilized sources. Usually, organizations adopt multiple sources to gather such information.

The training-assessment technique of ACC Limited is a case in point. It keeps a specific provision in the performance management system called “Competency Assessment and Training and Developmental Needs” in which performance evaluators have to identify and assess the training needs of the employees. Based on the information generated, the company focuses on the functional and skills enhancement of the employees. The emphasis in the training is on skills and general performance enhancement, communication skills and the career development of the employees. Adapted from: www.acc.co.in

Summary 1.

Human resource planning is the process of identifying and then matching the HR requirements and availability in order to determine the future HR activities of the organization on the basis of the overall organizational objectives.

2.

HR planning helps in assessing future recruitment requirements, utilization available human resource to the optimum, developing training and retraining programmes, formulating compensation policies,

external environment, preparing in-house skills and competencies inventory, HR forecasting—need assessment, HR forecasting—estimation of availability, and developing HR plans and programmes. 5.

The techniques for forecasting HR requirements are trend analysis, ratio analysis, Delphi technique, normal group technique, managerial judgment, work study techniques, zero-base forecasting, simulation model, and human resource allocation

PREFACE

xi

Review Questions Review Questions

Review questions at the end of each chapter help students gauge their understanding of the concepts in the chapter.

Essay-type questions 1. Evaluate critically the factors influencing the human resource planning process. 2. Discuss the steps involved in the human resource planning process. 3. Enumerate the various techniques available to forecast the HR needs of an organization.

Skill-development Exercises Unique exercises at the end of each chapter allow students to participate in a real-life situation and apply what they have learnt from the chapter.

Case Study A detailed case study along with discussion questions at the end of each chapter replicates the situations faced by human resource managers and enables readers to relate the topics from the chapter to the real world.

6. Describe the barriers to an effective human resource planning process. Suggest also how to overcome these. 7. “Human resource planning is a precondition for efficient management of human resources.” Elucidate. 8. “As the business becomes increasingly global, human resource planning becomes more significant and complex.” Analyse the statement.

Skill-development Exercise Objective – The objective of this exercise is to give you practice in developing a training package for a specific situation like the prevalence of high accident rates, and high reject rates. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager (overall in charge for the training), (2) a trainer (responsible for conducting the training programme), (3) a line manager (reporting about the problem), (4) two officers in the training department, and (5) an observer. The last role is important for the analysis and feedback aspects of the role-playing session.

or a flawed process. However, it made a mention about the deficit in the technical skills and knowledge of the workers involved in the production process. It also cited this as the most probable cause of the poor quality of the products and the resultant high reject rates. Steps in the exercise Step 1: The HR manager and the training department officials review the report of the line mangers along with the performance evaluation report of the workers concerned and plan to conduct an interview with the line manager.

Case Study Effectiveness of Well-Timed Training in Fostering Employee Competency

employees’ handling this machine and the reject rates situation started to improve.

Modern Textiles is in the business of producing garments and has an average annual turnover of Rs 3 billion. Since a large volume of its products is exported, the company has been very conscious of its quality commitment. It provides induction training to every new employee for two weeks and then on-the-job training by a supervisor for four months. This had been proving sufficient for the workers in meeting the clients’ quality expectations even while maintaining the high volume of production.

Meanwhile, the production manager found the HR department at fault for the crisis and blamed it for not undertaking training-needs assessment among the production department employees. However, the HR department retorted by saying that barely three months before the arrival of the new machine, a routine trainingneeds assessment had been made among those employees but it had revealed no pressing training requirements. On their part, the HR personnel held the production manager responsible for failing to inform them about the imminent arrival of the new machine at the time of the assessment of the training necessities. The blame game continued.

As part of its ambitious expansion programme, the company recently imported ultramodern machinery to double its production capacity. After the machinery was installed, the production volumes increased as expected, but the reject rates too rose dramatically. Consequently, the cost of production increased and the export deadlines too became very tight. The manage-

Questions for discussion 1. From your perception, who is responsible for the whole incident involving high reject rates and the

Supplements and Media Resources A full range of resources that support teaching and learning is available on the companion Web site of this book. • PowerPoint lecture slides provide the outlines and key topics of each chapter. • Extra chapters, multiple-choice questions along with their answers and short-answer questions for each chapter offer students extra information and a chance to expand their knowledge. • An online study guide provides brief summaries and reviews of the key information in each chapter through Quick Recap boxes. The mQuest application enables students to revise concepts, search for or find definitions, take quizzes and get instant feedback on their cell phones and review their knowledge.

xii

PREFACE

ACKNOWLEDGEMENTS I express my deep sense of gratitude to everyone who helped me in their own way in writing this book. I gratefully acknowledge all institutions like Ashok Leyland, Dorling Kindersley, Infosys, Mind Tools Limited, the Ministry of Labour of the Government of India, Political and Economic Risk Consultancy, Tata Services Limited, the Reserve Bank of India, and Tube Investments of India Limited for their permission to use information pertaining to them in this book. I also thank Zita Correia and T. D. Wilson for permission to use their Environmental Scanning Process model in Chapter 3 and Ankush Gupta for his permission to utilize excerpts from his article in Chapter 22 of this book. Similarly, I am indebted to all the reviewers for their feedback and valuable suggestions. I sincerely thank the Jesuit management of St. Joseph’s College (Autonomous), Tiruchirappalli, for providing me with a supportive work environment that enabled me to write this book. I have no words to express my gratitude to my wife, Pramila Pravin, who painstakingly ensured that I was not troubled by my family commitments while writing this book. I would like to express my appreciation for my children, Ashwin and Sherine, for their love and affection. Finally, I express my gratitude to Pearson Education for publishing this book. Amarjyoti Dutta and Jonaki Ray deserve a special mention for their sustained interest and worthy suggestions in the manuscript development. I welcome any critical reviews and feedback from readers, and would consider those as the real reward for writing this book.

The Development of this Book Human Resource Management has benefited from an extensive development process, which involved faculty reviewers providing feedback about the accuracy and relevance of the content as well as suggestions for its improvement. While we could not incorporate every suggestion from everyone, we do acknowledge that their feedback was invaluable in our attempt at creating the best possible human resource management textbook.

Consultant Board The consultant board provided us with a detailed and critical analysis of each chapter and worked with us throughout the development of the book. We would like to thank the following for their time and commitment: Kalpana Bhatawdekar PICT School of Information Technology and Management, Pune Manodip Ray Chaudhuri Future Institute of Engineering and Management, Kolkata

Namita Gopal Easwari Engineering College, Chennai Sumithra Sreenath M. P. Birla Institute of Management, Bangalore

Reviewers The guidance and thoughtful recommendations of many helped us improve this book. We are grateful for the comments and helpful suggestions received from the following reviewers: Paul G. Aquinas Aloysius Institute of Business Administration, Mangalore Feza Tabassum Azmi Aligarh Muslim University, Aligarh K. V. Ramesh Chandra P. B. Siddartha College of Arts and Sciences, Vijayawada

Dimpy Sachar Jagannath Institute of Management Sciences, Delhi Ashit Sinha Institute of Management Technology, Nagpur M. A. Vaidyesh Sindhi College, Bangalore

PART I:

CHAPTER

1

Human Resource Management — A Conceptual Framework

Introduction to Human Resource Management

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the meaning of human resources 2 Define the objectives, scope and functions of human resource management (HRM) 3 Differentiate between HRM and personnel management 4 Enumerate the qualities of HR managers 5 Discuss the future role of HRM

Infosys Technologies has been adjudged the best employer of the year by a number of leading human resource (HR) surveys for its outstanding HR practices. It is one of the few companies that succeeded in greatly influencing the attitude and behaviour of the employees and the performance of the organization through creative HR practices. The HR policies of Infosys include: (i) focusing on the learnability of candidates in recruitment; (ii) emphasizing continuous learning through employee training. For this reason, it has developed a world-class training centre called the Global Education Center at Mysore to train fresh recruits and an Infosys Leadership Institute to develop future leaders of the companies; (iii) evaluating the

performance of employees in a scientific manner through a competency-mapping system and (iv) using a variable compensation structure, which considers the collective performance of the individual, the team and the organization as a whole for fixing the employee-compensation packages. To sum up, its HR philosophy, policy, practices and management have played a pivotal role in making Infosys a $2billion company today. The success story of Infosys is a proof that HR management (HRM) can be a definite competitive advantage for a firm and can make a real difference not only to the fortune of the organizations but also to the individuals as well. Keeping this success story in mind, let us first learn the basics of HRM in this chapter.

Introduction Every organization is essentially a combination of physical and human resources (HR). Physical resources refer to materials, money and machines pre-arranged by the organization for production or trade. human resources, on the other hand, refer to the knowledge, education, skills, training

2

HUMAN RESOURCE MANAGEMENT

and proficiency of the members of the organization. All organizational resources are important for achieving the objectives of an organization. In fact, the effectiveness of an organization lies in the judicious blending of the two resources to achieve optimum competency. However, for a long time, it was felt that the efficient utilization of physical resources was primary for developing an organization. This was so because the acquisition of physical resources resulted in a huge outflow of funds and those assets carried a definite value. On the contrary, it was felt that hiring employees never cost anything substantial for a firm and it was also quite easy to replace them. This made human resources less important for employers. But, in the past decade, employers have realized that intellectual capital is critical to business success. The main reasons for this change are due to the understanding that 1. Product innovation and marketing strategy, which are crucial for market survival and growth in a competitive environment, are possible only when a good and creative workforce is present. 2. The challenge, opportunities and even disputes of creating and managing organizations arise mostly from people-centred problems. 3. People are not alike and they cannot be treated identically. They differ physically and psychologically. These differences require individual attention in order to achieve the optimum productivity. Indian organizations are no exception to this change in understanding. They realize that technology by itself cannot triumph in the market and that technology coupled with a workforce is essential for the success of an organization. The growing importance of HR in Indian organizations is best reflected in their mission statements. The mission statements of a few Indian organizations, which emphasize the significance of human resources, are presented in Table 1.1.

Meaning of Human Resources Organizations are managed by people and through people. Without people, organizations can never exist. Indeed, people who make up the human resources of a company are unique and they can make or break an organization, depending upon their level of commitment, contribution and cooperation. Hence, it is relevant to know the intricacies of the term human resources first, before we discuss HR management (HRM) in detail. Different people have defined human resources differently. Box 1.1 showcases the various definitions of human resources. Table 1.1

Mission Statements of a Few Organizations

To develop ICICI Bank into an organization that is empowered by bright and talented individuals, working in teams and riding on the backbone of world-class technology. –ICICI BANK To be a globally respected corporation that provides the best-of-breed business solutions leveraging technology delivered by the best-in-class people. –INFOSYS To deliver superior value to our customers, shareholders, employees, and society at large. –ADITYA BIRLA GROUP To ensure anywhere and anytime banking for the customer with the latest state-of-the-art technology and by developing effective customer-centric relationships and to emerge as a world-class service provider through efficient utilization of human resources and product innovation. – ALLAHABAD BANK

INTRODUCTION TO HUMAN RESOURCE MANAGEMENT

Box 1.1

3

Definitions of human resources

Human resources are “a whole consisting of inter-related, inter-dependent and interacting physiological, psychological, sociological and ethical components.”1 –Michael J. Jucius

“From the national point of view, human resources are knowledge, skills and attitude obtained in the population; while for individual enterprises, they represent the total of the abilities, knowledge and skills of its employees.”2 –Leon C. Megginson

We would define human resources as the collection of people and their characteristics at work. These are distinct and unique to an organization in several ways.

Uniqueness of Human Resources The distinct features of human resources are: 1. Human resources are the only assets that appreciate over a period while physical resources just depreciate with years. 2. Further, human resources alone can produce an output larger than the input. This is possible due to the creative skills of humans. Creative thinking is the process of predicting, envisioning and then inventing an idea, concept or insight along innovative and alternative lines. People in the organization are the only basis for such creativity and there is no obvious limit to their imagination. 3. Organizations require human resources of different types to operate all physical resources. Thus, they provide utility value to each one of the physical assets. In fact, the real worth of a physical asset depends on the quality and calibre of the people working with it. An incompetent workforce will spoil the physical resources available to it. 4. There is a growing realization that the flexibility of an organization depends more on people than on any technical factors. Modern equipment may ensure quality and costcompetitiveness but the operational flexibility, which is core to product modification and innovation, is provided only by the employees. This is so since humans alone could grasp the situation adequately and respond suitably. The effective utilization of human resources is a complex task. It requires greater foresight and strategic consideration on the part of the management. For instance, attracting the most qualified employees, matching them to the jobs for which they are best suited and retaining them within the organization are significant for the success of an organization. But this calls for closer coordination and better understanding between the employers and the employees. However, many enterprises are too large to permit close contact between the top management and the employees. This is where HR managers act as a crucial link between the management and the employees. HRM, as a field of study, makes a sincere effort to provide knowledge, skills and ability for managing human resources more effectively. The basic task of HRM is the selection of the right person for the right job at the right time to carry out the activities of an organization in the most efficient way. It also aims to enhance the satisfaction, morale and productivity of employees, control labour turnover, and help organizations increase their performance by providing the necessary training and development opportunities, suitable working conditions and appropriate career growth to employees.

4

HUMAN RESOURCE MANAGEMENT

Box 1.2

Definitions of HRM

“Personnel management, or say human resource management, is the planning, organizing, directing and controlling of the procurement, development, compensation, integration, maintenance and separation of human resources to the end that individual, organizational and social objectives are accomplished.”3 –Edwin B. Flippo “Personnel management is that part of management (which is) concerned with people at work and with their relationships within an enterprise. Its aim is to bring together and develop into an effective organization the men and women who make up an enterprise and, having regard for the wellbeing of the individual and of working groups, to enable them to make their best contribution to its success.”4 –Institute of Personnel Management (IPM)

“Human resource management is concerned with the people dimension in management. Since every organization is made up of people, acquiring their services, developing their skills, motivating them to higher levels of performance and ensuring that they continue to maintain their commitment to the organization are essential to achieving organizational objectives. This is true, regardless of the type of organization—government, business, education, health, recreation, or social action.”5 –David A. Decenzo and Stephen P. Robbins “Human resource management is a series of integrated decisions that form the employment relationship; their quality contributes to the ability of the organizations and the employees to achieve their objectives.”6 –George T. Milkovich and John W. Boudreau

Though different authors have defined HRM differently, they have all emphasized the effective utilization of the workforce for accomplishing the organizational and individual goals and objectives. Some of these definitions of HRM are mentioned in Box 1.2. To sum up, we can say that HRM is concerned with policies and practices that ensure the best use of the human resources for fulfilling the organizational and individual goals.

Objectives of HRM The primary objective of HRM is to take care of the work life of the employees from the time they join the organization to the time they leave it, while ensuring their best possible cooperation in achieving the organizational goals and objectives. This broad objective of HRM can be classified into the following specific ones: 1. To act as a liaison between the top management and the employees 2. To arrange and maintain adequate manpower inventory, which, in turn, ensures the smooth working of the organization 3. To offer training as a way of developing skills, enhancing productivity and, most importantly, increasing individual and organizational performance to achieve the desired results 4. To devise employee benefit schemes for improving employee motivation and group morale and enhancing employer–employee cooperation 5. To ensure and enhance the quality of work life, which refers to the employees’ perception of their physical and psychological well-being at work 6. To help keep up ethical values and behaviour amongst employees both within and outside the organization Box 1.3 describes the HR objectives of the Tata group.

INTRODUCTION TO HUMAN RESOURCE MANAGEMENT

Box 1.3

HR Objectives of the Tata Group

A Tata company shall provide equal opportunities to all its employees and all qualified applicants for employment without regard to their race, caste, religion, colour, ancestry, marital status, gender, sexual orientation, age, nationality, ethnic origin or disability. HR policies shall promote diversity and equality in the workplace as well as compliance with all local labour laws, while encouraging the adoption of the best international practices. Employees of a Tata company shall be treated with dignity and in accordance with the Tata policy of

maintaining a work environment free of all forms of harassment, whether physical, verbal or psychological. Employee policies and practices shall be administered in a manner consistent with the applicable laws and the other provisions of this code, respect for the right to privacy and the right to be heard, and that in all matters equal opportunity is provided to those eligible and that decisions are based on merit. Adapted from: http://www.tata.com/aboutus/ articles/inside.aspx.

Scope of HRM The scope of HRM is extensive and exhaustive. An understanding of HRM is important to anyone who is employed in an organization. HR issues become important wherever there is a group of workers. Staffing is performed by all the managers as a managerial function, either directly or indirectly through the HR department. All managers are, in this way, HR managers since they get involved in HR activities like choosing, training, inducting, compensating and motivating the employees along with industrial relations activities. Thus, they must understand the scope and application of the personnel policies of their organization in order to ensure that their everyday personnel actions are consistent with those policies as any violation of such policies may get them into confrontations with their subordinates. Further, knowledge of the basics of HRM is important even to non-managerial employees as they may be keen to know the impact of the personnel policies of their organization on their own compensation, training and career growth aspects. Thus, the personnel aspects of management run through the entire organization. The Institute of Personnel Management (IPM)7 has mentioned the scope of HRM as follows: Personnel or Labour Aspect The first aspect deals with manpower planning, recruitment, selection, placement, transfer, promotion, training and development, lay-offs and retrenchment, remuneration, incentives and productivity. Welfare Aspect This aspect is concerned with the working conditions and with amenities such as canteen, crèches, rest- and lunch-rooms, housing, transport, medical assistance, education, health and safety, and recreation facilities. Industrial Relations Aspect This aspect pertains to union–management relations, joint consultations, collective bargaining, grievance and disciplinary actions, and settlement of disputes. In the last decade, there has been a realization amongst managers that good plans, effective organizational structures, impressive plants and modern technologies may not guarantee the success of the organization unless they hire the right persons, train them suitably, appraise them properly, and constantly motivate them to get the desired results. This new understanding

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showed the way for further research in the field of HR aspects, resulting in the development of new techniques and styles of HR management. This has further widened the scope of HRM.

Functions of HRM HRM functions (also called processes) are carried out by the HR managers to fulfil the goals and objectives of the organization. As illustrated in Figure 1.1, they perform two sets of functions, namely managerial functions and operative functions. The managerial functions are the basic functions performed by the HR managers in their capacity as managers or heads of their own departments. In fact, all managers, irrespective of their departments, perform these functions. The operative functions, on the other hand, are specialized activities performed exclusively by the HR managers, usually for all the departments. We shall first discuss the managerial functions.

Managerial Functions Functions like planning, organizing, staffing, directing and controlling constitute the core managerial functions of an organization. The specific activities performed under each of these functions are explained as follows: Planning It is an effective tool to deal with the future. It involves the process of predetermining the personnel programmes that are necessary to attain the organizational goals. In this context, accurate forecasting is vital to the success of any plan. Planning is such a crucial function for an organization that it is the key to all other managerial functions. The steps involved in planning are • Establishing goals and objectives to be achieved • Developing rules and procedures • Determining plans and forecasting techniques

Functions of HRM

Operative Functions

Managerial Functions • • • • •

Planning Organizing Staffing Directing Controlling

Figure 1.1 Functions of HRM

• • • • • •

Procurement Development Compensation Maintenance and motivation Integration Industrial Relations

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Organizing Once the plans are formulated, the next step is to organize the men and material in order to accomplish those plans. Organizing is a process through which the firm establishes its structure and determines the authority, responsibility and accountability of each member in relation to the job. Thus, organizing involves • Giving each member a specific tasks • Establishing departments and divisions • Delegating authority to the members • Establishing channels of authority and communication • Creating a system to coordinate the works of the members Staffing This function deals with the creation and maintenance of human resources through employment, compensation, benefits, training and development, and industrial relations measures. It aims to put in place HR policies in order to deal with wage fixation, working conditions, and promotional opportunities for prospective employees. The steps involved in the staff function are • Determining the type of people to be hired • Recruiting prospective employees and selecting the best ones from them • Compensating the employees • Training and developing the employees • Setting performance standards and evaluating the employees’ performance • Counselling the employees Directing Directing is the sum of several activities like communication, leadership and motivation. Directing, as a function, aims at securing willing cooperation from the individuals and the groups to achieve the predetermined goals. It includes the following activities: • Getting work done through subordinates • Ensuring effective two-way communication for the exchange of information with the subordinates • Motivating subordinates to strive for better performance • Maintaining the group morale Controlling Controlling is the process of checking the efficiency of the individuals and the groups in fulfilling the plans and goals through follow-up measures. It is essential for continuous improvement in the managerial activities. The processes involved in controlling are • Establishment of standard performance • Measurement of actual performance • Comparison of actual performance with the standard one to find the deviation • Initiation of corrective actions, if there are any deviations Next, let us look at the operative functions.

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Operative Functions Staffing is one of the managerial functions. But this function is normally performed by the HR managers for all the departments of the firm. In most organizations, the HR department establishes personnel policies and coordinates the HR functions of all the departments. This function is also called the operative function or HRM function. It includes, amongst others, the processes of hiring, training, compensating, appraising and retaining employees, and attending to their labour relations, health and safety, and equality concerns (see Fig. 1.2). Andrews8 has carried out a detailed study on the functions of HRM and commented: In most organizations, the personnel or HR department establishes policies and coordinates functions such as job analysis, personnel planning, the recruitment and selection of employees, training and development, performance appraisal, compensation and employee benefits, labour relations, employee discipline and control, and occupational health and safety. We shall now discuss the operative functions of HRM. Procurement Procurement refers to a series of activities undertaken by the HR managers for filling the present and future vacancies of the organization. The activities include job analysis and designing, HR planning, recruitment and, finally, the selection of suitable employees. Here, job analysis refers to both the determination of specific tasks and responsibilities connected to a job and identifying the skills, knowledge and abilities required for the job holder. HR planning involves choosing and placing the right person at the right job and

Operative Functions of HRM

Procurement

Development

• Job analysis and design

• Career planning and development

• Human resource planning

• Workers’ training

• Recruitment

• Executive development

• Selection • Placement • Orientation

• Organizational development

• Socialization

Compensation • Job evaluation

Maintenance and Motivation

• Performance evaluation

• Employee wellbeing

• Wages administration

• Social security

• Incentives and benefits

• Workers’ participation • Motivation • Job rotation • HR records, research, and audit • HR information system

Figure 1.2 Operative Functions of HRM

Integration • Industrial relations • Discipline • Grievance redressal • Dispute settlement • Collective bargaining

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at the right time. Recruitment involves gathering a pool of applicants from which suitable employees may be selected. Lastly, selection involves screening, testing, interviewing and hiring the most suitable employees for the organization. Development Development here refers to both employees’ training and management development. HR managers are responsible for conducting and supervising training and development programmes for employees. The purpose of a training and development programme is to increase the employees’ competencies in their job by improving their knowledge, skills and abilities. Training and development is widely accepted as a method for enhancing the employee skills, increasing the individual and organizational performance, improving the employee morale, and achieving the business growth and success. Compensation Compensation refers to the determination of the pay scale and other benefits for the employees. Establishing and maintaining the pay system of an organization is one of the principal jobs of the HR managers. They must devise ways to ensure fair and equitable pay rates. In addition, HR managers should regularly manage the performance evaluation system of the organization, and continuously design reward systems such as performancelinked incentive plans and bonus and flexible work schedules. Box 1.4 outlines the flexible schedules offered by companies like IBM. Maintenance The maintenance function aims at retaining efficient and experienced employees in the organization. This calls for creative HR practices. In this regard, HR managers are responsible for offering a wide range of HR programmes covering occupational safety, health promotion and physical fitness, canteen facilities, recreation activities, transportation programmes, employee suggestion schemes, career counselling and growth for creating a positive work environment. Box 1.5 highlights one of the HR policies of Infosys. Integration It consists mainly of industrial relations and aims at ensuring good relations between the management and the employees. HR managers have to implement industrial relations programmes that would ensure ethical and fair treatment in disciplinary action, grievance redressal, and career management processes. They should also counsel the employees and the management to prevent and, when necessary, resolve disputes over labour agreements or other labour relation issues. It is to be understood here that the functions of HRM can vary widely from one organization to another, depending upon its nature, size, and objectives. For instance, a smaller organization may follow a shorter HRM process with a greater emphasis on functions like Box 1.4

Mobile Working at IBM

One of the ways companies retain their employees is by offering them flexible work schedules and the option of working from home. A company that has consistently been appreciated for this benefit is IBM. Some of IBM’s workplace flexibility programmes include individualized daily work schedules, flexible (or compressed) work-weeks, regular part-time, remote/mobile work options and mobility allowances. Employees are offered

support services so that even if they work from home, they stay connected. Be it downloading files, checking and replying to mail, or linking to the electronic library, IBM workers can dial into the IBM network and get connected. People can opt to work at home in case of personal emergencies as well. In India, IBM has offered mobile work options since 2003. Adapted from: www.ibm.com./innovation/in/hr.

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Box 1.5

HR and the Well-being of Employees

One of the HR policies really appreciated by employees is that pertaining to their families’ health and safety. Increasingly, companies are providing life insurance and accident coverage that will help reassure their employees and give them a sense of security. Infosys is a good example. Starting from 2002, it has a tie-up with the Life Insurance Corporation of India that provides adequate coverage for all its employees. The coverage

levels have substantially risen over the years, in tune with the overall Infosys social security and employee benefit initiatives. In 2008, the coverage amount was a record-breaking Rs. 240,000 million. As Mohandas Pai, the HR head of Infosys, said, “Infosys believes in providing adequate life, accident and medical insurance cover to its employees in a holistic measure.” Adapted from: www.rediffmail.com.

procurement and compensation and little or no priority for activities like training and development and industrial relations maintenance. On the contrary, large organizations may pursue a longer and more comprehensive HRM process to meet the requirements of both the management and the workforce. Box 1.6 shows the HR statements of select companies.

HRM and Personnel Management (PM) The difference between HRM and PM is a subject of discussion amongst HRM experts. They do not hold identical views about the similarities and dissimilarities between HRM and PM. According to Lowry,9 for example, PM and HRM are the successive stages of the same concept without any difference in the concept. In his words, “Human Resource Management is just the continuing process of personnel management – it is not different.” Box 1.6

Relevance of HR Statements

HR statements of a company are viewed by the present employees and the prospective candidates for future jobs in that company largely as an indication of the management’s preference, desire and attitude vis-à-vis its human resources. The HR statements of BHEL and Voltas have been presented as instances of this. Human Resources at BHEL HR Purpose Development of a committed and motivated workforce setting new benchmarks in terms of productivity, quality and responsiveness. HR Process Every employee is given an equal opportunity to develop himself and grow in terms of his career through continuous training and retraining, career planning, a positive work culture, and participative style of management.

Human Resources at Voltas HR Philosophy The HR philosophy of Voltas is based on its strong belief that the well-being of the company and that of its people are interdependent; and that the company’s most valuable assets are its people. HR Policies • To employ the most competent on the basis of merit • To ensure that every employee is treated with dignity and respect, and in a fair, consistent, and equitable manner • To create a stimulating, enabling and supportive work atmosphere • To aid and encourage employees in realizing their full potential Adapted from: www.bhel.com and www.voltas.com.

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But another HR expert differed with this contention and identified major differences between HRM and PM in the areas of management’s responsibility, skill acquisition, reward management, planning perspective, conflict perception, and so on.10 Let us look at the similarities first.

Similarities between HRM and PM The basic elements common to HRM and PM are as follows: Business Strategy Both form the basis for the evolution of HR and PM strategy. Matching People Choosing the right people for the right job and developing them to achieve their maximum level of competence remain the priority of both HRM and PM. Prominence of Line Authority HRM, similar to PM, recognizes that the primary responsibility for managing people stays with line managers. Identical Core Elements Techniques like selection, training, development, compensation and performance management are common to both HRM and PM. Emphasis on Communication and Participation HRM and PM provide equal importance to the communication process and workers’ participation in decision making. We shall now discuss the differences between these two concepts.

Differences between HRM and PM The differences between HRM and PM have been given in detail in Table 1.2.

HRM as a Profession Not long ago, personnel managers were often assigned the “people functions” in an organization because they did not have the talents to work in production, finance, marketing or other important areas.11 The ability to get along with people was considered as the major qualification for appointing a person as a personnel executive. Companies often staffed the HR department with managers who did not have professional training or college education. However, HRM functions now occupy a much more important position in most organizations. Many universities, colleges and business schools offer a variety of HRM courses. Slowly but surely, HRM is emerging as a profession. Let us now discuss how HRM fares as a profession in fulfilling the following criteria.

An Organized Body of Knowledge HRM now has well-defined principles, concepts, theories and practices. There has been a tremendous increase in the knowledge about HRM in recent years. An HR manager cannot perform his job effectively without proficiency in these concepts and principles.

Formal Education and Training Several schools of thought and institutes of management have emerged to provide formalized education and training to the aspirants in HRM. For instance, the National Institute of Personnel Management (NIPM) at Kolkata is one such institute with several regional councils and a large number of members. It endeavours to promote professionalism amongst its members.

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Table 1.2 Differences between HRM and PM

1. HRM is proactive in nature. It is not only concerned with PM is mainly reactive in nature. It satisfies itself by the present organizational conditions but foresees future ensuring peaceful labour–management relations in the present. necessities and then acts appropriately. 2. HRM, as a resource-centred activity, focuses more on the PM, which is basically employee-centred, aims at hiring, managerial aspects, in terms of delegating the responsibility training, compensating and maintaining the existing of HRM to line authority and management development. workforce of the organization. 3. HRM emphasizes open-ended contracts, which can be modified depending upon the demands of the business. Management assumes the responsibility to motivate the employees and constantly inspires performance based on team spirit.

PM emphasizes the strict observance of defined rules, procedures and contracts that govern the relationship between the workforce and the management; for example, collective bargaining and employment contracts.

4. HRM is based on the principle that better performance PM considers job satisfaction and morale as a source of itself is a cause of job satisfaction and morale. better performance. It works on the foundation that a contented worker is a productive worker. 5. HRM seeks to develop the competencies of the employees PM is a regular, status quo-based administrative funcon a sustained basis. Skill formation and development are tion: Employees get uniform rewards based on job evalurecognized as the main characteristics of HRM. ation and job worth. 6. HRM emphasizes autonomous work groups, challeng- PM emphasizes monetary rewards and conventional job ing jobs, and creativity for motivating the people. The designs like job simplification and rotation to encourage management assumes the responsibility to motivate the people to improve their performance. employees and continuously encourage the performance based on unity of goals.

Existence of Association The Medical Council of India acts as a regulatory body for medical professionals. Similarly, the NIPM prescribes a code of conduct for personnel managers. The Government of India has established a separate ministry to regulate the activities of HRM institutions.

Existence of an Ethical Code Every member of a profession should observe a code of ethics prescribed by his regulatory authority. As far as HRM is concerned, the NIPM sets a code of conduct for its members. The code lays down the duties, ethical norms, dos and don’ts for the members.

Charging of Fees The main obligation of a professional is to serve the community. He must not think in terms of personal gain. He must not accept or offer any improper gratification in any form or manner. HR managers are also expected to uphold the honour, integrity and dignity of the profession. Though these developments clearly bring the HRM close to be called a profession, it cannot qualify as one in the full-fledged sense of the term. For, unlike chartered accountants and medical practitioners, an HR professional does not require any definite academic qualification to become one. Further, there is no statutory professional body available to regulate the entry of people into the profession. The NIPM has no formal authority to regulate the entry of its members. In the words of Guest and Horwood:

INTRODUCTION TO HUMAN RESOURCE MANAGEMENT

It is tempting but wrong to view personnel managers as homogeneous. Their different backgrounds and fields of operation raise doubts about the value of a professional model and of any attempt to view personnel problems as amenable to solution through a primary focus on professionalism.12 Still, more and more people are taking an interest in HRM and viewing this as a career. Given this scenario, let us look at the qualities of an HR manager.

Qualities of an HR Manager HR managers have to perform several roles to discharge their duties and responsibilities. For instance, they have to act as recruiters, placement specialists, training and development specialists, employee welfare experts, employee benefits’ specialists, compensation and job analysis specialists, labour relations experts and human resources information system specialists, apart from being good counsellors. For instance, Armstrong13 points out that HR practitioners have to play the roles of business partners, strategists, interventionists, innovators, internal consultants, monitors and volunteers (proactive role). The successful performance of the diverse HR tasks would require a multi-disciplinary knowledge for the HR managers. It would be good for them to have a working knowledge in the fields of business administration, law, behavioural sciences, industrial psychology, sociology, political science, economics, statistics, engineering, finance and computers. Apart from these, they would require the following personal and job-related qualities and skills to become effective performers.

Knowledge Knowledge helps one gain respect. The HR manager must be an expert in his own field to gain the confidence and respect of his subordinates. He must have a comprehensive knowledge of concepts, principles and theories relating to HRM and other related fields. But, mere possession of this knowledge is inadequate; the HR manager must have practical exposure to these concepts and principles in real-life situations.

Intelligence Intelligence means the mental ability to properly understand the nature of the problem existing in a situation or event which may require a solution. The HR manager should be able to understand the situation quickly and to act decisively before it becomes unmanageable. He should also be able to properly examine the situation to distinguish the real problems from the ones that are merely made to appear important.

Communication Skills The role of any manager is to get work done through others. An HR manager is no exception to this. He must have good communication skills to share his ideas effectively with the employees and to persuade them to work towards the organizational goals successfully. Thus, it is essential for the HR manager to have good communication skills to achieve better cooperation and unity. It is also desirable for him to have a functional knowledge of the languages of the employees to effectively communicate with them.

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Objectivity and Fairness The HR profession is unique. The HR manager has to serve the interest of both the management and the employees. Hence, he should observe strict impartiality and honesty in all his transactions. He is required to act only on the basis of relevant facts and information. Moreover, he has a moral responsibility to protect the rights and privileges of the relatively weak workforce.

Leadership and Motivational Qualities To lead is to influence. The HR manager should possess the ability to influence the employees towards the achievement of goals and targets. He should also be a good motivator. He must have the necessary skills to constantly motivate the employees to strive for better performance.

Emotional Maturity It is often difficult to predict the responses of human beings. They usually behave differently in different situations. Hence, it is essential for the HR manager to have emotional maturity and tolerance in dealing with the employees. He must show parental care in attending to their needs. He should not have any ill-feelings towards any employee on the basis of his past behaviour. He should always be rational and not emotional in his approach.

Empathy Empathy pertains to looking at events or situations from the others’ point of view. The HR manager should learn to view the issues affecting the employees from their perspective too. He should not only rely on his formal authority in dealing with the employees’ grievances but use his informal relationship as well in settling them. He should honour others’ opinions, sentiments, rights, beliefs and values. In addition to these qualities, the HR manager should have a good character, personality, physical strength, and stamina for effectively discharging his duties. Having seen the notable qualities of the HR managers, we shall now discuss the differences in their duties and responsibilities as line authorities and staff advisors.

Line Versus Staff Authority of HRM Staffing, which is one of the managerial functions, is generally performed by all managers. This is because the managers are normally involved in the process of acquiring, training and assessing the employees of their own department. In fact, line managers handle all aspects of HR activities in small organizations, while in large organizations, the top management normally establishes an exclusive HR department to develop and manage HR programmes and policies. The line managers in these firms seek the advice of the HR department in handling labourrelated matters. Gary Dessler classified the line managers’ responsibilities for effective HRM under the following general headings:14 1. Placing the right person on the right job 2. Starting new employees on the organization (orientation) 3. Training the employees for jobs that are new to them

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4. Improving the job performance of each person 5. Gaining creative cooperation and developing smooth working relationships 6. Interpreting the policies and procedures of the company 7. Controlling labour costs 8. Developing the abilities of each person 9. Creating and maintaining the department morale 10. Protecting the employees’ health and physical condition When an organization has separate functional HR departments, the HR managers have to perform the task of line managers for their own department and act as staff advisors for line managers of other departments. We shall first see the meaning of the important terms concerned with line versus staff authority before discussing the role of HR managers in these capacities. Authority The term refers to the right to influence the activities of the subordinates or take decisions concerning them and to issue instructions or orders pertaining to their work. Line Manager Line managers are those who are empowered to direct the work of the people assigned to them. Further, line managers are directly responsible for accomplishing the departmental goals and corporate objectives. Examples of line managers are production manager, purchase manager and sales manager. Staff Advisor Staff advisors are those who play an important role in advising and assisting the line managers in accomplishing the basic goals. Theoretically, the suggestions given by the staff advisor to the line managers may or may not be accepted by the latter. Figure 1.3 shows the line and staff responsibilities of the HR managers.

General Manager

Production Manager

Worker 1

Worker 2

Staff advisor

Worker 3

Worker 1

Figure 1.3 Line-Staff Responsibilities of HR managers

HR Manager

Worker 2

Staff advisor

Worker 3

Worker 1

Sales Manager

Worker 2

Worker 3

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The Role of the HR Manager as a Line Authority The HR managers apply their line authority within the HR departments. In other words, the HR managers direct the activities of the people in their own department towards the accomplishment of specified goals. These managers cannot exert line authority outside their department.

The Role of the HR Manager as a Staff Advisor In their capacity as staff advisors, the HR managers counsel the line managers on matters concerning labour issues in their respective departments. They assist line authorities in hiring, training, appraising, awarding, counselling and terminating the employees. Whenever industrial relations are affected by disputes, grievances and indiscipline, HR managers are called in to play an important role in handling those grievances and in harmonizing the labour relations. HR managers assist in HR-strategy design and execution by helping the top management take a closer look at the personnel aspects of the organizational activities. The HR department is also responsible for various incentive schemes and benefit programmes. Further, the HR managers educate the line managers about the right ways to treat the employees, including listening to their problems and understanding them, settling their grievances, and making them feel important in the organization.

The Future Role of HRM HRM has been expanding in its area of activities ever since the days when management began to include welfare and personnel departments in the organizational structure. Today, the responsibilities of the HR department have grown to be broader and increasingly pragmatic. Moreover, the advent of economic reforms in the form of globalization, liberalization and privatization in our country has changed the very profile of organizations. Today, HR managers have to think beyond traditional activities like personnel planning, welfare measures, and industrial relations. The HR managers of tomorrow need to be familiar with the operational aspects of the organizations such as strategic planning, competitive pressures, return on investment, and cost of production, to name a few, besides their own field. In brief, they must be prepared to function from the higher levels of the management in close coordination with the top management in designing and implementing the HR plans and strategies. We shall now discuss the future role and challenges of HR managers.

Change in the Nature of Work Technological developments are changing the very nature of work. Due to technological advancements, even traditional jobs have become technologically challenging. These changes require the employment of more educated and more skilled workers in these jobs. Further, the service sector, which is fast emerging as the major provider of employment in our country, requires the use of knowledge workers. For HR managers, these developments indicate an increasing importance of human capital and knowledge workers. These new breeds of better-informed employees will expect unconventional and world-class HR practices and systems. HR managers must have plans and strategies to meet the changing

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expectations of these new-generation employees. They should also be prepared to handle the emerging work culture, which keeps employees more focused on their individual career prospects. Similarly, due to rapid social transformation, an enhanced access to education and increased labour mobility, the workforce profile of the country has changed dramatically and organizations now represent several heterogeneous groups. For instance, the proportion of women, religious minorities, physically challenged and socially backward people in the workforce has increased dramatically. This is a direct challenge for the HR managers as they now have to deal with culturally and racially diverse work groups. Many firms are now compelled to initiate new gender-specific and target-based HR policies to serve the interests of different sections of the employees. Box 1.7 outlines the diversity at IBM.

Widening Scope of HR Activities Human resources activities are getting integrated at the global level. Globalization and deregulations have deeply affected the functioning of traditional HRM. Organizations, in their pursuit of new markets and greater cost-effectiveness, extend their sales, production facilities, and supporting services to new destinations in several countries around the world. HR managers must have adequate dynamism and action plans to help these organizations successfully integrate their global HR operations. They must also ensure effective coordination amongst and control over the labour forces working in different countries.

Greater Emphasis on HRIS The organizations of the future will be large due to world-wide mergers and acquisitions. The sheer size of an organization may compel the HR department to computerize its HR operations like recruitment, training, appraising and pay-roll preparations. Thus, large companies may require an integrated Human Resource Information System (HRIS) for effectively coordinating their different HR operations. HRIS actually means “interrelated components working together to collect, process, store and disseminate information to support decision making, coordination, control, analysis and visualization of an organization’s

Box 1.7

Diversity Celebrations: An Innovative HR Programme

Differences in race, gender, geographic origin, culture, lifestyle, age, disability, economic status, marital status, and religion make employees an assorted workforce. This situation requires HR managers to create a business environment that recognizes and leverages the individual differences amongst employees and puts in place target-specific HR practices to attract, retain and motivate the dynamic and heterogeneous workforce. The success of IBM’s HR policies meant for special categories such as women and the differently disabled is worth mentioning here. IBM recognized the variety

in its workforce and made a commitment to provide an equal workplace to individuals who are differently able and need special care. In this regard, IBM organizes several diversity celebrations such as the International Women’s Day, Take Our Kids to Work Day, the Women’s Leadership Conference and the World Disability Day. In addition, it has launched two new child-care centres, a home-care project and Exploring Interests in Technology and Engineering (EXITE) camps for middle-school girls to make a difference in the world through mathematics, science and technology. Adapted from: www.ibm.com./innovation/in/HR.

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Box 1.8

Stemming Skill Shortfall

One of the toughest challenges facing the organized sector today is the availability of skilled labour force. HR people are worried about the overall skill scenario confronting the organized sector. For instance, over the next 10 years, 30 per cent of the present work force will retire. In the service sector alone, a quarter of the million people who work for the financial services sector will retire over the next 5 years. This problem is more acute amongst the information technology companies as most of the companies in this sector are on a hiring spree to support their ambitious growth plans. Consequently, organizations are fine tuning their HR programmes to meet the challenges arising out of skill shortfalls. The HR plans of Infosys to surmount these problems deserve to be mentioned.

As part of its HR strategy, Infosys organizes the “Campus Connect” programme to improve the industryreadiness of students while they pursue a regular education. It has partnered with 250 colleges in India and four universities in China, and helped 188 faculty members with specialized courses. Further, to ensure availability of skills in line with their needs, it makes sure that the new employees undergo training for about 15 weeks before being deployed on engagements. To upgrade the skills of its staff across the board, it offers “competency certification programme,” which is aimed at certifying its employees in various industry domains, technologies and project management processes. The certifications are mandatory for the future growth of employees. Adapted from: www.rediff.com/money/2006/jun/ 22infy.htm.

HRM activities.”15 Future managers should be familiar with HRIS operations. HRIS can help an organization in several ways. For instance, HRIS can relieve HR managers from routine activities as the system takes over the task of updating the employee information. It can also help the HR department produce a variety of reports in a short span.

Change in Labour Market Conditions The increased industrialization of the country has thrown up many challenges for HR managers. Uneven economic development has resulted in the large-scale unemployment of unskilled and under-skilled persons on one side and a severe shortage of competent people on the other. This dichotomy in labour may compel HR managers to reduce their focus on the short-term needs of the organization and to concentrate more on fulfilling the long-term capability requirements such as skill development and knowledge formation amongst its existing workforce. Box 1.8 shows the skill development efforts at Infosys.

Increasing Importance of High Performance Work Systems (HPWS) Globalization is bringing about a tremendous change in the size, structure, composition, and style of functioning of organizations so as to meet an intensified global competition. In fact, more globalization means more competition for a firm. This in turn puts increased pressure on an organization to improve its employees’ productivity. This calls for the adoption of effective HR practices by HR managers. In this regard, the HR management needs to focus on evolving an integrated set of effective HR policies and practices that produces superior employee performance. Thus, HR managers, with the help of dynamic HR policies, should develop HPWS that maximizes the competencies, commitment and abilities of the firm’s employees.16 Box 1.9 outlines the elements of HPWS.

INTRODUCTION TO HUMAN RESOURCE MANAGEMENT

Box 1.9

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Elements of HPWS

In increasing the number of instances, companies are able to attain great successes by establishing HPWS within their organizations. HPWS usually include elements like an emphasis on high-quality work, job security, careful selection process, comprehensive training, decentralized decision making, reduced status difference between superiors and subordinates, information sharing, payfor-performance, dynamic leadership, inspirational motivation, and measurement of management practices. Tata Business Support Services is one of the best examples of developing and maintaining a successful

HPWS. The elements included in the Tata Business Support Services’ HPWS are multiple recruitment methods to source best talents at all levels, highperformance orientation and performance-linked rewards, continuous learning and development opportunities for employees,continuous employee engagement initiatives,attention on retention and not on attrition, and, lastly, ensuring employees’ strict adherence to the Tata code of conduct. Adapted from: www.tata-bss.com/people2.htm.

Growing Need for Measurement Tools to Evaluate HR Programmes The inherent weakness of HRM is the absence of reliable and effective yardsticks for measuring the performance of HR programmes. The top management expects HR managers to express their plans and performance in measurable terms. Thus, there is an urgent need for HR managers to provide concrete and quantified evidence that their department is contributing in a significant and constructive way to the accomplishment of organizational goals and objectives. HR managers’ focus in the future will be on the development and introduction of reliable and accurate HR tools to measure the efficiency of HR functions. A prudent understanding and efficient management of these challenges are pre-requisites if HRM is to add considerable value, show business results, enact professionalism, and reveal fresh competencies in the future.

Summary 1.

2. HRM is concerned with the policies and practices that ensure the best use of the human resources to fulfil the organizational and individual goals. 3.

The primary objective of HRM is to take care of the work life of employees even while ensuring their best possible co-operation for achieving the organizational goals and objectives.

4. The personnel aspects of management run through the entire organization. All managers are, in a way, HR managers as they get involved in HR activities such as choosing, training, inducting and compensating employees. 5.

of planning, organizing, staffing, directing and controlling; and operative functions consisting of procurement, development, compensation, maintenance and integration.

Human resources refer to the knowledge, education, skills, training and proficiency of the members of an organization.

The functions of HRM are classified into two categories. These are managerial functions consisting

6.

PM, an employee-centred activity, is mainly reactive in nature whereas HRM, a resource-centred activity, is proactive.

7.

Although HRM is close to be called a profession, it cannot qualify as a full-fledged profession.

8. HR managers perform the task of line managers for their own department and act as staff advisors for line managers of other departments. 9.

HR managers need to be familiar with strategic planning, competitive pressures, international HR activities, HRIS, changing characteristics of the labour market, HPWS and workforce diversity.

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Review Questions Essay-type questions 1. Classify and explain the managerial functions of HRM. 2.

Evaluate the operative functions of HRM with examples.

10. Briefly discuss the implications of change in the profile of people, technology and environment on managing people in organizations. Suggest measures to make HR management in India more effective. 11. “HRM is a professional work.” Do you agree?

3. “HRM is a staff function but a line responsibility.” Comment.

12.

State the qualities required to be a successful HR manager.

4. “HRM is a basic responsibility of every manager.” Elucidate.

13.

Explain the importance of the HRM function. Can it be outsourced?

5. “HRM seeks to achieve personal and social goals.” Outline the major functions of HRM. 6. “HR function plays a vital role in the whole scheme of management of an industrial organization.” Discuss. 7.

Evaluate the future role of HRM in India.

8. “HRM involves all management decisions and practices that directly affect or influence the people who work for the organization.” Discuss. 9. Discuss the importance of HRM in the contemporary business environment with special reference to India.

14. “As a result of globalization and liberalization, HRM has acquired strategic importance in organizations.” Discuss. 15. What are the recent trends in management of human resources? Also explain the status of HRM in Indian industry with examples. 16.

In the changing corporate scenario, what place is accorded to HRM as a function? How does it affect the effectiveness of function as such? Analyse.

Skill-development Exercise Objective – The objective of this exercise is to show you how to design and apply modern HR concepts more effectively in a specific situation to improve employee satisfaction, cooperation and performance. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager, (2) two HR team members, (3) two union representatives, and (4) two observers of the meetings. The role of the observer is to observe and report on the various aspects of the role-playing sessions. Situation Mukesh joins as the HR manager of Spike Tyres and Tubes Limited. When he interacts with the employees of the company as part of the familiarization process, he finds out to his dismay that almost all the employees have one grievance against the organization or another. His subordinates in the department also inform him that the employees are

never satisfied with the benefits offered to them. Peculiarly, when some benefits are given to one group of employees, the other groups become restive and demand benefits. For instance, when educational allowances are provided to the younger employees to pursue higher studies, the older ones get upset. The situation turns the other way round when retirement benefits are significantly increased. Further, the women, who have joined the company in large numbers in recent years, have a grudge that the company has no women-specific welfare measures like child-care centre and maternity benefits. However, when Mukesh scrutinizes the HR policies of the company, he realizes that the HR polices are the major source of troubles as they are oldfashioned and do not suit the diversified and well-informed workforce of today. Thus, he decides to conduct meetings to discuss the alterations and improvements required to be made in the HR policies and procedures in tune with the changing nature of the workforce.

INTRODUCTION TO HUMAN RESOURCE MANAGEMENT

Steps in the exercise There are three steps in the exercise: Step 1: The HR manager meets the union representatives (or select workers in a non-unionized firm) to ascertain their views on the proposed changes to the existing HR policies.

21

Step 2: The HR manager convenes a meeting attended by two HR team members to finalize the changes to be incorporated in the HR policies. The updated HR policy will subsequently be sent to the top management for approval. Step 3: Observers analyse and provide feedback on the performance of the members in the role-playing session.

Case Study Plight of an Intelligent Management Trainee X-Look Company is a fast-growing textile company with an annual turnover of Rs 1,200 million and has a strong workforce of 950 employees. The HR policy of the organization provided clear guidelines to the HR department regarding how different HR functions are to be performed. As regards the recruitment of managerial people, the policy recommended direct recruitment for entry-level categories like junior managerial positions preferably through campus interviews while the suggested course for filling the senior managerial positions was through internal promotions. Mr Malhotra, a topper in the production engineering discipline, was chosen as a management trainee by the company in one of its campus interview programmes. As per the terms and conditions of his employment, Malhotra was to undergo on-the-job training for a probationary period of one year. His eventual appointment as an assistant manager in any one of the engineering departments would be decided on the basis of the performance evaluation to be conducted at the end of the probationary period. He was posted to the Research and Development (R&D) department and was reporting to Mr Ravi Shankar, the head of R&D. Malhotra was keen to excel in the job and worked with zeal and vigour. Obviously, his behaviour and performance was widely appreciated by many in the firm including his own peers in the training programme. Mr Ravi Shankar was also impressed by Malhotra’s smartness, commitment and contribution. Thus, Ravi Shankar was willing to recommend Malhotra’s name for any of the important assignments of the company befitting his knowledge and sincerity after he completed his training period. Quite unexpectedly, the post of design manager in the firm suddenly fell vacant due to the untimely demise of its incumbent. Mr Ravi Shankar strongly believed that Malhotra would excel in this post given his knowledge, skill and creativity despite his lack of experience and thus, strongly favoured him for the post. In this regard, he sought an exemption

from the existing HR policy which stipulated that the trainees ought to be considered only for assistant manager cadre after they complete their training programme successfully. Further, he also requested the management to instruct the HR department to conduct an immediate evaluation of the training performance of Malhotra to make him available for the vacant position on time. The management obliged Ravi Shankar and instructed the HR department to conduct the post-training evaluation for Malhotra and send a report in this regard to it at the earliest. The HR department promptly conducted the evaluation and forwarded its report. As the report was very positive, management moved in quickly to appoint Malhotra as the design manager by treating his case as an exceptional one. However, the decision of the management did not go down well with other employees including management trainees as they began to feel that Malhotra was unduly favoured. Even those people who earlier appreciated Malhotra’s performance and behaviour soon changed their mood and turned against him. Consequently, they began to express their dissatisfaction in all possible forms and forums. Management could clearly discern the general mood of the employees and became anxious over the negative fall out of its decision. It has also witnessed a perceptible decline in the team spirit, interest and commitment of the employees, in general, and the management trainees in particular. With the mounting criticism of its action, the management began to think that it has no choice other than back-tracking on its own decision. After dilly-dallying for some time, the management finally decided to shift Malhotra to a lower cadre and keep him there for some time before being elevated again to some higher position. However, the news of his imminent removal from his new position completely demoralized the young and energetic Malhotra and he began to wonder how

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his removal would be viewed and interpreted by other trainees. To avoid his unceremonious exit from the present post, Malhotra resigned his job voluntarily and quit the firm abruptly. Malhotra, a brilliant engineering graduate, who joined the organization with high hopes and proved himself an excellent employee during the training, now finds his career in shambles. Sadly, the management of X-Look also lost an efficient and enterprising employee. Looking back at the whole episode, the company realized that it had not properly considered the human element involved

in all its decisions concerning Malhotra and was merely guided by the mechanical elements. Discussion Questions 1.

According to you, what is the root cause of the problem in the Malhotra episode and who is to be blamed for his present troubles?

2.

If you had been Malhotra, what would have been your response to these developments?

3. What steps should the management take to avert the recurrence of such situation in the future?

Notes 1. Michael J. Jucius, Personnel Management (Homewood, IL: Irwin Professional Publishing, 1980), p. 40. 2.

Leon C. Megginson, Personnel and Human Resources Administration (Homewood, IL: Irwin, 1982), p. 6.

3.

Edwin B. Flippo, Personnel Management (New York: McGraw-Hill, 1984), p. 5.

4.

Institute of Personnel Management, Personnel Management in India (Bombay: Asia Publishing House, 1973), pp. 29–30.

5.

David A. Decenzo and Stephen P. Robbins, Personnel Human Resource Management, 3rd ed. (New Delhi: Prentice Hall of India Learning, 1973), p. 3.

6. George T. Milkovich and John W. Boudreau, Human Resource Management (Homewood, IL: Irwin, 1998), p. 6. 7.

Institute of Personnel Management, Personnel Management in India (Bombay: Asia Publishing House, 1973), pp. 29–30.

8. Janet R. Andrews, “Where Doubts About the Personnel Role Begin,” Personnel Journal (June 1987): 84.

9. Pat Lowry, “Personnel Management,” Plus (December 1990): 8. 10. D. E. Guest, “Human Resource Management and Industrial Relations,” Journal of Management Studies, 24 (1987): 503–522. 11. Terry L. Leap and Michael D. Crino, Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 18. 12. David E. Guest and Robert Horwood, “Characteristics of Successful Personnel Managers,” Personnel Management (May 1981): 18–23. 13. Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page Limited), pp. 92–96. 14. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 6. 15.

Anthony Hendrickson, “Human Resource Information System: Backbone Technology of Contemporary Human Resources,” Journal of Labour Research, 24(3) (Summer 2003): 381–395.

16. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 84.

CHAPTER

2

Strategic Human Resource Management—A Framework

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the concept of strategic human resource management 2 Understand the models of strategic human resource management 3 Enumerate the benefits of strategic human resource management

Indian Oil Corporation (IOC) has an annual turnover of $59.22 billion. With a rank of 116, it is the highest-ranked Indian company among the global Fortune 500 companies. It has initiated several innovative HR schemes to convert its employees into a formidable source of competitive advantage. In fact, it has bagged the prestigious SCOPE Gold Trophy for Best Practices in Human Resources Management for 2005–06 for its HR practices. The company has made a commitment to enrich the quality of life of its employees. In this regard, IOC made a pioneering endeavour by establishing the Institute of Petroleum Management (IPM) to organize global standard international business management programmes for its executives. The primary aim of IPM is to align its human resources with corporate goals and to fulfil pressing organizational needs. The content and pedagogy of

its unique programmes focus on areas like strategic and general management, human resource management, and operations and technology management to help executives become specialists in fields like strategic human resource management, and enable them to face the present and future corporate challenges successfully. IPM has won several accolades for this path-breaking initiative. For instance, it has received the Golden Peacock National Award for Innovative Training Practices five times. It has also received the Innovative Training Practices award from the Indian Society of Training and Development (ISTD). These efforts of IOC demonstrate its single-minded pursuit to achieve optimum workforce efficiency. In the light of the discussion of the strategic HR initiatives of IOC, we shall now discuss the relevance of strategic human resource management in this chapter.

Introduction Strategic human resource management (SHRM) is about the formulation of HR strategies in alignment with the overall corporate strategy to achieve the goals of the organization.

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It aims at enhancing individual performance and organizational effectiveness. Further, it focuses on the ways and means of connecting HR strategies to business strategy. The ultimate objective of SHRM is to develop the required HR potential by ensuring that the organization possesses adequately skilled, motivated and loyal employees to accomplish its objectives on a sustained basis. The emphasis of SHRM is more on the proactive role through which HR strategies actually contribute to the determination of overall corporate strategies. In that sense, it is different from conventional human resource management, where the focus is on the reactive role and in which HRM is merely a tool for implementing corporate strategy. In strategic human resource management, HR managers act as a strategic partner and function at the top levels of management to formulate and implement strategies for the entire organization. For this, HR managers, in addition to their usual skills and knowledge, should be familiar with the complexities of the operational aspects of the business. Moreover, they should be well prepared and more responsive to the changes occurring in the internal and external environment. They must have plans for the long-term allocation of the company’s HR resources and for matching those resources with the emerging external environment. Finally, SHRM should aim at making strategic HR decisions that have a critical and long-term effect on the success of the organization.

Meaning of Strategic Human Resource Management Strategic human resource management has been defined in various ways by experts. Some of the important definitions are listed in Box 2.1. We may define strategic human resource management as the process of aligning HR strategies with the business strategy to accomplish the performance goals through the employees’ competency and commitment.

Box 2.1

Important Definitions of Strategic Human Resource Management

“Strategic human resource management means formulating and executing human resource policies and practices that produce the employee competencies and behaviours that the company needs to achieve its strategic aims.”1 — Gary Dessler “Strategic human resource management is an approach to making decisions on the intentions and plans of the organization concerning the employment relationship and the organization’s recruitment, training, development, performance management and the organization’s strategies, policies and practices.”2 — Michael Armstrong “Strategic human resource management is concerned with all those activities that affect the behaviour of

individuals in their efforts to formulate and implement the strategic needs of business.”3 — R. S. Schuler “Strategic human resource management is the process of linking the human resource function with the strategic objectives of the organization in order to improve performance.”4 — John Bratton “Strategic human resource management is a pattern of planned human resource deployments and activities intended to enable the firm to attain its goals.”5 — G. C. McMahan

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

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Features of Strategic Human Resource Management The main features of strategic human resource management are as follows: 1. As strategic human resource management is closely associated with goal-setting, policy formulation and allocation of resources, it is performed at top management levels.6 2. Strategic human resource management aims at fulfilling the long-term HR requirements of the organization and, thus, focuses on the expansion of process capabilities (process refers to HR policies and procedures that produce efficiency). 3. It is interrelated with business strategies. For instance, it provides critical inputs to the formulation of business strategy, and specific HR strategies (like recruitment, training and performance appraisal) are in turn shaped by overall business strategies. 4. Strategic human resource management entrusts strategy formulation tasks with line managers while HR professionals play an advisory role.7 5. It views employees as the strategic capability of the organization and attempts to distinguish the organization from its competitors in the market on that basis. Box 2.2 outlines the strategic HR initiatives of Dabur India limited.

Differences Between SHRM and HRM Though strategic human resource management is an off-shoot of human resource management, it is emerging as an important and independent field of interest for the human resource experts.

Box 2.2

Aligning HR Strategies with Corporate Strategies—The Dabur Way

There is a growing realization among the Indian companies about the need for strategic management of human resources, especially in the context of the sweeping globalization. With an increased focus on competitiveness and operational improvements, these organizations are willing to walk the extra mile to give shape to the HR strategies proposed by the HR managers. In fact, many organizations talk in terms of a strategic approach to HR activities like recruitment, training, compensation, and performance management. Dabur India, one of the largest fast-moving consumer goods (FMCG) companies in the country, is a case in point. It made extensive efforts to gain a strategic advantage out of its human resources. Its initiatives to align its HR policies with corporate strategies to meet the growing needs of its business include: (i) Standardized and structured induction process for employees across all its locations in India. Further, it has brought down the cost of recruitment through the introduction of structured employee-referral programmes and the creation of a centralized employment database with access control capabilities.

(ii) Uniform post-induction training programmes through the intranet for all employees. Similarly, to foster fresh talents, it has a programme called the Young Manager Development Program (YMDP). Moreover, it periodically conducts and organizes management development programmes (MDPs) in the form of workshops and training sessions for both the senior and junior managers. (iii) It adopts a balanced scorecard for performance evaluation and strategy deployment of human resources. Key performance indicators based on balance score cards are identified and used to evaluate the performance of employees. (iv) It established assessment and development centres within the firm to ensure the availability of equitable growth and opportunities to all employees. These centres make use of scientific processes to assess the growth potential of each individual and employ them strategically to bring the best out of them. Adapted from: www.dabur.com/EN/Investors1/Annual_ reports/2004–5/ManagementDiscussion-AR-0405.pdf.

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We shall now see the important differences between strategic human resource management and human resource management in Table 2.1.

Models of Strategic Human Resource Management The different models available in strategic human resource management are the businessoriented model, strategic fit model, and strategic labour allocation process model, as illustrated in Figure 2.1. However, all these models link HR processes to business strategy and performance. We shall now see now a brief description of these models.

Business-oriented Model The business-oriented model, according to P. M. Wright and S. A. Snell,8 focuses on the factors contributing to the competitive advantage of the firm. The highlight of this model is value creation in SHRM. For instance, the SHRM under this model deals with the HR system that creates and sustains the competitive advantage. The HR activities in the system should produce necessary employee skills and competencies and workforce commitment leading to the desired employee performance. In fact, the SHRM under this model covers the decisions and actions that deal with the management of employees at every level of the business, ultimately resulting in competitive advantage for the firm.9

Table 2.1

Differences between SHRM and HRM

Strategic Human Resource Management

Human Resource Management

1. Strategic human resource management is based entirely on a soft HRM approach that views employees as humans and precious resources.

Human resource management is based mainly on a hard HRM approach that views employees as tools of production and headcount resources.

2. Strategic human resource management focuses on business-level outcomes.

Human resource management focuses on HR level outcomes.

3. Strategic human resource management is proactive in nature and it sets the trend in the market.

Human resource management is reactive in nature and it follows the trend in the market.

4. Strategic human resource management looks to develop overall strategic competencies of the organization from the HR perspective.

Human resource management aims at developing functional competencies pertaining to human resource aspects.

5. Strategic HR managers operate at the higher levels of management.

HR managers function at relatively lower levels of the organization.

6. Understanding the operational dimensions of the organization is the basic necessity for strategic HR.

Understanding the operational aspects of the organization is not a priority area for HR managers.

7. In strategic human resource management, HR strategies and business strategies effectively supplement each other in their formulation.

Human resource management merely accomplishes the HR goals and targets set by business strategy.

8. Gaining competitive advantage out of human resources is the basis of strategic human resource management.

Managing employees is the primary aim of human resource management.

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

Businessoriented model

Models of SHRM

Strategic-fit model

Strategic labourallocation process model Figure 2.1 Models of Strategic HRM

Strategic Fit Model This method focuses on matching the HR capabilities and resources to the opportunities available in the external environment. This is called a strategic fit where HR strategies are integrated with the business strategy.10 This integrated approach supports the development of HR practices such as employee recruitment, training and development, compensation, performance evaluation, and industrial relations in a way that they complement one another. The strategic fit is usually of two types—the vertical fit and the horizontal fit. The vertical fit deals with the extent of alignment between (a) the components of the HR strategies of an organization, and (b) the essential features of its business strategy. On the other hand, the horizontal fit is about the extent of alignment among the components of the HR strategy of an organization, typically, activities or programmes such as selection, training, and compensation.11

SLAP Model The strategic labour allocation process (SLAP) model was advocated by E. H. Bax.12 It is called this because it involves strategic decision making on the part of HR managers. This method focuses on the interdependences among HR strategies, business strategies and organizational changes. It relates the internal labour supply and demand of the organization to its strategy and to the significant developments in its external environment. This model acknowledges human resource management as a continuous process of balancing the demand and the supply of labour. Since this process is mostly influenced by external forces like socio-cultural, economic, institutional and technological developments, it requires organizations to develop strategic solutions that assist the adaptation process. This method insists that the core business of HR managers is to ensure a balance between the demand for and the supply of labour. Actually, every activity concerning the manufacturing process requires a number of tasks to be performed by people. Thus, there is a demand for labour in the firm. To meet this demand, HR managers procure people with the necessary skills and competences to carry out those tasks. For this, the HR manager can utilize the existing employees of the organization or hire people from the external labour market. This is usually a continuous process and HR managers are constantly engaged in the processes of procuring and allocating labour within the organization.13

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Terms in SHRM SHRM is basically concerned with the application of the concept of strategic management to human resources. We shall now see the meaning of related terms, strategy and strategic management.

Strategy The term strategy has its origin in the Greek word strategus, which means commander-in-chief. It is actually a combination of two words—stratus, meaning “army”and agein meaning “to lead”. Thus, it means to lead the army in its operations. In a simple sense, strategy means ‘a systematic and detailed plan of action’. In business parlance, the term refers to the specific courses of action undertaken by the higher level of the organization to accomplish pre-specified goals. Charles W. L. Hill and Gareth R. Jones describe strategy as an action a company takes to attain superior performance.14

Strategic Management Strategic management is the systematic process of determining goals to be accomplished in the future. It may involve studying the internal and external environment of an organization. The internal environment, i.e., the environment inside an organization, is usually within the control of the organization, while the external environment is usually shaped by factors like customers, suppliers, competitors, and legislative practices. The process of strategic management involves development, execution and appraisal of corporate strategies to achieve performance goals of the organization. Donald F. Harvey defines strategic management as that set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control.15 Since strategic management is a process, we shall now see the steps involved in that strategic management process.

Steps in the Strategic Management Process As depicted in Figure 2.2, there are five steps in the strategic management process of an organization. We shall now discuss each of these steps in detail.

Determination of Vision and Mission The first step in strategic management requires a clear vision and mission statements for an organization. The three components of business vision include core values, core purpose, and visionary goals.16 The vision statement of the organization conveys the future it envisages and the goal it wants to accomplish in the near and distant future. Similarly, its mission statement declares the purpose of the organization. In fact, the mission statement helps the organization link its activities to the needs of society and legitimize its existence. In strategic management, the mission and vision provide the framework for strategic planning within the organization. In fact, it provides the direction to the whole organization and helps the decision-makers prioritize their activities. At the first stage of the strategic management process, the managers assess their positions and responsibilities related to the vision, mission and goals of the organization. While the vision and mission of an

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

Determination of vision and mission

Analysing the environment

Formulation of strategies

Implementation of strategies

Performance evaluation

Feedback Figure 2.2 Steps in Strategic Management Process

organization remain unaltered, its strategies can be changed in accordance with the changes in the environment.

Analysing the Environment Environmental analysis requires collecting, analysing and providing information for tactical or strategic purposes. A successful strategic management strategy depends to a great extent on the ability of the managers to scan the environment with precision. It is essential for managers to be aware of the external environment and to use their understanding of the environment as a critical input for strategic planning and management. While scanning the environment, managers look for changes in the environment and also for their impact on the organization. Environment analysis can be classified into two categories: external analysis and internal analysis. External analysis refers to the analysis of the changes in the external environment and the consequent threats and opportunities for the organization. A proper assessment of the probable changes in the environment will forearm the organization to face such changes effectively. Internal analysis involves analysing the existing strengths and weaknesses of the internal factors like production facilities, marketing techniques, management competencies, HR skills, and strategic choices in attaining the strategic goals of the organization. While analysing the environment, an organization may opt for ad hoc scanning, in which it prefers a short-term and occasional scanning of the environment, especially when it faces a crisis. Alternatively, it may also go for continuous scanning, in which the environment is analysed on a continuous or regular basis on a broad range of parameters.

Strategy Formulation The next step in the strategic management process is strategy formulation. In fact, this step involves determining the courses of action suitable for achieving organizational objectives. After understanding the likely changes in the environment, the managers should develop a range of strategic alternatives to deal with the critical issues of the market. While choosing the best strategy, the organization should assess its internal strengths and weaknesses in the background of the opportunities and threats which it has identified in the market. Although each organization can develop its own alternatives depending on its situation, there are three general strategies called “generic strategies”, which can be useful for a wide range of organizations. These generic strategies are formulated at the corporate, business and functional levels (discussed separately under the section on levels of strategies) of an organization, respectively. An organization can choose from these strategies and adopt the same in its own situation.

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Strategy Implementation At this stage, an organization first ascertains the way in which the activities are carried out at present. Then, it decides the changes required in the system for the effective implementation of the formulated strategy. In the strategy implementation stage, organizations mostly concentrate on the techniques required for effective execution of strategies. In this regard, they may undertake activities like enhancing organizational capabilities, mobilizing resources, training and motivating HR resources, establishing an information and control system, revamping the work ethos and culture, and ensuring the appropriate leadership. Normally, the implementation stage involves: (i) developing the capabilities of the organization steadily to accomplish the strategy efficiently; (ii) distributing the scarce resources among the strategically significant activities; (iii) establishing the necessary policies and practices that support strategy execution; and (iv) developing the affirmative organizational culture and responsive leadership.

Performance Evaluation The final stage in the strategic management process is performance evaluation. Since strategic management is a continuous process, it is essential for the managers to continuously assess the performance of each strategy after its execution. Based on the performance, the organization can bring about necessary changes in its future strategies. Organizations may have to constantly improve their strategies because (i) the market conditions continuously change; (ii) better ways of performing existing activities may emerge; and (iii) the existing managers may be replaced with those with new ideologies and orientation. The performance evaluation process usually consists of the following steps: 1. Setting performance standards in the form of tolerance limits for every stage of the strategic management process. 2. Assessing the actual performance of the implemented strategies after a reasonable timeframe. 3. Comparing the actual performance of the strategies against the set standards to identify the performance gaps. 4. Initiating necessary adjustments, if the gap exceeds tolerance limits; like modifying the strategies, revamping performance objectives, bettering strategy execution and redefining business vision and mission, if necessary.

Levels of Strategy In the strategic management process, an organization can prepare strategies at three different levels. The focus and requirement of each strategy will differ depending upon the level at which these strategies are formed. The three major levels of strategy formulation are corporate, business and functional levels. However, the corporate-level strategy is further classified as the growth, portfolio, and parenting strategy (see Figure 2.3). However, it is absolutely essential that these strategies are internally consistent, mutually supportive and goal-oriented.

Corporate-level Strategy This is the top-most level of strategy-making in an organization. Corporate strategies usually deal with basic questions such as how to create a value for the entire organization. Here, the

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

Levels of Strategy

Corporate-level strategy

Growth strategy

Business-level strategy

Portfolio strategy

Functional-level strategy

Parenting strategy

Figure 2.3 The Levels of Strategy

top-level managers make wide-ranging decisions concerning the scope and direction of the organization. Specifically speaking, organizations usually make decisions about the market or industry in which they should compete, product diversification, merger or amalgamation, and so on. Similarly, through corporate strategies, an organization decides about building organizational capabilities and core competencies that may be significant for several businesses of the firm. Corporate-level strategy has three components: (i) growth strategy, (ii) portfolio strategy and (iii) parenting strategy. We shall discuss each of these strategies briefly. Growth Strategy Growth strategy deals with the development and accomplishment of growth objectives. It can be further classified into concentration strategy and diversification strategy. Concentration strategy is adopted by an organization when the business in the existing industry is safe, profitable, and attractive for further expansion. Now, the organization can implement the concentration strategy through a vertical or horizontal integration. In vertical integration, the organization develops strategies to expand within the existing industry by taking over the functions performed earlier by the suppliers and others while the horizontal integration involves the acquisition of additional business activities that are similar to the existing business activities. For instance, firms may acquire competitors’ business activities to reduce the threat from competition. On the other hand, in the diversification strategy, firms grow by expanding their operation into new markets, by introducing new products in the current market or by adopting both strategies. The growth strategies are often carried out through mergers, acquisitions, and strategic alliances. Portfolio Strategy Portfolio strategy deals with determining the portfolio of business units for the organization. This strategy aims at constantly revising the portfolio of business units on the basis of the risk and return. It views each business unit as an investment for the organization. As such, it aims to get a good return out of each investment. The purpose of a portfolio strategy is to allocate resources to those products or services that ensure a continuous success or to those products that fetch greater returns but with a high risk. On the whole, the portfolio strategy strives to ensure that the collective profitability of all the businesses in the portfolio enable the organization to attain its performance objectives successfully.

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Parenting Strategy The last component of the corporate-level strategy is the parenting strategy, which aims to allocate resources among the different business units of the organization with an optimum efficiency. It seeks to build organizational capabilities across the business units of the organization. The strategy may involve, among others, identifying key factors of the organization, determining the priority in resource allocation, ensuring a better utilization of resources and capabilities, and coordinating the different activities in an efficient manner.

Business-level Strategy The second type of strategy is the business level strategy. It deals with questions like how to achieve a competitive advantage in each business in which the organization is engaged. It is concerned with the development of the strategy for a single business organization. Box 2.3 delineates the different kinds of competitive advantage for a company. In the case of a diversified business organization, the business-level strategy means formulating a strategy for any one of the strategic business units. Each business unit is treated as an independent unit and profit centre. It can develop its own business-level strategy in order to successfully compete in the market for individual products or services. It focuses mostly on creating and sustaining a competitive advantage for products through one or more distinguishing factors like the price/cost leadership and product differentiation.17 For instance, factors like advanced technology, unique product features, superior HR skills, efficient distribution capabilities, and superior customer service and convenience can give competitive advantage to the unit. Finally, the essence of a competitive strategy is about being different from competitors. The strategy involves a deliberate decision to perform differently in the market to deliver a unique mix of values.18 Two important components of business strategies are entry tactics and market position tactics. Entry tactics deal with the timing of entering the market with a new strategy. Besides deciding the strategy, the business unit should also decide the timing of its strategic move in the market. It can make a proactive move in the market by being the first to introduce the

Box 2.3

Developing Competitive Advantage—A Blue Dart Express Approach

Each company attempts to gain a competitive advantage through any of the elements in which it believes itself to be strong. Organizations usually view three factors as helping them to develop a competitive advantage in the market. These are product differentiation, cost/price leaderships, and efficient and reliable human resources. Apparently, these factors individually or collectively create competitive advantages for a firm. Many Indian companies combine these factors judiciously to achieve the desired performance results in the market. Blue Dart, a premier courier and integrated express package distribution company, proclaims that its

competitive advantage lies in its vast and unparalleled domestic network, the spectrum of services that provides customized solutions including customs and regulatory expertise and state-of-the-art technology, and finally, in its air network. In addition to these, it considers its human resources as the most valued asset and a definite source of competitive advantage. In this regard, it considers workforce diversity, existence of learning organizations, self-belief and positive attitude among the team members as key to the success of its strategic HR initiatives. Adapted from: http://www.bluedart.com/aboutus.html.

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

product or service. It can also make a reactive move in the market, again as part of its strategy, through a swift response to the competitor who makes the first move. Market position tactics involve defending one’s existing market share or grabbing the market share from the competitors. Depending on the circumstance, the business unit may adopt offensive tactics to capture the market share from the competitors. It can also take up defensive tactics to protect its market share from poaching by the rivals.

Functional-level Strategy At the functional level, specific strategies are made for the functional activities of the organization and are usually executable within a short period of time. Functional-level strategy may encompass production, marketing, purchase, finance, HR, research and development, and other similar activities of the firm. Each functional area covers several tasks. For instance, the HR function may include tasks like recruitment, selection and training. Here, the functional-level strategy will address issues like whether to carry out the task, say training, through in-house resources or to outsource these. Similar issues may arise in each one of the functional areas requiring an appropriate strategy. However, there should not be any internal inconsistency among the various functional strategies of the organization. Besides, the functional strategies should effectively supplement and support the corporate and business strategies of the organization. Finally, it is essential to ensure that all the strategies of the organization contribute effectively to the accomplishment of the overall objectives of the organization.

Strategic Management and HRM Strategic human resource management symbolizes the intersection of strategic management and human resource management. Several studies have shown that the organizations that implement HR practices based on specific strategies have performed better.19 The general purpose of the strategic human resource management is to improve the strategic ability of an organization constantly through a sufficiently skilled and committed workforce. An organization usually acquires this strategic ability to accomplish challenging goals through innovative HR practices and policies. Eventually, it is able to acquire a competitive advantage in the market through effective utilization of its human resources. It can convert its human resource management into strategic human resource management by formulating appropriate strategies. The strategy formulation may adopt any one or more of the following models. We shall now discuss these models in detail.

High Involvement Management Model It refers to the creation of an environment that facilitates the continuous exchange of information between the superiors and the subordinates through opinions, ideas and suggestions. In this process, the management becomes aware of the expectation of its employees even while sharing information about the goals, mission and ethical standards of the organization. The prerequisite for this model is the need to treat employees as partners. An organization can develop a high involvement management model through distinct HR practices like work teams, problem-solving committees, job rotation, suggestion schemes, and incentives for quality initiatives.20 A high involvement management model would eventually lead to mutual understanding, openness, mutual trust, and a sense of oneness between the organization and its members. Box 2.4 outlines the elements constituting a high involvement work environment.

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Box 2.4

The Development of a High Involvement Work Environment at P&G

Organizations usually enhance the commitment and involvement among employees through job security, selective and sensitive hiring, extensive training, information sharing, creation of self-managed teams, excellent compensations linked to performance, and favourable labour-management relations. Nevertheless, organizations can evolve their own strategies to create high commitment work environment. For instance, Procter and Gamble (P&G), a multinational company, builds a high commitment among its employees by insisting on developing virtues like

leadership, ownership, integrity, passion for winning, and trust among its employees as part of the value formation exercise. Similarly, it declares its policy of building the organization mainly by promoting and rewarding people on the basis of their performance. Similarly, its core principles vividly explicate its desire to align its human resources with the overall corporate strategies by emphasizing standardizing and streamlining the work, aligning HR activities with objectives and strategies, and adding value to the business through work sincerity. Adapted from: http://www.pg-india.com/hhcl/pvp.htm.

High Commitment Management Model The essence of this approach is that the organization should compete on the basis of quality rather than cost, and rely more on its skilled and highly committed human resources to achieve this mission. The aim of this model is to obtain voluntary commitment from employees by adopting mutually beneficial HR practices. In fact, high commitment practices usually enhance the performance of the individual as well as the organization.21 The uniqueness of this model is that it reduces the importance of externally imposed supervision and control on the employees. In contrast, it encourages the practices of self-imposed discipline and devotion to work among its workforce. Organizations desiring a high commitment model should have flexible work practices, called a bundle of high-commitment practices, together with effective reward practices. The relevant work practices may include teams, job rotation, quality circles, and total quality management (TQM), while rewarding practices would include profit-sharing, gain-sharing and skill payments.22 Finally, in the words of Dora Scholarios, “The so-called high commitment practices/systems create high trust, high involvement, high intrinsic satisfaction, high skill and control and, as a result, high commitment, which, in turn, result in behaviour with a positive effect on performance at the end chain (expressed in quality or productivity).”23

High Performance Management Model The aim of the high performance management model is to improve the performance of individuals and the organization constantly. A high-performance management works well in a learning organization. The structure of a high-performance organization is usually dynamic and fluid. Such organizations are flexible and quick to respond to the requirements of the customers and the market. In fact, a high-performance management can be achieved only by educating the employees constantly and improving their skills even while retaining their enthusiasm.24 The crux of the high performance management model is the alignment among the people, philosophy, policies, programmes, practices and processes—the six Ps. Organizations that ensure perfect alignment of these six Ps and the resultant unified workplace achieve success in getting consistently superior performance. The HR policies and programmes play a major role in producing a high-performance work organization. Several studies have shown a positive correlation between select HR practices and better organizational performance.25

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High performance management models can vastly improve skill acquisition, knowledge sharing, commitment, reliability, communication and motivation among employees. It also encourages innovation and shortens the response time of the organization to the external developments. The common features of the high performance management model are: • an improved alignment observed among people, policies and processes, effectively supported by technology • emphasis on fewer hierarchies and flatter organization structure in order to be more flexible and responsive to external changes • continuous learning from the experience of the developments in the market • faster response than competitors to the changes in the market, faster growth as compared to rivals in the industry, and retention of the growth rate for relatively longer period • greater emphasis on employee participation in decision making and empowerment Note that gaining competitive advantage through individual HR practices has been discussed in detail in Chapter 32 under the special topics category. Box 2.5 outlines the elements of a high performance work environment.

Types of HR Strategies Organizations vie with one another in developing future-oriented, sequential and integrated strategies to accomplish corporate objectives. Today, human resource management offers plenty of scope for developing such strategies. HR practices and techniques involving recruitment, training, compensation, performance evaluation, and communication are constantly reviewed and redesigned from strategic perspectives so that they evolve as the major sources of competitive advantage for the organization. Organizations may adopt different techniques Box 2.5

Achieving Stimulating Environment—HR Measures by Tata Power

Each organization has its own ingenious HR style and techniques to create a high performance work environment and to attain strategic aims. Though organizations may adopt different means to create an innovative and collaborative environment, the end is undoubtedly the gaining of strategic advantage out of human resources by producing the necessary employee competencies and desired behaviour. For instance, Tata’s drive towards the establishment of strategic human resource management focuses on principles like living by its core values, investing in training and development, providing a supportive work environment, and lending a helping hand to the community. The core values focus on bringing up a suitable work culture that produces the best performance. Training and development aim at making the best

people even better. A supportive environment enables employees to decide and devise their own career path in the firm by making use of all available learning resources. Finally, through community interactions, it endeavours to construct a lasting relationship with all the stakeholders including its employees. The other HR initiatives toward a high performance work system include, among others, exposing the employees to the latest technological know-how, world-class management practices, multifunctional skills including customer relationship management, and training them to achieve self-directed leadership, self-motivated teams and self-generated creativity for a stand-out performance. Adapted from: http://www.tatapower.com/careers/ working-with-us.aspx.

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for developing HR strategies depending upon their environment, mission, vision, objectives and strategies, culture, and internal strengths and weaknesses. Important types of HR strategies are commitment strategy, compliance strategy, paternalistic strategy and collaborative strategy. We shall now discuss these strategies briefly.

Commitment Strategy In this strategy, the organization seeks to build up a strong commitment among employees through the commonality of interests between employers and employees.

Compliance Strategy In this strategy, the organization aims at increased labour efficiency through improved labour cost control and process control.

Paternalistic Strategy The aim of this strategy is to secure labour efficiency through flexibility of staffing, workforce stability, internal promotions and job permanency.

Collaborative Strategy In this strategy, labour efficiency is achieved through need-based hiring of highly skilled labour and evaluating and rewarding them only through performance-based criteria.

Benefits of a Strategic Approach to HRM Strategic human resource management has evoked a lot of interest among employers and employees. This is due to the benefits of SHRM being mutual and manifold. For instance, on the one hand, SHRM aims at creating a high-performance work environment and achieving cost-reduction measures, which should encourage employers to approve and adopt this concept in the organization without too many reservations. On the other hand, it insists on initiating measures like profit-sharing, flexible work schedules, allowing employee participation in the decision-making process as part of improving employees’ work commitment and involvement. These measures should make the employees favourable to the concept of SHRM. Another highlight of SHRM is that it not only helps in achieving the strategic goals of the organization but also assists in determining those goals. We shall now see the specific benefits of SHRM. 1. SHRM helps firms in achieving cost-effective engagement of labour as part of the competitive advantage initiative. 2. The flexible structure and dynamic policies of SHRM enable the firm to meet the changing needs and expectations of the customers effectively and promptly. 3. Since SHRM requires a well-defined mission and vision for its effective implementation, it is able to provide clear-cut goals, direction, and future focus to the entire organization. 4. It provides a platform for the organization to plan and execute organizational changes in a timely and effective manner. 5. It ensures the optimum utilization of organizational resources by constantly matching the internal strength of the firm with the external opportunities.

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

6. For a learning organization, it primarily focuses on developing, managing and sustaining the skills and knowledge of its human resources, which should enable firms to get a longterm strategic advantage in the market. 7. Since functional strategies like those of HR are well-aligned with overall corporate strategies, SHRM greatly enhances coordination among the various functional centres and the top management. It also enables the firm to detect goal and performance deviations early and prevent them eventually. 8. It enables the firm to pre-empt its competitors by exploiting the emerging opportunities through a continuous scanning of the external environment. 9. It makes it necessary to develop a quantifiable base for measuring the efficacy of the various HR polices and practices.

Barriers to Effective SHRM SHRM has gained more importance because of the emergence of global markets, intensified competition, technological developments, and shifting trends in customer preference. However, the introduction and execution of SHRM is not all that easy. There are quite a few issues that hinder effective SHRM implementation. Thus, HR managers often grapple with those issues while applying SHRM. These issues have been explained briefly as follows:26

Absence of Long-term Orientation SHRM requires long-term planning, orientation, and HR intervention strategies among the top management and the HR managers alike. However, organizations often content themselves with short-term goals and gains. This obviously undermines the importance of SHRM in an organization.

Lack of Strategic Reasoning HR managers should assume a strategic role when it comes to strategic management of human resources.27 When HR managers lack training and experience in strategic management, they may find it difficult to develop HR strategies, align the same with corporate strategies, and then influence the employees to support them.

Lack of Adequate Support from the Top Management In strategic human resource management, HR managers must work at the top levels of management in shaping not only the HR strategies but also the corporate strategies. This calls for the elevation of HR managers’ positions to the higher levels in the organizational structure. However, the top management is often reluctant to involve the HR managers in top decisionmaking levels. This is because top managers hardly understand the importance of human resources as a critical function and as a competitive advantage of the organization.

Resistance from Labour Unions The introduction of SHRM usually requires extensive changes in the work culture, HR practices, and processes. The real or perceived consequences of such changes may frighten the employees. Consequently, the SHRM proposals may meet with a strong resistance from the workers and their union.

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Fear of Failure Since SHRM reckons with many uncertainties and imponderables, HR managers often hesitate to undertake strategic HR initiatives due to the fear of failure. They are also afraid of their consequences on their own future prospects in the organization.

Rigidity of HR Practices SHRM requires constant scanning of the external environment and timely changes in the HR policies to meet the emerging needs of the customers. However, in reality, most of the HR practices of organizations are fixed in nature and even rigid in some cases. Thus, HR managers often find it difficult to change the HR polices and processes to make use of the market situation to gain competitive advantage.

Fear of Attrition SHRM implementation involves a huge investment in human resources in the form of training and development to enhance the skills and competencies of the employees. Once the employees become well-trained and skilful, they may be lured by the competitors. If these employees decide to leave the present organization for any reason, this could cause it significant losses. That is why organizations are reluctant to invest in their employees and hence oppose the introduction of SHRM.

Absence of Measurement Techniques Unlike other functions of the firm, it is difficult to quantify the efficiency of HR managers or policies in the absence of creditable HR systems of measurement. This often acts as a disincentive to the HR managers for undertaking any strategic HR initiative. Box 2.6 outlines the role of consultancy firms in SHRM.

Box 2.6

P-CMM for Strategic Human Resource Management—The Wipro Way

Organizations, depending upon their size and strength, may either develop their own HR strategy model or acquire them from external HR consultancy firms to initiate the best HR practices and techniques in the firms that add value to their workforce. Many consultant firms are offering tailor-made packages or models for developing strategic human resource in their client organisation. The People Capability Maturity Model (P-CMM) for strategic human resource management developed by Wipro Technologies initiative is worth mentioning. The popular P-CMM model guides an organization through a series of increasingly sophisticated practices and techniques for developing its overall workforce. The purpose of this model is to accomplish “people process leadership” by aligning people capability with the existing business opportunities and organizational strategy. The unique objective of P-CMM is the creation of an

“HR value” by creating competency management framework, integrating people processes, and benchmarking HR processes. To develop this value for human resources, the P-CMM based solutions are (i) Workforce Planning Process Consulting and Tools Evaluation, which aims at process simplification, improved staff allocation and HR budget, and a proactive HR planning; (ii) Competency Framework Consulting, which seeks to achieve improvements in the areas of employee career development, and a better focus on the learning needs of the firm and critical organizational competencies; and (iii) Quick Scan Assessment of People Processes, which aims at comparing the firm’s HR practices with the industry, developing guidelines for perfecting future HR plan, systematizing people processes, and much more. Adapted from: http://qualityconsulting.wipro.com/ pcmm.php.

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Summary 1. Strategic human resource management (SHRM) is a process of aligning HR strategies with business strategies to accomplish performance goals through employees’ competency and commitment. 2.

Important features of SHRM are: (i) it is performed at top management levels; (ii) it focuses on the expansion of process capabilities; (iii) it is inter-related with business strategies; (iv) strategy formulation tasks rest with the line managers; and (v) employees are viewed as strategic capabilities of the firm.

3. The SHRM models are business-oriented model, strategic fit model, and the strategic labour allocation process (SLAP) model.

the environment, strategy formulation, strategy implementation, and performance evaluation. 5.

Organizations make strategies at three levels— corporate level, business level and functional level. Corporate-level strategy consists of growth strategy, portfolio strategy and parenting strategy.

6.

The three models of strategic formulation are high involvement management model, high commitment management model, and high performance management model.

7.

The barriers to SHRM are the absence of long-term orientation, a lack of strategic reasoning, a lack of adequate support from top management, the resistance from labour unions, the fear of failure, the rigidity of HR practices, the fear of attrition, and the absence of measurement techniques.

5.

“Growth of strategic human resource management in organizations is primarily due to economic liberalization and globalization.” Comment.

4. The steps in strategic management process are determination of the vision and mission, analysing

Review Questions Essay-type questions 1. Discuss the steps involved in the strategic management process in detail. 2.

Evaluate critically the strategies formulated at the different levels of the organization.

3. Describe vividly the various models used to discuss the application of strategic management in human resource management. 4.

Enumerate the hurdles faced by human resource managers in the implementation of strategic human resource management. How will you overcome these hurdles?

6. Why is it important for HR managers to introduce strategic human resource management in their organizations? 7. If you were a human resource manager, how would you introduce strategic human resource management? 8.

Examine the growing relevance of human resource management in corporate strategies management.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop an HR strategy in alignment with the business strategy in a specific circumstance with the cooperation of the employees. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager, (2) two HR team members, (3) two union representatives, and (4) two observers

of the meetings. The role of the observer is to observe and report about the various aspects of the role-playing sessions. Situation Danish Textiles is a large and successful textile company with a sizeable presence in the southern states of India.

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Cost leadership and low prices were its main planks in gaining market dominance in this part of the country. However, Spider Cloth Mills, the market leader in the rest of the country, entered the southern states with a bang by opening several branches almost simultaneously. Spider entered the southern market as part of its expansion strategy to cover the whole country through low-cost good-quality products. The move produced an instant threat for Danish Textiles in two ways. One, the company faced the risk of losing a substantial portion of its market share since the business strategy was the same for both the groups. And two, the attrition rate was likely to increase as its employees might join the rival company for better pay and facilities. Suddenly, Danish Textiles felt the need to move beyond conventional competitive strategies and come up with new business strategies. After a lot of deliberation, the management asked the HR department to look into the possibility of developing a high performance and high commitment work environment to counter the new threat. The HR

manager was asked to initiate strategic HR activities by revamping policies pertaining to recruitment, training, compensation, safety and health after duly consulting the unions. Steps in the exercise There are three steps in the exercise: Step 1: The HR manager seeks the cooperation of the union leaders by explaining to them the need for introducing changes in the existing HR policies and the mutual benefits of strategic HR initiatives. Step 2: The HR manager conducts a comprehensive meeting with the two HR team members to finalize the specific changes required in the existing HR policies. The HR strategy would be sent to the top management for approval. Step 3: The observers analyse and give their feedback on the performance of the members in the role-playing session.

Case Study Rakish Iron and Steel Company is a significant player in the iron and steel industry. The company has a workforce of 18,000. With a 21 per cent market share at the national level, it occupies the fourth position in the industry. The company set for itself an ambitious target of securing the third position in three years, the second position in seven years, and industry leadership in ten years. The management of Rakish announced a major change in the business strategy of the company that would lead to the transformation of business operations. Incidentally, it prepared a blueprint for the company and chose product differentiation as its primary strategy for the future. It identified a few segments in the market like the low-value steel market where the competition was negligible. It decided to expand its product line with a focus on the consumers of these low-value products. Pursuing this strategy, the management announced a slew of measures aimed at enhancing the width of the product line by adding a few more varieties to it. It made a huge investment commitment in the infrastructure for producing low-value steel. Within a remarkably short span of time, it introduced new products to cater to the market demand for low-value products. The market responded favourably to its new products and the turnover and profit rose appreciably. However,

the competing companies understood the game plan of Rakish quickly and reacted by expanding their product line too. The advantage enjoyed by Rakish turned out to be a short-lived one and the major players once again began to dominate the market. Once the product differentiation efforts failed, the management of Rakish changed its strategy and adopted a low-cost strategy. This required the organization to be aggressive in sales promotion measures and diligent in cost reduction in fields like marketing, advertising, distribution and services. The cost reduction measures could not help the company for two reasons. One, the cost of marketing did not have a significant influence on the price tag of the product. And two, the cost reduction efforts had a negative fall-out on sales promotion and also on the actual sales performance. Eventually, the company was forced to abandon its low-cost strategy endeavours. When the company was almost clueless about its future strategies to accomplish the performance goals, Mr Rajesh Sharma joined the board as the HR Director of the company. Learning about the ill-fated strategy initiatives of the company, he made a proposal to develop the workforce of the company as a competitive advantage in the market. The board of directors greeted the proposal with

STRATEGIC HUMAN RESOURCE MANAGEMENT— A FRAMEWORK

suspicion and contempt. They could not believe that the employees could be developed into a formidable force for the organization through proper HR measures, and that in due course this would lead to cost reduction and quality enhancement. However, having no worthwhile alternative schemes, they set aside their reservations and approved the HR director’s proposal. Simultaneously, the directors allowed a huge budgetary support for drastically improving the training infrastructure and the compensation packages. The HR director’s proposal began to take shape and the management kept its fingers crossed.

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Questions for discussion 1. What could have been the reason for the failure of the earlier strategies of Rakish? 2.

How do you foresee the future of Mr Rajesh Sharma’s proposal in the light of the competition faced by the company?

3.

What would your proposal have been if you had been the HR Director of the company?

Notes 1. Garry Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 13.

10. James W. Walker, Human Resource Strategy (New York: McGraw-Hill, 1992).

2.

11. Jeff Ericksen and Lee Dyer, “Toward a Strategic Human Resource Management Model of High Reliability Organization Performance,” Working Paper Series, CAHRS/Cornell University (March 2004): 4.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page Limited), p. 32.

3. R. S. Schuler, “Strategic Human Resource Management: Linking People with the Needs of the Business,” Organizational Dynamics, 21, no. 1 (1992): 18–32. 4. John Bratton and Jeffrey Gold, Human Resource Management: Theory and Practice (New York, NY: Palgrave Macmillan), pp. 38–42. 5. G. C. McMahan, “Theoretical Perspective for Strategic Human Resource Management”, Journal of Management, 18, no. 2 (1992): 295–320. 6. L. Dyer and G. W. Holder, “A Strategic Perspective of HRM” in L. Dyer and G. W. Holder (eds.), Human Resource Management: Evolving Roles and Responsibilities (Washington, D. C.: Bureau of National Affairs, 1988). 7. L. Dyer and G. W. Holder, “A Strategic Perspective of HRM” in L. Dyer and G.W. Holder (eds.), Human Resource Management: Evolving Roles and Responsibilities (Washington, D. C.: Bureau of National Affairs, 1988). 8. P. M. Wright and S. A. Snell, “Towards a Unifying Framework for Exploring Fit and Flexibility in Strategic Human Resource Management,” Academy of Management Review, 23, no. 4 (1998): 756–772. 9.

P. Miller, “Strategic Human Resource Management: What It Is and What It Isn’t,” Personnel Management, (February 1989): 46–51.

12.

E. H. Bax, “Organizational Culture and Organization Development,” International Journal of Information Resource Management, 2, No. 4 (1991): 4–13.

13. M. H. Strober, “Human Capital Theory: Implications for HR Managers,” Industrial Relations 29, no. 2 (1990): 214–239 and also refer S. A. Snell and J. W. Dean Jr., ‘Integrated Manufacturing and Human Resource Management: A Human Capital Perspective’, Academy of Management Journal, 35 (1992): 467–504. 14.

Charles W. L. Hill and Gareth R. Jones, Strategic Management: An Integrated Approach (San Diego, USA: South-Western College Pub., 2001), p. 4.

15. Donald F. Harvey, Strategic Management and Business Policy (Columbia: Merrill Publishing, 1988), p. 5. 16.

James C. Collins & Jerry I. Porras, (2002) Built to Last: Successful Habits of Visionary Companies (New York: Harper Business), p. 44.

17. Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, (New York: Free Press, 1985). 18. Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, (New York: Free Press, 1985).

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19.

M. A. Youndt and S. A. Scott, 1996. “Human Resource Management, Manufacturing Strategy, and Firm Performance,” Academy of Management Journal, 39, no. 4 (1996): 836–857.

Australia,” Working Paper in Human Resource Management, ER and OS, No. 9, pp. 6–8; available at http://www.managementmarketing.unimelb.edu. au/research/papers/wph9.pdf.

20.

Frits K. Pil and John Paul MacDuffie, “Why Efforts to Implement High-Involvement Work Practices Fail,” Knowledge@Wharton, 13 October 1999.

24. J. Storey, “From Personnel Management to Human Resource Management” in J. Storey (ed.), New Perspectives on Human Resource Management, (London: Routledge, 1989).

21. J. L. Cotton, “Employee Involvement” in C. I. Copper and I. T. Robertson (eds.), International Review of Industrial and Organization Psychology, (London: Wiley), 11 (1997). 22. P. Osterman, “How Common Is Workplace Transformation and Who Adopts It?” Industrial and Labor Relations Review, 47, no. 2 (Jan 1994): 173–188. 23.

Dora Scholarios, Harvie Ramsay and Bill Harley, “High-Commitment Management Practices and Employee Outcomes Evidence from Britain and

25. C. Ichniowski, K. Shaw, and G. Prennushi, “The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines,” American Economic Review (June 1997). 26. J. A. Mello, Strategic Human Resource Management (Cincinnati: South Western, 2001). 27.

Paul Falcone, “HR’s Growing Role in M&A Due Diligence,” HR Focus 82 (August 2005): 1–15.

CHAPTER

3

The Evolution and Environment of Human Resource Management

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 List the stages of evolution in human resource management 2 Enumerate the environmental influences on human resource management 3 Differentiate between the various kinds of HR environment perspectives 4 Understand the environmental scanning process

Mazda Motor Corporation is a Japanese multinational company engaged in the automobile business. The company has a workforce of around 22,000 people around the world. It strongly believes in creating an HR environment that facilitates selfdirected activity and ensures employee independence and success. Similarly, it has the opinion that assisting employee growth contributes immensely to its own progress. For instance, its motto, “developing the people that make the products”, reflects its priority for human resources. In 2003, Mazda launched a novel programme called the Tobiuo (Flying Fish) Human Resources Management System. This programme focuses on offering suitable jobs and environment where each employee can prove their potential and productivity. Again, it would provide all the required assistance to employees in achieving their desired career development and performance. This system consists of three sub-systems. These are transfer and career-formation support system

to assist the employees in self-realization and working conditions, a vacations-support system to balance work and personal life, and an evaluation system to properly link people, performance, and rewards. Besides, Mazda conducts cross-cultural training sessions for all its employees to promote a congenial global HR environment. Its other training programmes for fostering a dynamic work environment include a Olympics skill-training programme for young engineers and an advanced technical skills training course for apprentices through experienced employees and a mentoring system. Further, it has a compensation and grading system that recognizes only the ability and work levels of the employees for determining their salaries and incentives. This illustration exemplifies how a multinational systematically works to create a dynamic HR environment. We shall now see the evolution and environment of human resource management.

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Introduction Human resource management (HRM) is a field that is gradually gaining in status and value. Today, it has a full-fledged management theory with a lot of practical implications. Several changes within and outside the business have decisively influenced the top managers to give due importance to HRM and to recognize it as a distinct area of operation within an organization. These changes include, among others, the increasing size of the organizations and the workforce, growing specialization of labour, rising tensions and conflicts in the labour– management relations, the declining role of technology as a differentiator, and the introduction of several labour-related laws. Besides these changes, the rising awareness among the managers about the growing importance of human resources in the changing context of business has also created a receptive environment for HRM to develop rapidly. These developments in the field of HRM are so remarkable that many organizations view it as a direct and efficient way of achieving competitive advantage in the market.

A Brief Outline of HRM Human resource management was at its worst when people were treated like slaves in factories and made to struggle in an inhuman work environment. In the contemporary period, it is at its best so far. Today, people are viewed as an invaluable asset and a definite source of competitive advantage to an organization. Labour welfare laws, labour market conditions, labour awareness, strengths of the unions, and the employers’ attitude towards the employees and their union are among the several factors that join together to shape the HR environment of organizations in different periods of history. Certainly, every era in the history of HRM demonstrates the thinking and attitude of the employers and their workforce at that point of time. We shall now go on a brief journey through these eras to see the progress made by HRM over a period of time. Figure 3.1 traces the evolution of HRM over the years.

Contemporary HRM era (1980 onwards) Formalised HRM era (1960–80) Industrial and human relation movement era (1950–60) Second World War era (1939–45) Hawthorne studies era (1927–32) First World War era (1914–18)

Industrial Revolution era (1780–1830) Figure 3.1 Evolution of Human Resource Management

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

The Industrial Revolution Era (1780–1830) Prior to the Industrial Revolution, the first recorded HRM initiative occurred in England when carpenters, masons, leather workers, and other craftsmen formed guilds and used their unity to improve their work conditions and enhance their bargaining power.1 In the next phase, when the Industrial Revolution arrived, it brought with it factories. Now, a factory was an organization that created centralized workplaces and brought unrelated people together. During the Industrial Revolution, working conditions and social patterns of behaviour of employees became the major HR issues. However, nations and organizations responded differently in addressing those problems. For instance, an HR policy in the form of a code of discipline was introduced in Britain just to bring about a standard behaviour among the untrained workers of that time. Later on, in the 1890s, employers in the United States voluntarily introduced labour welfare measures out of self-interest and humanity. During the same period, companies like Cadbury and Rowntree employed industrial welfare workers to look after the welfare of the employees and constructed model villages for their workforces.2 Thus, the growth of HRM was not uniform for all times and all nations.

The First World War Era (1914–1918) The First World War brought in several changes in the way HR was managed. During this period, women were recruited in large numbers in factories to meet the increased demand for war material and also to replace the male workforce that was either engaged or killed or disabled in the war. Apparently, organizations felt a need to refine their HR policies to suit these women. This period also saw a drastic increase in the number of welfare officers appointed in the factories of Europe to deal with the employees’ welfare issues. Again, around this time, organizations brought in HR policies on matters including time-keeping and attendance. Meanwhile, the labour shortage that occurred after the war forced many organizations to adopt a more rational and responsive HR policy in order to achieve better employee cooperation and retention. Further, industrial relations gained prominence during this period and several nations granted recognition to trade unions and involved them in wage negotiations. Finally, the intervening period between the First and Second World War witnessed largescale appointments of labour officers in organizations to deal with employment aspects like recruitment, training, and health and safety of the workers in the factories.

The Hawthorne Studies Era (1927–1932) The famous Hawthorne studies were another milestone in the history of HRM. These studies were conducted by a team led by Elton Mayo, a Harvard Business School professor, at the Western Electric Hawthorne Works in Chicago. The primary purpose of the studies was to examine the impact of lighting on productivity. However, these studies conducted at different phases revealed several interesting findings in course of time. One such finding was the presence of informal groups in the organization and their influence on the employees’ behaviour and productivity. The researchers finally concluded that the workers were relatively more influenced by the collective decisions of the members of the informal groups than just by the pay and perks offered by a formal organization. This ground-breaking disclosure compelled organizations to take a closer look at the social factors that influenced the employees’ behaviour. In fact, this

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HUMAN RESOURCE MANAGEMENT

finding greatly influenced the attitude and approach of the HRM thinkers and practitioners towards the workers. Shortly after this finding, firms began to realize the importance of informal groups in the organizations and thus recognized unions as the employees’ representatives.

The Second World War Era (1939–1945) The Second World War forced organizations to establish full-time personnel departments to undertake all the necessary activities to achieve high productivity and optimum efficiency. During this period, organizations engaged unions in talks more seriously to maintain harmonious labour–management relations. Just about this time, the jobs of both the welfare officers and the labour officers were unified and brought under the personnel department. This department came under the direct administration of the personnel officers. Since then, the personnel officers play the dual role of line managers of the personnel department and staff advisors to other line managers on labour-related issues. The introduction of shift-based working in factories and the training requirements for a large number of new employees further increased the importance of personnel departments during this period. In fact, the biggest contribution of this period to HRM was the recognition of the importance of personnel officers in organizations. Box 3.1 traces the HR initiatives of an automobile giant during different phases.

The Industrial and Human Relations Movement Era (1950–1960) Human relations movement and employee motivation gained momentum during this period. Several theories highlighting the importance of human relations movement were

Box 3.1

The History of the HR Environment at Ford Motor Company

Many organizations ushered in new HR practices only as a response to the changes occurring in the external environment of such organizations. Thus, most organizations adopted HR policies because they were forced by changes in the legal, political and social environments to do so. But there are a few exceptional organizations that played a proactive role in introducing employee-oriented HR policies and practices even before they were required by law or society to do so. Several of these companies stood the test of time and survived just because of their humane and impartial HR practices. The history of Ford Motor Company’s HR practices is a case in point. During 1910–1920, when employees’ welfare measures were unknown, Ford introduced several innovative HR practices, which included, among others, a compensation package that was double the industry average, and a comprehensive workforce diversity policy that led to the employment of people belonging to 62 nationalities and nearly 900 disabled persons. It not

only adopted diversity policies but also appropriately changed the work environment to suit the specific needs of these employees. During 1920–1940, it assertively implemented equal employment opportunity and treatment policy leading to the appointment of a sizeable number of African–Americans and Asians to managerial positions. This period also saw the recruitment of a significant number of women to different departments of the company. Ford had also agreed to the introduction of a non-discrimination clause in the company charter as a result of its collective bargaining agreement with trade unions. In later stages, the company focused on promoting an inclusive culture in which all employees were given due respect and encouraged to contribute effectively to the creation of a high-performing, committed and collaborative work environment. Adapted from: http://www.ford.com/our-values/ diversity/diversity-ford/history-diversity/.

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

developed during this period. For instance, Theory X and Theory Y of Douglas McGregor taught the managers about the significance of a participative approach in decision-making. Similarly, Abraham Maslow’s Hierarchy of Needs theory enriched the process of employees’ need identification and motivation. During this period, behavioural scientists and management practitioners worked on concepts like job enrichment and job enlargement to improve workers’ commitment and reduce job boredom. Besides, organizations evinced more interest in conducting organizational-level collective bargaining with unions and gradually discouraged the practice of participating at national-level collective bargaining negotiations through employer federations. These developments really enhanced the importance of the personnel department for an organization. In fact, firms began to count on personnel managers for developing industrial relations policies and also for successfully conducting and concluding collective bargaining negotiations.

The Formalized HRM Era (1960–1980) During this period, many organizations developed their own rules and regulations to govern the personnel management and industrial relations activities. For instance, several policies and procedures concerning promotion, grievance handling and disciplinary actions were introduced. Similarly, organizations began to make specific HR policies for diverse HR functions like recruitment and selection, employee training and managerial development, performance management, industrial relations, wages and salary administration, and employee benefits. Around the early 1970s and late 1980s, organizations began to view skilled employees as human resources and strived hard to retain them in organizations. Subsequently, organizations introduced the term human resource management to denote the activities concerning the management of employees. In fact, the advent of HRM was viewed as a new era of caring and a gentle way of people management.3 Gradually, the term human resource management became popular and began to replace terms like personnel management and industrial relations.

The Contemporary HRM Era (1980–onward) Contemporary human resource management focuses on gaining a competitive advantage in the market through human resources. To overcome the challenges arising out of increased competition, organizations undertook radical changes in their HR policies and procedures with the intention of increasing their employees’ efficiency and loyalty. The focus of contemporary HR management is on developing HR strategies, aligning them with corporate strategy and then achieving organizational goals effectively. Modern organizations tend to keep few hierarchies and more dynamic HR policies. They constantly carry out organizational changes by adopting measures like total quality management, business process reengineering, performance management, development of learning organization, and constantly revamping their work culture.4 In addition, organizations are adding global dimensions to HR management. They are now focused more on fine-tuning their HR policies and practices to effectively supervise and control employees working across national boundaries. Due to the increased globalization of business, international human resource management is gradually gaining importance in organizations.

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HUMAN RESOURCE MANAGEMENT

The Human Resource Management Environment The term environment, in general, refers to the entirety of the surrounding conditions. In human resource management, it means the combination of factors that have an influence on the working of HR department. Human resource management can not function in isolation and, hence, it is necessary to identify the factors that influence HR policies and practices. As illustrated in Figure 3.2, the factors that shape the environment are usually classified into two categories. These are external factors and internal environmental factors. The events occurring outside the organization but influencing the HR activities of the firm are called external factors. Since external environmental factors operate outside the business, organizations will have little or no control over these factors. On the other hand, internal environmental factors are the ones that are internal to the organization and have a significant influence on its HR environment. We shall now discuss these factors in detail.

External Factors External environmental factors are usually made up of the macro environment and industry environment. The major external environmental factors include social, technological, political, legal and economic factors. We shall now see each of these factors in detail.

Ec on om ic

nm iro v en

Soci al e nvi ron m en t

t en

External environment

Vision and mission

HR system Internal environment

a l e n v ir o n m e n t

Business strategy Human Resource Management

nm t en

Political environ

Figure 3.2 A Model of the Environment Scanning Process

nol ch

o vir

Organizational culture

Te

n al e

ogic

Leg Organizational structure

me

nt

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

Social Environment Factors The social environment is created in general by the educational levels, attitudes, beliefs and values of the people who live in a specific region. The social environment of an organization consists of the beliefs and behaviour of the employees, customers, suppliers, shareholders and all others who interact with the organization. Each society normally has a distinct cultural identity that separates it from others. Employees as a member of the society bring in their societal values to the organization. These values, in turn, directly and indirectly influence the HRM activities of an organization. In India, many organizations have a diversified workforce since employees in these firms typically reflect the characteristics of the Indian population. These employees represent different regions, ethnic groups and ideologies. Certainly, these culturally and ethnically diverse workforces pose direct challenges for organizations and decisively influence their HR environment. Thus, the social environment factor is a major phenomenon in Indian industrial organizations. Let us now briefly discuss the factors that influence the social environment of business organizations. Demographics—A scientific study of the size and structure of the population and its development is usually described as demographics. The demographics of the Indian workforce are broadly diverse in nature. The composition of the workforce in Indian industrial organizations has undergone a tremendous change in the recent decades. The marginalized sections of the society like women, the physically challenged, minorities and people belonging to scheduled castes, schedule tribes and backward communities have joined the organizations in sizeable numbers. It is, therefore, very important for HR managers to clearly understand the environmental influence of different demographics on the organization and its HR activities. For instance, the problems faced by women or the physically challenged may be different in an organization and may require different HR policies and approach. Thus, demographic factors often create workforce diversity and lead the organizations to develop requisite HR plans to manage this diversity effectively. Educational status—Education is another factor that greatly influences the social environment, which, in turn, affects the behaviour of the employees. The success of training and development programmes undertaken by an organization largely depends on the existing educational levels of the employees. Thus, the organizations with a large proportion of knowledge workers—a term used for well-educated workers—may require dynamic HR policies to meet the high expectations of these employees. Technological Environment Factors A technological environment is created when the knowledge of science is applied effectively for practical use. The technological environment is often affected by the rate and direction of technological changes. In India, the technological environment is undergoing changes at such a rapid pace that the organizations are finding it very difficult to cope with such changes. Of course, employment at the global level too is changing rapidly from manual and clerical workers to knowledge workers.5 Whenever new HR technologies are developed, it makes an impact on the functioning of the HR department and the HR personnel.6 For instance, developments in IT have affected HR processes like recruitment, training, and grievance handling, since these activities are now being conducted largely through the Internet. In fact, recent studies have shown a significant relationship between the design of HRM policies and the use of advanced manufacturing technologies.7 For instance, technological

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HUMAN RESOURCE MANAGEMENT

developments produced several high-tech jobs in organizations. As a result, the composition of the workforce in the organizations changed drastically with the increasing presence of knowledge workers. Moreover, these high-tech jobs usually demand continuous training and competitive compensation packages. Certainly, the impact of technology on HR environment was substantial. Political Environment Factors The primary issues concerning the political environment of a nation are the nature of the political organization and system, political stability, and the prevailing political ideologies. We shall discuss them briefly. Nature of political organization and system—A political organization may mean the government organizations while a political system refers to the process of decision-making within the political organization and the extent of concentration of power. The extent of democratization of the decision-making authority and the efficiency of political institutions can determine the political environment. Political stability—Organizations normally get better attention from the government during periods of political stability. Consequently, the chances of industrial peace are better during stable periods. On the other hand, any long spell of political instability would negatively impact the economy and the industry. Prevailing political ideologies—The philosophies of the political parties are called political ideologies. They guide the approach of the political institutions towards industrial activities, particularly those involving the rights of the employees. Ideologies may also determine the government policies and intervention strategies, the attitude towards trade unions, labour legislations, and the attitude towards foreign organizations. The prevailing political environment usually influences the functioning of the HR management in many ways. For instance, HR managers have to consider the likely response of the government and/or political parties in case of retrenchment of employees. Similarly, they should be wary of the political ideologies of the ruling parties on issues like collective bargaining, social security benefits, and recruitment. Legal Environment Factors The legal environment greatly influences the operations of HRM. This environment is normally shaped up by the prevailing laws. These laws are generally classified into three categories: (i) administrative laws, which includes the regulations issued by the government, (ii) case laws, which comprise court decisions and, (iii) Constitutional laws, which include the fundamental rights of the citizens enshrined in the constitutions. As far as India is concerned, there is a plethora of laws covering different spheres of employment and thus having implications for HRM. The country has several acts to protect the rights and conditions of employees and to govern the employer–employee relations. Similarly, it has specific legal provisions for payment of wages, working conditions, terms and conditions of employment, welfare facilities, and dispute settlement. We shall now see the list of the pertinent labour laws in a chronological order. • The Workmen’s Compensation Act, 1923 • The Trade Union Act, 1926 • The Children (Pledging of Labour) Act, 1933 • The Payment of Wages Act, 1936

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

• The Employer’s Liability Act, 1938 • The Weekly Holidays Act, 1942 • The Industrial Employment (Standing Orders) Act, 1946 • The Industrial Disputes Act, 1947 • The Employees State Insurance Act, 1948 • The Minimum Wages Act, 1948 • The Factories Act, 1948 • The Mines Act, 1952 • The Employees Provident Funds and Miscellaneous Provisions Act, 1952 • The Shops and Establishments Act, 1953 • The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959 • The Maternity Benefit Act, 1961 • The Apprentices Act, 1961 • The Payment of Bonus Act, 1965 • The Contract Labour (Regulation & Abolition) Act, 1970 • The Payment of Gratuity Act, 1972 • The Bonded Labour System (Abolition) Act, 1976 • The Equal Remuneration Act, 1976 • The Sales Promotion Employees (Conditions of Service) Act, 1976 • The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 • The Child Labour (Prohibition & Regulation) Act, 1986 • The Labour Laws (Exemption from Furnishing Returns & Maintaining Registers by Certain Establishments) Act, 1988 and • The Information Technology Act, 2000 In addition to these laws, some of the articles in the Indian Constitution also guarantee a few rights as fundamental to all the citizens. These are: • Article 14: Guarantees equality before law. It prohibits any form of discrimination on the grounds of religion, race, caste, sex and place of birth. • Article 16: Provides the basis for the provisions of the special classes. This article ensures the Right of Equality of Opportunity in matters of public employment. • Article 23: Prohibits trafficking in human beings and forced labour. • Article 24: Prevents the employment of children in factories. • Article 39(d): Strives to ensure that there is equal pay for equal work for both men and women for equal jobs. • Article 39(e): Ensures that the health and strength of workers, men and women, and the tender age of children are not harmed by economic necessity to enter avocations (auxiliary or spare time activities) inappropriate to their age or strength.

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• Article 42: Deals with the essentiality of providing just and humane conditions of work for all employees and maternity relief for women employees. • Article 43: Guarantees a living wage, necessary conditions of work that assure workers a decent standard of life, full enjoyment of leisure, and social and cultural opportunities. • Article 44: Provides for the participation of workers in the management of undertakings, establishments or any other organization involved in any industrial activities. • Article 46: Strives to promote the educational and economic interests of the scheduled castes, scheduled tribes and other weaker sections. These laws and provisions create a definite legal environment. Organizations have to plan and execute their HR actions without violating the existing legal provisions. HR policies and practices should be strictly in compliance with these statutory requirements. Thus, legal factors have a far-reaching implication for HRM. Economic Environment Factors The economic environment is created by the combination of economic factors like national income, population, cyclic fluctuation in economy, labour market conditions, trade cycle, interest rate, and globalization of economy. These factors can also influence the behaviour of consumers, competitors, suppliers and employees. Naturally, the factors that create the economic environment greatly influence the functioning of HRM. For instance, when the economy is performing well, say, due to boom conditions, the demand for labour might increase in the labour market. Consequently, organizations might face difficulty in getting the requisite number of labour to accomplish its corporate goals and plans. In such a situation, organizations may be forced to offer increased compensation to the prospective candidates in the labour market. This may pose problems for the HR managers in recruitment, retention and compensation. On the other hand, in recessionary conditions, HR managers may have to face the problems of lay-offs, retrenchment and related legal problems. Further, sustaining the motivation and morale of the existing employees might also become a problem for them during this period. We shall now discuss the important factors that shape up the economic environment of an organization. Labour market—Since organizations choose new employees from outside the organization, the labour market is viewed as an external market. The demand for and supply of labour in the labour market usually influences the HR environment. The major players in the labour market from the supply side are employment exchanges, recruitment agencies, consulting firms, educational campuses, proffered candidates, and rival firms. Those from the demand side are the organizations that approach the market to recruit job aspirants in order to meet their labour requirements. The workforce in the labour market of India is usually classified into four categories: the self-employed, wage- or salary- earning employees, casual workers, and the unemployed.8 We shall now see a brief description of each of these categories. • The self-employed earn their income directly from their own business or trade. They hardly have any contact with the labour market. • Salaried employees have a relatively stable employment and remain with the same employers and in the same job for reasonably longer durations. Their contact with the labour market is not routine.

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

• Casual labourers are those who work on a day-to-day basis for daily wages. They maintain an intimate contact with the labour market. • The unemployed are those who have no rewarding occupation at present. They too keep a close contact with the labour market. According to a national sample survey, the self-employed form more than 50 per cent of the labour force in India while 32.44 per cent constitute the casual labour segment of the labour force. Around 14 per cent constitute salaried employees and the rest, i.e., just above two per cent remain idle in the unemployed category.9 The trends in the labour market have a profound influence on the HR decisions relating to recruitment, training and development, and compensation. In fact, it is imperative for HR managers to scan the labour market conditions continuously and then to devise plans to exploit such conditions to their advantage. Globalization—Globalization is another factor with a critical influence on the economic environment of Indian organizations. The new economic policy of 1991 brought in several reformist measures to India in the form of globalization, liberalization and privatization. As a result of globalization, many Indian organizations have become truly global with their operations reaching out to newer markets and countries. Similarly, many foreign companies began to operate in India without any major hassles. Thus, globalization led to an intensified competition at both the national and international levels. Globalization has influenced the HR environment in several ways. For instance, the globalization of operations enabled many organizations to achieve a lower cost and better technology. This led to a sharp decline in the importance of cost and technology as a tool of competitive advantage. Consequently, organizations were forced to develop and exploit human resources as a competitive advantage in place of cost and technology. There have been other influences of globalization as well. It has sharply increased the skill requirements of the employees. Further, global operations of organizations have brought in workforce diversity, and international recruitment and training practices. Apparently, globalization has changed the approaches and role of the HR managers by creating a profound influence on the HR environment. Competitors—A highly competitive external environment forces organizations to develop their own strategies to tackle competitors and stay ahead in the market. In fact, the HR policies of an organization depend greatly on the nature and level of competition prevailing in the external environment. For instance, when the competition is intense, the cost factors become very crucial. In such a situation, HR managers would be expected to achieve costeffectiveness in all the HR activities. However, it would not be sufficient if the HR practices achieve cost reduction alone. They should also develop a high level of commitment and loyalty among employees. This is necessary because in a highly competitive labour market environment, competitors may attempt to attract the organization’s best employees to their organizations with lucrative offers. Besides, HR managers must develop effective strategies to acquire, develop and retain competent people to enable the organization to compete in the market successfully and execute its expansions plans effectively. Trade unions—Trade unions are generally viewed as an external factor to an organization, because they often enter into negotiations with the organizations as a third party. Moreover, in countries like India, the unions are often controlled and influenced by people who have little or no connection with the organization. In spite of being external to an organization, these

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unions exert an enormous influence on its HR activities. In fact, unions provide a common platform for employees to come together and to enhance their bargaining power in the collective bargaining process. Actually, the trade unions in India play a pivotal role in determining the working conditions, welfare facilities, wages and salary, and health and safety of employees by powerfully representing the workers in talks with the managements. Thus, the influence of the labour unions on the HR environment of an organization is strong and decisive. However, in recent times, a declining trend has been observed in the membership of the unions across many countries. In several such cases, this trend is attributed to effective HR practices that create high commitment, high performance, and high involvement among employees.10 Employee-centred HR practices make the unions redundant for the employees. To minimize and, if possible, eliminate the influence of the unions as an external environmental factor, HR managers are following union-substitution efforts. Union substitution means employing those HR practices that offer good remuneration, excellent work conditions and all other relevant measures that result in the reduction of employee dissatisfaction.11 Since HR practices usually differ between unionized and non-unionized environments, it is essential for the HR managers to realize the extent of the influence of unions on the activities of the employees of the organization. Customers—The goods or services of an organization are primarily created to fulfil the wants and needs of the customers. They are the ultimate users of the products of the organization, and ensuring their satisfaction is critical to the survival of the firm. Thus, customers are the most important elements of the external environment of an organization. All the activities of an organization, including HR activities, are understandably directed towards the satisfaction of these customers. With intensified competition in the market, customer satisfaction has become the focal point of the formulation of HR practices. All HR activities should essentially contribute to the production of high-quality products, and efficient post-sales services. Thus, the HR environment should focus on achieving an increased customer satisfaction and loyalty. Shareholders—Shareholders are the ultimate owners of a business organization. They lend capital, assume risk, and get a share in its profits. Its major decisions often require the approval of these shareholders. Though the shareholders remain external to the organization in terms of the HR environment, it is pivotal for the organization to ensure the well-being of these shareholders. Thus, it is paramount for the HR managers to give the utmost importance to the interests of the shareholders while developing HR policies. In this regard, studies have shown that the organizations adopting best HR practices can increase the value of the shareholders by nearly 90 per cent as compared to their average competitors. On the contrary, companies with ineffective HR policies usually turn out negative returns for the equity shareholders.12 Hence, the HR environment of a firm is influenced by the expectations of its shareholders. Michael Porter13 has developed a famous five-force model to understand the influence of external factors on the HR environment. This model has a lot of relevance for industry environment analysis. It recognises five competitive forces that have a crucial influence on the profitability of the industry, particularly from a long-term perspective. These forces are: (i) the bargaining power of suppliers, (ii) the threat of new entrants, (iii) the threat of product substitutes, (iv) the bargaining power of buyers, and (v) the intensity of rivalry among established organizations within an industry. Box 3.2 shows the human resource environment in select countries. Having discussed the influence of external environmental factors on HRM, we shall now see the internal factors that influence the working of the HR department.

2.36

United States

7.71

6.75

Vietnam

Indonesia

7.50

5.29

6.20

6.00

6.50

5.14

6.80

6.00

4.83

6.87

6.67

3.40

2.75

3.80

2.82

2.75

4.00

2.75

Overall productivity of the labour force

6.00

2.75

5.14

4.20

7.75

6.29

5.60

6.00

2.33

4.93

5.78

4.50

3.00

1.80

1.27

1.50

1.30

1.50

Hi-tech proficiency

7.50

4.86

4.00

4.00

9.00

5.60

2.89

1.20

3.25

3.00

3.82

1.88

7.00

1.88

Threat of labour unrest

6.68

5.90

5.89

5.50

5.24

5.17

5.11

4.17

3.91

3.61

3.32

3.00

3.00

3.00

Average

1. The grades are on a 0-to-10 scale, with 0 representing the best grade possible and 10 the worst. 2. The grades are based on the survey responses of expatriates living in each country, except for Australia and the United States, where the grades are based on the surveys of the nationals of each country living in Asia. 3. Seven categories, from a total of 18 assessed in the survey, have been presented in the table. The average is based on these seven categories. The survey grades should not be taken too literally for cross-country comparative purposes. Respondents in one country, for example, China, were assessing the situation there for a particular category, whereas respondents in Malaysia were focusing only on Malaysia. There is no reason to expect respondents to have given a grade while keeping other countries in mind.

Notes:

8.00

6.86

7.40

7.00

4.53 4.33

4.07

6.22

5.00

5.00

4.00

3.09

4.00

1.00

4.00

Availability of high-quality management staff

3.13

3.11

5.60

6.25

5.00

6.64

5.75

1.00

5.75

Cost of management staff

Source: Political and Economic Risk Consultancy; www.asiarisk.com. Reproduced with permission.

7.00

Thailand

3.33

6.67

5.17

Korea

China

4.47

7.13

Philippines

4.60 5.67

4.90

5.44

Malaysia

2.25

4.00

3.27

2.63

3.00

2.63

Overall skill level of the labour force

Hong Kong SAR

3.67

2.50

Singapore

4.88

3.70

India

Taiwan

2.50

Australia

Japan

Quality of the local education system

Human Resource Environment in Select Countries

Country

Box 3.2

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

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Internal Factors The factors that are internal to an organization are called the internal environmental factors. These factors can be influenced by the organization as it remains within the control of the management. We shall now discuss those internal factors that influence the HR activities of a firm. The Vision and Mission of the Organization The vision and mission statements of an organization strongly influence its HR environment. An organization with a clearcut vision and mission has better chances of developing the best HR practices. It can also accomplish its corporate goals successfully. In fact, HR policies are usually derived from the vision and mission statements of an organization. Further, specific and unambiguous vision and mission statements have the potential to motivate the employees on a sustained basis. They can also ensure that all the HR activities are properly coordinated and directed towards the achievement of common goals. The eventual success of an organization depends critically on its ability to combine various HR practices with a focus on the accomplishment of organizational goals and objectives. When the mission and vision statements are prepared in close consultation with the employees, it definitely helps the organization in achieving a better involvement of and cooperation from the employees in accomplishing its mission and realizing its vision. They may also extend their cooperation for those HR activities that are based on such a mission and vision. Finally, a periodic review of the mission and vision in the light of the developments in the external environment is also important for improving the effectiveness and relevance of HR practices on a sustained basis. In contrast, the absence of specific and contemporary mission and vision statements can cause difficulties in the coordination of various HR practices and effective utilization of the human resources of the organization. Box 3.3 depicts the diversity management efforts of an IT company. Business Strategy An organization’s business strategy helps it to meet the challenges of the external environment. It also helps the organization determine its direction, plan its activities and allocate its precious resources to exploit the opportunities emerging in the external environment. The business strategy greatly influences the HR environment of an organization. Today, an important prerequisite for the success of an organization is the effective alignment of HR practices (strategies) with the business strategies. In fact, the nature of the relationship between HR strategies and business strategies is such that they contribute to each other’s improvement. For instance, the overall corporate strategy is developed on the basis of the strength of the functional strategies like production strategies, marketing strategies and HR strategies. In return, specific HR activities are developed on the basis of the corporate strategy. Thus, it is important to ensure that HR activities are a perfect fit with the mission of the organization and its strategic plans in particular. To achieve an optimum integration between business strategy and HRM, it is essential to ensure an effective cooperation and communication between the top management and the human resource department. However, many studies have shown that is difficult to achieve a complete integration between business strategy and HRM.14 Organizational Culture The tradition, past practices, languages, values, beliefs, meanings and norms of an organization together form its culture. Each organization develops its own culture and the unique nature of its culture provides it a sense of identity and exclusiveness. The organizational culture creates a common understanding among its members. It also exerts a tremendous influence on the behaviour of the members. However, the culture

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

Box 3.3

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Creating an Inclusive Work Environment—An Infosys Endeavour

Many inter-related factors that include both external and internal environmental factors influence the creation and maintenance of a dynamic organizational environment. Of these factors, the handling of the internal factors by an organization goes a long way in stabilizing its environment. Diversity management is one of the key internal factors in the successful creation and management of a dynamic HR environment. It is essential for an organization to respect the individual differences and uniqueness among different sections of the workforce to ensure a peaceful coexistence and harmonious work environment. In this regard, Infosys’ style of management of its work environment can be cited as a relevant example. Infosys has an exclusive diversity office to take care of the specialized needs and aspirations of its diversified workforce that includes women, who comprise 32.4 per cent of the total workforce, foreign nationalities representing nearly 70 countries, newly recruited employees, physically challenged people and working mothers. It maintains target-oriented and active employee networks to promote the lot of the disadvantaged employee

segments. For instance, the Infosys Women Inclusivity Network (IWIN) facilitates gender equality by mentoring prospective women employees to take up challenging work assignments. It also helps women employees who avail maternity leaves and long sabbatical leaves to stay in touch with the organization. Further, the diversity office keeps strong grievance identification and redressal forums like HEAR (hearing employees and resolving), which settles the grievances of these people and reports cases of discrimination, and ASHI (anti sexual harassment initiative), which allows women employees to report harassment and be heard by unprejudiced people. Other measures to promote an inclusive work environment include satellite offices for new mothers, telecommuting, paid maternity and paternity leave, flexi hours, and extended sabbatical leave. In the middle of 2008, Infosys undertook further initiatives like “diversity dash boards” and “inclusivity surveys” to inculcate the value of respecting diversity and supporting the feeling of inclusiveness among employees. Source: http://www.infosys.com; Reproduced with permission.

of an organization as an internal environment factor can not be created overnight. It requires a great deal of time and effort to develop it. Certainly, organizational culture creates an internal environment within which HR activities are developed and performed. Many studies have shown that the strength of the corporate culture has a definite impact on the corporate policies such as HR policies, the management structure, and the financial structure.15 Therefore, human resources strategies need to be closely aligned to the culture of the organization. Moreover, the organizational culture should be continuously improved by reinforcing those factors that form the culture of an organization. Box 3.4 exhibits the elements of a culture formation exercise. Organizational Structure The organizational structure is the physical hierarchy of an organization. It is an important component of the internal environment of an organization. It deals with the way the firm delegates, controls and coordinates the authority, responsibilities and accountability among the members of the organization. The organizational structure has a critical influence on the HR practices of the organization. For instance, the structure helps in grading and grouping the jobs in the organization. This grading, in turn, helps in developing the recruitment process for each job or category of jobs. Similarly, the structure also helps in determining the ideal number of subordinates for each manager. Obviously, HR managers rely heavily on the organizational structure while determining the HR policies and practices. Many of the HR practices like compensation management, promotions, and training need to be considered in the context of the associated organizational structure.16 In many organizations, the structure is usually hierarchical in nature. In fact, a hierarchical structure ensures consistency and the quality of decision making.

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Box 3.4

Fostering a Positive Culture—A TCS Initiative

The organizational culture is a phenomenon that surrounds an organization all the time and constantly influences the behaviour of its members. It is itself influenced by the leadership styles and set of structures, norms, routines, and the vision of the founders. It is the responsibility of the organization to develop the right kind of culture to enable the employees, mainly the new entrants, to learn the values of the organization. In fact, the prevailing culture would demonstrate the effectiveness of an organization. Of late, organizations are exposing their workforce to a multi-culture environment in order to prepare them to work in a global environment and to understand cultural diversity. In this regard, the culture-building initiatives of TCS are worth mentioning here.

TCS fosters a strong and positive culture through unique HR practices like a rewards-driven career development path, opportunities to work across technologies, industry domains, functions and geographies, and a healthy work–life balance. Similarly, it adds flexibility to the work environment by properly managing workforce diversity with the help of HR measures. For instance, it provides continuity of service for women who temporarily discontinue work due to family reasons and rejoin later. It organizes TCS Maitree, a novel HR initiative which lends support system to the families of TCS employees who work outside their countries by assisting them to have a healthy work–life balance. Adapted from: http://www.tcs.com/ about/Pages/default.aspx.

HR System HRM as a system signifies interconnected but separate elements (called sub-systems) functioning together to realize the overall goal of the organization. The sub-systems that are inter-related with the HRM system are production sub-system, marketing sub-system, technical sub-system, and purchase sub-system. These sub-systems interact with the HR system and also among themselves to accomplish the predetermined goals and objectives. The success of HRM depends on how effectively it is integrated with other systems in the organization. Thus, the HR system as an internal factor also influences the HR environment of an organization.

Environment Perspectives Environment perspectives facilitate the understanding of the relationships between an organization, its strategies and the environment. In fact, the primary purpose of an organization in scanning the environment is creating a proper fit between the external environment and its business strategies. On the basis of strategy and environment-fit perspective, an environment can be classified into three categories. These are the objective environment perspective, perceived environment perspective, and enacted environment perspective. We shall now see these perspectives briefly.

The Objective Environment Perspective The objective environment is based on the assumption that the environment is a real phenomenon but functions independently of an organization.17 This environment is complete but has all sorts of uncertainties. Therefore, it is necessary for an organization to analyse the environment with the objective of ascertaining the emerging opportunities and threats associated with it. After that, these opportunities and threats must be correlated with the strengths and weaknesses of the organization to evolve appropriate strategies. Such an analysis usually forms the basis for developing or revising the objectives and strategies of the organization.

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

The Perceived Environment Perspective This is based on the perspective that the environment is real and material. The uncertainty in environment is caused mostly by an analyst’s wrong perception of the realities of the environment. The differences between the reality of the environment and the perception of such a reality might lead to the designing of flawed strategies. The environment can not be blamed for those flawed strategies; rather, the analysts’ inaccurate perception arising out of their incomplete knowledge of the environment might be the problem.18 Thus, uncertainty is more of an internal problem than an external one. To achieve a good fit between the strategies and the environment, according to this method, it is highly essential for an organization to control and eventually eliminate those factors that cause an imprecise assessment of the environment and an inaccurate perception.

The Enacted Environment Perspective This is based on the perspective that the environment is not real or concrete but merely a creation of the participants of the environment. Based on its information, knowledge and perception, each organization creates or enacts an external environment. Thus, an environment is simply enacted through the interaction of all those who are associated with it. Each organization can create its own environment based purely on its own knowledge of the environment. Thus, an environment is enacted by an organization through a repeated defining, revising, and narrowing of its information or knowledge of the external environment. In this case, the term environment is merely a name provided to the various related activities performed in a social context. In the words of Smircich, “From the standpoint of strategic management, strategists’ social knowledge constitutes their environment.”19

Environmental Scanning—An Over view Environmental scanning means defining and measuring the environment in terms of the opportunities and threats. Environmental scanning is absolutely essential for the success of an organization, especially in a changing business environment. It provides a crucial input for business strategy formulation.20 The aim of environmental scanning is to identify the emerging issues that may have a bearing on the future of the organization. These issues may originate from the changes in the social, political, legal or economic environment of the company. There are different sources available for an organization to collect information about the trends and issues emerging in its external environment. Some of them have been listed as follows: 1. A careful analysis of the relevant trade journals, magazines, newspapers and Internet articles to know the trends in the external environment. 2. Gathering information from the stakeholders like customers, distributors, stockists, sales personnel, suppliers and investors. 3. Continuously interacting with the select group of people (other than stakeholders) associated with the external environment. 4. Employing professional business analysts to detect the changes in the environment. 5. Attending trade conferences, symposia, and workshops to find out the trends in the environment. 6. Securing membership in trade bodies and associations to gather information on a sustained basis.

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Organizations, depending upon their nature and size of the business, may employ appropriate tools to gather relevant information from one or more of these sources. In this, the large organizations usually employ an extensive range of tools to gather the necessary and accurate environmental information for analysis and interpretation. The smaller organizations may employ simple and easy-to-use tools for sourcing information about the external environment. Some of the important ways of gathering data from different sources are: 1. Structured interviews with select respondents 2. Surveys like mail and phone survey 3. Forming focus committees or response teams 4. Online information gathering through dedicated Web sites or Internet surveys Once the necessary information is gathered and processed, the response of the organization to the emerging trend in the environment is determined. In fact, the nature, level and time of the response will depend on the conditions prevailing in the environment and their implication for the organization. For the purpose of determining the nature and kind of response, the external environment is generally classified into four categories. These are stable environment,reactive environment, anticipatory environment and an initiative environment based on the characteristics defining such an environment.21

The Environmental Scanning Process Environmental scanning process comprises three major phases. As shown in Figure 3.3, these phases are environmental scanning, perceived environment changes, and strategic changes. However, these processes are interdependent and interact among themselves. We shall now see each of these processes briefly.

Environmental Scanning Stages This is the first stage in the process of environmental scanning. This stage involves gathering information about the changes in the factors influencing the environment. The collected information would be used as a basis for determining the future course of the action of the organization. There are three factors that typically influence the environmental scanning stage. These are: External Environmental Factors These factors operate outside the purview of the organization and yet influence its HR environment. These may include, among others, social, economic, political, technological and legal factors. In precise terms, the organization should gather information relating to the competitors’ present and future strategies, market conditions, impending technological changes, relevant legal provisions, and financial issues. Internal Environmental Factors The information concerning the factors that are internal to the organization should also be collected. As part of this process, specific information about the vision and mission of the organization, business strategy, organizational culture and structure, and research and development is collected. However, an effective flow of communication among different authorities is essential for gathering comprehensive information about the individuals and the organization.

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

External Context/Changing Environment Scanning strategies

Perceived environmental change

Environmental scanning

Strategic change

Internal factors Figure 3.3 A Model of the Environmental Scanning Process

Source: Zita Correia and T. D. Wilson, “Scanning the Business Environment for Information: A Grounded Theory Approach,” Information Research, 2, no. 4 (1997); available at http://informationr. net/ir/2-4/paper21.html. Reproduced with permission.

Scanning Strategies The organization should develop its own strategies for information gathering and management. The strategies thus developed should be systematic and scientific in nature. Such strategies can ensure the accuracy and timeliness of the information. As part of the scanning strategies, an organization should prioritize the sources and the information. For instance, the organization should decide about the extent of using formal versus informal source or personal versus impersonal source, before embarking on data gathering.

Perceived Environmental Change The managers’ perceptions of changes in the environment and their likely effects on the organization greatly influence the strategy formulation process. In fact, it is the perception of managers that carries more weightage in determining the response of the organization to the environmental changes than the reality of the environment. Thus, the accurate perception of the environment and its changes become all the more important for decisions relating to strategic responses. As part of this process, managers generally classify the changes in the environment as serious, important, unimportant, and so on. Such classification helps them in determining the timing and intensity of the response of the organization to the changes. The basis of this classification lies in the perceptions of the managers. However, when the managers gather more information about the environment, their perception about the environment is bound to change. Such changes in their perception may bring them closer to the reality. The process

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of scanning the environmental changes and the perception of the relevance of such changes for the organization reinforce each other mutually.

Strategic Change This is the final stage in the environmental scanning process. In this stage, organizations make required changes in their HR strategies based on those in the environment. For instance, an organization may change its employees’ training programmes, compensation packages, safety measures, and recruitment practices as part of its response to a changing environment. Nonetheless, the ultimate purpose in choosing a specific response would be the exploitation of the prevailing environment to the advantage of the organization. Indeed, the presence of dynamic HR policies could help the organization in managing the changes promptly and effectively.

Summary 1. The different phases in the evolution of human resource management are Industrial Revolution, First World War, Hawthorne Studies, Second World War, industrial and human relations movement, formalized human resource management and contemporary human resource management. 2.

The external environmental factors are social, technological, political and economic.

3. Social environment factors include demographics and educational status. Political environment factors include the nature of political organization and system, the prevailing political stability, and political ideologies. Economic environment factors

include labour market, globalization, competitors, trade unions, customers and shareholders. 4.

Internal environmental factors include the vision and mission of the organization, business strategy, organizational culture, organizational structure, and HR system.

5. Various environment perspectives are objective environment perspective, perceived environment perspective, and enacted environment perspective. 6. The steps in environmental scanning process are environmental scanning, perceived environmental change, and strategic changes.

Review Questions business environment.’ In the light of this statement, discuss the importance of environmental scanning.

Essay-type questions 1. Evaluate critically the growth of human resource management over a period of time. 2.

Discuss in detail the external environmental factors influencing human resource management.

3.

Enumerate the internal factors shaping the HR environment of an organization.

4. Examine the various HR environment perspectives critically with relevant examples. 5.

‘Environmental scanning is absolutely essential for the success of a firm, especially in a changing

6. Describe the steps involved in the environmental scanning process with suitable examples. 7.

Examine critically the impact of socio–political, legal and technological factors on the HR environment of an organization.

8. As an HR manager, how would you scan the external environment to gather the necessary information for deciding the strategic response of the organization?

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Skill-development Exercise Objective – The objective of this exercise is to show you how to scan an external environment in order to identify the opportunities and threats emerging in that environment. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager, (2) two HR team members, (3) a marketing manager, (4) a production manager, and (5) two observers of the meetings. The role of the observer is to observe and report on the various aspects of the role-playing sessions. Situation

HR managers was formed with a mandate to study the environment and present a report on the implications of these changes for the future prospects of the company. The HR manager was appointed the convener of that committee. The committee finalized its modus operandi in such a way that the individual members would first prepare reports from the perspective of their own respective departments and then they would sit together to consolidate these reports before presenting the final report to the management. Steps in the exercise There are four steps in the exercise:

Carmart Limited is a major two-wheeler manufacturer in the country. It has a decent market share in the industry. It also enjoyed relatively stable sales and profit for quite some time. However, the recent entry of a few multinational companies into the industry and the announcement of a few industry-specific policy measures like lowering tariffs and other incentives by the government have completely changed the overall prospect of the industry. In addition to these, the government also amended the bonus act by removing the ceiling on the maximum bonus amount payable to employees. All these developments have immensely influenced the external environment by throwing new opportunities and challenges before Carmart.

Step 3: The HR manager holds a committee meeting attended by all its members—both the production manager and the marketing manager are present—to prepare a consolidated report of the committee to be forwarded to the management.

Understandably, the management felt an acute need to scan the external environment in depth. In this regard, a committee comprising the production, marketing and

Step 4: The observers analyse the role-playing session and give their feedback on the performance of the members.

Step 1: The HR manager convenes a departmental meeting to decide the manner of gathering information about the external environment. The meeting is attended by two HR team members. Step 2: After gathering the relevant information about the external environment, the HR manager once again convenes the departmental meeting to prepare his report on the external environment from the HR perspective.

Case Study Amity Brakes Limited produces automobile spare parts on a large scale and supplies them to several major automobile producers in the world. This Hyderabadbased multinational has a commendable sales and profit performance. It is also a market leader in its area of operation. The company has a staff strength of 9,500 on its roll. As part of its platinum jubilee celebrations, the management recently did self-introspection of its functioning by analysing the relevance of its mission, vision, policies and programmes covering all aspects of the organization. As far as HRM was concerned, the management concluded that the workforce composition of the organization was not reflecting the reality of the diversified nature of

the labour market. In fact, the HR policy of the company was not offering equal opportunity to all segments of the labour market. The number of women employees in the workforce was insignificant while the number of physically challenged persons was trivial. Thus, the company took an administrative decision to change its recruitment policy in a way that would reflect the labour market conditions. Also, its management decided to implement these changes with immediate effect. The proposal of the management received a mixed response from the employees. A section of the employees viewed the proposal favourably and supported it on the

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ground that it would do social justice, reflect the reality of the market, make optimum utilization of the talents available in the market, and prepare the organization for an inclusive growth. However, another section of the workforce viewed the proposal with doubt and disbelief as they felt that a well-performing organization like Amity should not take any unwarranted risk. They also feared the cost of training would go up substantially. Besides, they were afraid that gender-related issues could crop up in the organization. Further, they foresaw an additional investment commitment by the management to improve the infrastructure facilities, especially for the physically challenged.

implementation of the diversity-based HR policy initiatives. The HR department prepared the ground for the implementation of new ideologies and of the policies of the company. Soon after, the proportion of the employees belonging to these categories began to pick up.

Finally, however, the company went ahead with its revised policy and implemented it. It also directed the HR department to do what was necessary for the successful

3. Do you have any better suggestions and strategy for the company to adapt itself to the emerging labour market environment?

Questions for discussion 1.

How do you view the new proposal of the company in the light of the current performance of the company?

2. Do you foresee any problem for the company in the execution stage of the proposal?

Notes 1. Paul Evans, Vladimir Pucik, and Jean-Louis Barsoux, The Global Challenge: Frameworks for International Human Resource Management (Burr Ridge, IL: Irwin/McGraw-Hill, 2002). 2. John Bratton and Jeffrey Gold, Human Resource Management: Theory and Practice, 4th ed. (Basingstoke, England: Palgrave Macmillan, May 2007), pp. 4–14. 3. T. Keenoy, “HRM: Rhetoric, Reality and Contradiction,” International Journal of Human Resource Management, 1, no. 3 (1990): 363–84. 4.

Tom Redman and Adrian Wilkinson, Contemporary Human Resource Management: Text and Cases, 2nd ed. (Prenctice-Hall, 2004) pp. 4–8.

5. Peter Drucker, “The Coming of the New Organization,” Harvard Business Review, (January– February 1998): 45. 6. Jennifer Schramm, “HR Technology Competencies: New Roles for HR Professionals,” HR Magazine, 51 (April 2006): 1–10. 7.

Mariele G. Heijltjes, “Advanced Manufacturing Technologies and HRM Policies: Findings from Chemical and Food and Drink Companies in the

Netherlands and Great Britain,” Organization Studies, 21, no. 4, (2000): 775–805. 8. Suresh D. Tendulkar, “Organised Labour Market in India Pre- and Post-Reform,” December 2003; available at www.globetrotter.berkeley.edu/ macarthur/inequality/papers/TendulkarLabor.pdf. 9.

National Sample Survey Organization, “Employment and Unemployment Situation in India, 1999– 2000”, NSS 55th Round, Report No. 458 (55/10/2), Part I, May 20, 2000.

10. Anil Verma, Thomas A. Kochan and Stephen J. Wood, “Union Decline and Prospects for Revival: Editors’ Introduction,” British Journal of Industrial Relations, 40, no. 3 (September 2002): 373–84. 11. Stephen Machin and Stephen Wood, “Human Resource Management as a Substitute for Trade Unions in British Workplaces,” Industrial and Labor Relations Review, 58, no. 2 (January 2005). 12.

Watson Wyatt’s “North American and Asia–Pacific HCI Studies” referred by HRM Delivers Shareholder Value; available at http://www.hrmguide.co.uk/ human_resource/human_capital_index.htm.

13. M. E. Porter, Competitive Strategy (New York: Free Press, 1980).

THE EVOLUTION AND ENVIRONMENT OF HUMAN RESOURCE MANAGEMENT

14. C. Brewster, “The Integration of Human Resource Management and Corporate Strategy” in C. Brewster and A. Hegewisch (eds.), Policy and Practice in European Human Resource Management (London: Routledge, 1994), pp. 23–35. 15.

Edgar H. Schein, “Organizational Culture and Leadership”; available at http://www.themanager.org/ knowledgebase/hr/corporate_culture.htm.

16.

Pat Joynt and Bob Morton (eds.), The Global HR Manager: Creating the Seamless Organization, The Chartered Institute of Personnel and Development, (1999), pp.130–135.

17.

J. Child, “Organizational Structure, Environment, and Performance: The Role of Strategy Choice,” Sociology, 6 (1972): 1–22.

18.

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R. B. Duncan, “Multiple Decision-Making Structures in Adapting to Environmental Uncertainty: The Impact on Organizational Effectiveness,” Human Relations, 26 (1973): 273–291.

19. L. Smircich and C. Stubbart, “Strategic Management in an Enacted World;” Academy of Management Review, 10, no. 4, (1985): 724–736. 20.

R. Beale, “Competing Effectively: Environmental Scanning, Competitive Strategy and Organizational Performance in Small Manufacturing Firms,” Journal of Small Business Management, 38, no. 1 (2000): 27–48.

21. H. Igor Ansoff, Corporate Strategy, revised ed. (London: Penguin, 1987).

PART II:

HR Procurement

CHAPTER

4

Job Analysis and Design

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the features and purpose of a job analysis process 2 List the techniques of data collection 3 Differentiate between job description and specification 4 List the role of the environment in influencing job design 5 Enumerate the critical components of a job design 6 List the recent trends in a job design

Dr Reddy’s Laboratories is an India-based pharmaceutical company with a presence in more than 100 countries and six continents. The company develops, manufactures and markets an extensive variety of pharmaceutical goods in India and abroad. Dr Reddy’s is the first Asian pharmaceutical company, besides Japan, to get listed on the New York Stock Exchange. The company has more than 10,000 employees, comprising 45 nationalities, on its staff. It has won several awards for its excellent HR policies and practices. For instance, the Asia–Pacific HR Congress honoured it with the Global HR Excellence Awards 2008–09 for its outstanding human resource practices. Similarly, it has won the prestigious The Economic Times Best Workplaces 2008 award for the biotech/pharma industry category. The unique features of the HR practices of Dr Reddy’s are its emphasis on accelerated career growth for high performers, performance

enhancement and coaching tools (PERFECT), periodic organization-climate surveys, 360°- feedback survey, and the creation of a learning organization. Besides, the company has developed comprehensive job analysis reports for all the job titles in the organization and uses them extensively for all its HR activities, including recruitment and selection, training and development, compensation management, and performance evaluation. For instance, during recruitment, the company provides comprehensive information about each job under headings such as the position title, reporting authorities, location, academic background and experience, job responsibilities, and key personal attributes. Job analysis forms the basis for this information, which enables prospective candidates to make an informed decision about their response to the job advertisements. Thus, job analysis and design facilitates better management of human resources and we will look into their significance and applications in this chapter.

JOB ANALYSIS AND DESIGN

Introduction Job analysis is an essential prerequisite for the effective management of the human resources of an organization. It is the process of gathering relevant information about a job. It actually specifies the tasks involved in a job and the factors that influence the performance of that job. As a process, it is capable of producing results with great practical relevance for human resource management. Job analysis has applications in almost all the HR activities of an organization. It acts as the basis for decisions involving human resource planning, recruitment and selection, training and development, compensation fixation, job evaluation, performance evaluation, career management, and health and safety of employees. In reality, the job analysis process involves ascertaining what people do and understanding why and how they do it. This enables organizations not only in identifying the problems but also in developing their solutions. As such, the primary purpose of a job analysis is to provide solutions to virtually all employee-oriented problems in an organization. Due to swift changes in external environmental factors like technology, labour-market conditions and competition, the characteristics and requirements of jobs in the organizations often undergo changes. In such an environment, it becomes necessary for an organization to conduct a job analysis to know the impact of the changes on the requirements and nature of the jobs. Thus, a job analysis helps the organization in assessing how environmental challenges affect the individual jobs. Of course, the purpose of a job analysis is multi-dimensional in nature and it involves studying different aspects of a job. Generally, it deals with (i) realities, (ii) perceptions, (iii) standards, and (iv) future strategies of a job. For instance, it studies the realities of a job by finding out what employees actually do in their position. It studies the perceptions by ascertaining how employees view their jobs and believe what they do in their jobs. Similarly, it studies standards by checking with the employees what should be done in their jobs. And finally, it relates with the future strategies by ascertaining the future potential of the employees in their jobs. The job analysis process is capable of generating a wealth of information for an organization. This information is usually classified into three categories: (i) job content, (ii) job context and (iii) job holders’ requirements.1 Among these, job content refers to the actual activities performed in the job being analyzed. Job context refers to the conditions in which the job is done. Job holders’ requirements refer to the workers’ eligibility requirements for doing a job. Conventionally, the information relating to the content and context of the jobs are included in a job description document whereas the information about the job holders’ eligibility like the necessary knowledge, skills, experience and attributes is included in a job specification document. Box 4.1 shows how the term job analysis has been defined by different management experts. We may define job analysis as a process of gathering relevant information about various aspects of a job, including its content, context and the job performer’s skill requirements.

Features of Job Analysis From the definitions in the preceding section, we can list out the features of job analysis as follows: • Job analysis is a process of gathering relevant information about various aspects of a job and is concerned with the identification of tasks required to be performed as part of it.

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Box 4.1

Definitions

“Job analysis involves gathering data about observable job behaviors, and delineating the knowledge, skills, abilities, and other characteristics needed to perform the job.”2 —R. J. Harvey

“Job analysis covers a host of activities, all of which are directed toward discovering, understanding, and describing what people do at work.”5 —M. T. Brannick and E. L. Levine

“Job analysis is the process by which data in regard to each job is systematically observed and noted. It provides information about the nature of job and the characteristics or qualifications that are desirable in the job holders.”3 —Arun Monappa and Mirza S. Saiyadain

“Job analysis is the process of collecting, analyzing, and setting out information about the content of jobs in order to provide the basis for a job description and data for the recruitment, training, job evaluation and performance management.”6 —Michael Armstrong

“Job analysis is the systematic process of determining the skills, duties, and knowledge required for performing jobs in an organization.”4 —R. Wayne Mondy et al.

• It approaches the task of defining the role, context, conditions, human behaviour, performance standards, and responsibilities of a job systematically. • It helps in establishing the job’s worth to an organization. In other words, it measures the value and contribution of a job to the growth of the organization. • It establishes job relatedness, which is a crucial input for HR decisions involving recruitment, selection, compensations, training, health and safety. • It assists in the resource management and strategy formulation process of the organization to help it achieve its business goals and objectives effectively. • It helps in developing a job profile for each job and acts as the basis for developing job description and specification statements. • It helps in identifying the appropriate job for each employee so that the skills and knowledge of these employees are utilized for the growth of the organization effectively. • It facilitates the process of understanding the impact of environmental changes on individual jobs. • It assists the organization in identifying and removing the unnecessary skills and other requirements for a job. This helps in simplifying the eligibility for the job and also in ensuring equal opportunity for all in employment. • It enables the organization to attempt job improvements through job reengineering and job enlargement to provide enhanced motivation and satisfaction for employees.

Important Terms in Job Analysis As discussed earlier, job analysis encompasses almost every aspect of the job being analysed. We shall first familiarize ourselves with key concepts ahead of a detailed discussion of the different dimensions of job analysis.

JOB ANALYSIS AND DESIGN

Job It means a role performed by a person in an organization. Normally, a job comprises several related tasks required to be performed as part of it. Each job is defined by the duties, responsibilities and accountabilities associated with it and the knowledge and skills required to perform it. Obviously, each job is known by its title or alternative title. Sales managers, accountants and nurses are a few examples of such jobs.

Task A task is an act which is performed as part of a job. It is a distinct unit of work and yet forms an element of a job. It is carried out through a combination of methods, procedures and techniques. For instance, planning is one of the tasks of the manager.

Duty It is an obligation for a worker to do a job as part of a legal or moral reason. It specifies the different tasks needed to be performed as part of a job. For instance, issuing reservation forms, collecting the filled-in forms together with the money, booking reservations, and tendering the reserved tickets along with the balance money are the duties of a reservation clerk.

Position It is the place of an employee in the organization structure and is commonly known by the relevant job title. It represents the combination of tasks and duties performed by the employee in a predetermined job location. Sometimes, same positions might indicate different but equivalent jobs performed in an organization. For instance, a cash clerk might deal with the receipt and disbursement of cash, a bill clerk might deal with bills of exchange, and an accounts clerk might be in charge of accounts-keeping and maintenance.

Occupation It is something that engages the time, thought and attention of an employee. It refers to the common categories of jobs. These jobs are usually similar in nature with common job features.

Career It broadly refers to an employee’s progression in his or her work life. It indicates the chronological sequence of positions occupied by an individual in his or her profession.

Goals of Job Analysis The initial objective of a job analysis is to decide whether the job under study is really required for the organization. The remaining purposes of job analysis come into the picture only when it is confirmed that the continuation of the job is essential. Overall, a job analysis seeks to gather information about the job under two broad categories. These are (i) primary job requirements and (ii) job-related knowledge, skills and abilities (KSA) requirements. Under the primary job requirements category, a job analysis aims at gathering information relating to the context, conditions, duties and responsibilities of the job. With regard to the KSA category, job analysis gathers the necessary information for determining the extent of knowledge, skills and abilities required for a person to meet the job requirements

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Wages and Salary Administration Safety and health Industrial relations Legal requirements

Job Analysis

Human resource planning Recruitment/selection Training and development Performance evaluation

Job evaluation Job design Job classification Job specification

Figure 4.1 Uses of Job Analysis

completely and to perform the job successfully. This information, compiled through job analysis, is used for almost all HR-based decisions. The utilities of job analysis information in human resource management are illustrated in Figure 4.1. We shall now see how this information is used in various HR activities productively.

Job Evaluation Job evaluation is actually a system of ranking jobs in a firm on the basis of their relevant characteristics, duties and responsibilities. The primary objective of undertaking job evaluation is to measure the relative worth of the job to an organization. Understandably, an organization would like to determine the pay scale of a job on the basis of its comparative merit within the organization and its competitive merit in the labour market. Job analysis offers critical inputs for systematic job evaluation, which in turn enables an organization to offer a fair pay to its employees. Thus, job analysis helps in motivating the existing employees and also in attracting the best people to the firm.

Job Design and Redesign Job design is the process of bringing together different tasks to build a job. The process of designing a job is often influenced by job requirements, employee satisfaction, and organizational goals. A job is designed when it is introduced for the first time and redesigned when it is replaced with new jobs. When the job is redesigned to improve the efficiency of and the economy in the performance, it is called industrial engineering. On the contrary, if

JOB ANALYSIS AND DESIGN

it is redesigned to create a fit between the job and the efficiency levels of the employees, it is known as human engineering. In any case, organizations have been forced by the rapid changes in the environment to undertake job redesigning as often as possible. Now, job analysis forms the basis for any job designing and redesigning process.

Job Classification Job classification means grouping types of work on the basis of their similarity. The basis for such grouping could be the level of difficulty, authority, responsibility and accountability of a job and the job holder’s behavioural requirements. The purpose of classifying the job is to enable the firm to determine the level of skills required for each group of jobs. As such, job classification enables the organization to identify a uniform procedure for selecting, training and compensating similar types of jobs. This is where job analysis presents the necessary information to the organization for proper job classification and grouping.

Job Description and Job Specification The last stage in the job analysis process is the preparation of two essential documents—job description and job specification. The written statement of the findings of job analysis is called a job description. It provides information about job title and alternate titles, duties, authorities, responsibilities, accountabilities, reporting authority, relationship with other jobs, working conditions, and job summary. Job specification, on the other hand, is a statement about the appropriate skills, knowledge, qualification and other characteristics required for the effective performance of the duties and responsibilities associated with the analysed job. Thus, job analysis forms the basis for developing both job description and job specification. (Job description and specification have been discussed in detail later in this chapter)

HR Planning HR planning is the process of forecasting the human resource requirements of a firm and their availability, both within and outside the organization, to execute future corporate strategies. The purpose of HR planning is to choose the right person for the right job at the right cost. It aims at linking human resource management with the goals, mission and visions of the organization. In fact, the HR plan determines the number and types of personnel required to perform the job effectively and to accomplish the goals successfully. Job analysis is the first step in the whole HR planning process. It enables an organization to create a fit between the demand for and supply of human resources by providing the necessary information about the job and the job holders.

Recruitment and Selection Once there is a job vacancy, an organization can conduct a job analysis to determine whether that vacancy should be filled up or not. If the findings of the job analysis do not support the continuation of that job in the organization, the particular vacancy need not be filled up. On the other hand, if the job continues to be necessary, the organization may proceed with the process of recruitment and selection. In this case, job description and job specification usually form the basis for the recruitment strategy and selection process. For instance, choosing between the internal and external sources of recruitment for filling up a job usually depends on the job description statement.

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Similarly, job specification provides the basis for an objective assessment of the candidates in the selection procedure. It helps HR managers distinguish between the essential and the desirable requirements for a job. It also facilitates the process of identifying the criteria for determining the success or failure of a candidate in the selection process. If any selection is done without conducting a job analysis or on the basis of a poorly written job description, the organization may have to face serious problems at a later stage.7

Training and Development Job analysis provides crucial input to an organization while determining the training needs of its employees. Job description and specification can provide exact information about the levels of skills and knowledge required for a job. In the event of non-availability of people with the requisite skills at the end of the selection process, the organization can choose from the candidates available and train them to gain the necessary skills based on the job specification statement. Thus, job description and specification play an important role in determining the content, duration and method of training for a job. Job analysis also helps in determining the training needs of the employees holding different positions in the organizational hierarchy. By providing information about the future potential skills required for the job, job analysis also helps the organization in deciding the long-term development programmes for its managerial personnel.

Performance Evaluation Performance evaluation is the process of determining the performance efficiency of the employees of an organization. It requires setting of standards and evaluation criteria for each job before comparing them with the actual performance. Job analysis provides the required information about the duties, responsibilities and standards of the job. Apparently, the accuracy in the results of the performance evaluation is critical for different HR decisions involving pay fixation, promotion, disciplinary actions, grievance identification, and employee feedback. This accuracy and reliability of performance evaluation depends critically on the efficacy of the job analysis mechanism. Undoubtedly, an objective performance evaluation based on accurate criteria will protect the organization from charges of discrimination and victimization.

Wages and Salary Administration The compensation package should reflect the worth of a job to the organization exactly. Job analysis helps the organization in determining the relative worth of each job. The information available in the job description about an employee’s duties and responsibilities, level of difficulties, skill requirements, work environment, and location of the job in organizational structure helps the firm in determining the proper compensation package for each job. The employees’ perception of fair pay will, in turn, help the firm in achieving the desired level of motivation, attrition rate and job satisfaction.

Safety and Health Job analysis can provide exact information about the nature and type of work conditions essential for an accident-free work environment. It can also suggest the safety requirements for the job. Moreover, it might identify the physical hazards involved in the job and also the behaviour and conditions that can result in accidents and injuries. The information about

JOB ANALYSIS AND DESIGN

the need for safety training and safety apparatus can also be ascertained with the help of job analysis. Thus, the job analysis report becomes a valuable source for the health and safety management of an organization.

Industrial Relations Industrial relations can be defined as any form of dealing between employers and employees based on employment. It explains the relationship between the management and the employees within the organizational setting. Job analysis findings in the form of job description enhance the objectivity in decisions involving promotion, transfers, disciplinary action, compensation, and grievance handling. Thus, job analysis helps the organization in reducing the chances of friction with the unions and also in ensuring harmonious industrial relations. Job analysis information can also be useful for both the management and the unions in reaching decisions through collective bargaining process.

Legal Requirements The job description statement is a vital document for an organization in legally and morally justifying its hiring practices, promotion policies, terminations, disciplinary actions, and grievance redressal procedures. In fact, it is a legal necessity for an organization to keep a job description statement for each position in the organization. Besides, a firm can use job analysis to clear ambiguities in the minds of employees about the rights and duties of an employee in a job and thereby prevent a possible legal problem in the future over employment contract and other related issues. Table 4.1 shows the types of data required in job analysis.

Job Analysis Process Job analysis is the process of breaking down a specific job into parts and scrutinizing each of them to gather the necessary information. It requires a systematic and efficient examination of the tasks, duties, responsibilities and accountability of a job. As explained in Figure 4.2, Table 4.1 Types of Data Used in Job Analysis

1. Job duties a. Daily duties (activities performed on a regular basis every day), periodic duties (activities performed at regular intervals, say a week or a month), and duties performed at irregular intervals b. Procedures used c. Personal responsibility d. Interface with other jobs e. Human behaviour required like the manner of acting or conducting oneself in the job f. Physical motions required 2. Machines, tools, equipment, and work aids used a. Nature and types of machines and tools required b. Raw material required in job performance c. Finished goods or services produced (Continued)

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(Continued)

3. Job performance requirements a. Standard performance levels b. Actual work measurement technique required c. Deviation and error levels allowed 4. Job context a. Physical working environment and location required b. Organizational and social environment required c. Work schedule d. Health and safety conditions required e. Financial and non-financial incentives 5. Personal requirements a. Competency required b. Work-related experience required c. Training and education levels required d. Special aptitudes, physical characteristics and personality traits required Adapted from: R. Wayne Mondy, Human Resource Management, 11th ed. (Upper Saddle River, N.J.: Pearson Prentice Hall, 2008), p. 94

the process of job analysis involves the execution of a series of related steps. These steps are: (i) determining the purpose of job analysis, (ii) gathering background information about the job, (iii) choosing representative jobs for analysis, (iv) collecting relevant job information, (v) reviewing the information gathered, and (vi) the developing of job description and job specification.

Determining the Purpose of Job Analysis The first step in the job analysis process is the determination of the end use of the job analysis. True, job analysis has relevance for almost all HR activities of an organization. However, an organization may conduct a job analysis for a specific purpose like hiring the employees or determining their remuneration. Depending upon the purpose of the analysis, the organization may focus specifically on certain aspects of the job that are considered important. For instance, job analysis may emphasize more on identifying information relating to the physical hazards, job difficulties and work environment, when the job analysis is done to decide the safety measure for a job. In any case, the identification of the expected uses of the job analysis will enable the organization to determine the nature and types of data to be collected, the techniques to be adopted for data collection, and the focus of the analysis.

Gathering Background Information about the Job It is essential for an organization to review the background information about the job to know its relative importance in the organization. While doing so, the job analysis should focus on identifying information relating to all the important elements of the job. This information can be gathered with the help of organizational charts, process charts, and job classification. For instance, the information about the title and alternate title of each job, the relationship

JOB ANALYSIS AND DESIGN

Step 1

Determining the purpose of job analysis

Step 2

Gathering background information about the job

Step 3

Choosing representative jobs for analysis

Step 4

Collecting the relevant job information

Step 5

Reviewing gathered information

Step 6

Job description statement

Job specification statement

Figure 4.2 Steps in the Job Analysis Process

among the different jobs, and the reporting authorities for each job can be identified with the help of the organizational chart. Similarly, the flow of activities involved in a job can be ascertained with the help of the process chart.

Choosing Representative Jobs for Analysis Often, organizations choose only a few jobs for analysis instead of analysing all of them. This is done because many jobs are similar in nature and have similar characteristics. Besides, organizations may find it time-consuming and costly to analyse all their jobs. As a result, it becomes essential for an organization to identify the representative jobs from a group of identical jobs.

Collecting Relevant Job Information In this step, information pertaining to various aspects of the job is collected. Specifically, the information about the duties, level of responsibility, authority, accountability, content

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and context of the job, desired employee behaviour, critical knowledge, knowledge skills and abilities (KSA), and training requirements are gathered. These pieces of information can be gathered by contacting the present and previous employees of the job, the supervisors and the managers. Methods like structured or open-ended questionnaires, interviews, task inventories, checklists, and observation are used for data collection.

Reviewing the Information Gathered At this stage, the collected data is carefully analysed and then a job analysis report is prepared for the job being reviewed. Generally, the specific job holders and their immediate supervisors are included in such an analysis process. The opinion of the employee performing the job is ascertained to verify the correctness and completeness of the job analysis report. In case the employee or supervisor points out incompleteness or discrepancies in the report, supplementary information could be collected.

Developing a Job Description and Job Specification This is the final stage in the process of job analysis. The two essential documents of the firm, namely, the job description and job specification, are prepared on the basis of the job analysis report. A job description is a written statement containing information about the duties, responsibilities, accountabilities, working conditions and risks associated with the job. Briefly, it is a summary of the various features of a job. A job specification is a statement that provides information from the job holder’s perspective. It usually contains information about the eligibility conditions required for a job holder in terms of educational qualifications, experience, knowledge, skills, personal qualities, aptitude and the background required for getting the job done.

Techniques of Data Collection in Job Analysis No matter what the methodology adopted for data collection in job analysis, the focus should be on gathering information about the tasks associated with the job and the desired human behaviour at work. However, the characteristics of the job, the purpose of the job analysis, and the desired quality of information are the factors that usually influence the decisions involving the selection of technique for data collection. While choosing a specific method for gathering data, adequate care should be taken to ensure that the chosen method generates sufficient information about the major job requirements (MJR) and knowledge, skills, and ability (KSA) necessary for job performance. Sometimes, it might become difficult for a job analyst (an expert in job analysis) to observe job-related behaviours that are abstract in nature. For example, if a job requires a high level of concentration for an efficient performance, it might be difficult to observe and record the concentration levels of the employee performing the job. In such a case, the job analyst must identify and record the related observable factors that influence the concentration levels. The same technique should be adopted to monitor other abstract behaviour like attitudes, thoughts, traits and other invisible attributes. Figure 4.3 indicates the different methods available within job analysis for data collection. Data collection for job analysis is usually done at one or more levels. These levels are: (i) individual, (ii) group, (iii) organizational, and (iv) community. Among these, a specific level would be chosen, depending on the nature of job information required and the

JOB ANALYSIS AND DESIGN

Techniques of Data Collection

Questionnaire

Position analysis questionnaire

Job Observation performance

Functional job analysis

Critical incident

Management position description questionnaire

Interview

Work profiling system

Diary maintenance

MOSAIC model

Technical conference

Common metric questionnaire

Figure 4.3 Techniques of Data Collection

characteristics of the job. Further, the decision involving the selection of a specific technique is usually influenced by factors such as (i) the type of data to be collected, (ii) the methods of data collection, (iii) the source from which the data will be collected, and (iv) the manner of data analysis.8 We shall now discuss the different methods of data collection.

Questionnaire Method In this method, the job analyst distributes a questionnaire to the employees who are part of the job analysis process. Once the questionnaire has been answered and returned by them, the job analyst analyses it thoroughly to gather job-related details like duties and responsibilities. Many organizations use structured questionnaires with identical and predetermined questions. Others adopt a structured checklist method. This method records the responses of the employees in a predetermined statement form. A few other organizations employ openended questionnaires to collect a detailed response for each job studied. The major advantage of a questionnaire is that it is the easiest and most efficient method to collect information from a large number of employees within a short period. However, its main disadvantage is the time and cost involved in its preparation. We shall now see some of the popular types of questionnaire models available for data collection. Position Analysis Questionnaire (PAQ) Model It identifies the job and human characteristics individually and then inter-relates them for the purposes of analysis. It is basically a structured questionnaire designed to gather quantifiable information about the different dimensions of the job like duties, responsibilities and accountabilities. It involves rating 194 job descriptors that explain the job-based elements included in the questionnaire. The items in the PAQ model are divided into six major categories: (1) information input, (2) mental processes, (3) work output, (4) relationships with others, (5) job context, and (6) other job

Task inventory analysis

Fleishman job analysis system

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characteristics. Further, each job element is rated on six scales: the extent of use, importance, time, the possibility of occurrence, applicability, and a special code for certain jobs. Functional Job Analysis (FJA) Model This is a worker-centred job analysis. It analyses the whole personality of the person on the job. It involves analysing job-related mathematical competency, verbal ability, and analytical and judgement skills. It evaluates how the employee relates himself with other employees, tasks and information. Management Position Description Questionnaire (MPDQ) Model This method is ideal for the job analysis of managerial positions. In this method, managerial people identify the items that explain their responsibilities in the job. This method has a wide application in deciding the training requirements of the new entrants to the managerial cadre. Work Profiling System (WPS) Model This is a system-based technique for gathering the necessary information relating to job analysis. This is a structured questionnaire method for collecting data about the personal qualities of the employees who usually perform technical and managerial jobs. Multipurpose Occupational Systems Analysis Inventory-Closed Ended Questionnaire (MOSAIC) Model This instrument is useful for many jobs in the firm and gathers data from employees on a wide range of HR activities like recruitment, selection, compensation and performance evaluation. This questionnaire contains 151 items relating to job tasks and 22 items relating to competencies for analysis. Common Metric Questionnaire (CMQ) Model This model is appropriate for exempt and non-exempt jobs. This instrument contains five sections under the following captions: “Background” with 41 general questions, “Contacts with People” (62), “Decision Making” (80), “Physical and Mechanical Activities” (53) and “Work Setting” (47). Fleishman Job Analysis System (FJAS) Model 9 This model aims at measuring the degree of each of the essential ability required for performing the job effectively. This technique contains 52 physical, mental and psychological abilities.

Job Performance Method In this method, the job is performed by the job analyst himself to understand the different requirements for its execution. For instance, information like the nature of the job, the level of difficulties, the extent of concentration required, and the stress levels can be better understood by the job analyst through his own experience in the job. However, the major disadvantage of this method is that it may not be suitable for all kinds of job. Sensitive jobs performed in unsafe conditions can not be analysed through job performance method. Similarly, jobs requiring extensive training also have to be excluded from this method.

Observation Method In this method, the job analyst closely observes the performance of the employee in the job. He records the various tasks performed by the employee as part of his job. In fact, this method is ideal for gathering first-hand information relating to working conditions, the physical activities involved in the job, the normal time required to complete the job, and so on. It is ideal for manual jobs completed within a short period. It is usually free from the information

JOB ANALYSIS AND DESIGN

distortion that the job holders are very likely to make. However, this method may not be appropriate for jobs with high mental work. For instance, abstract factors like intelligence and thoughts process can not be measured through the observation method. Similarly, it is difficult to cover the entire job cycle under this method. But, observation method can vastly enhance the effectiveness of the job analysis if combined with other methods like interview or questionnaire. In observation method, the job analyst must ensure the following: • The observation must be done for the work performed during the entire work cycle (time required to perform the entire job). • The characteristics and needs of the job alone should be recorded and not the personal characteristics or behaviour of the employees not relevant to the job though observed at the time of analysis. • The job analyst should not assume any role for himself in the job performance and should restrict himself to observation strictly. • The observation must be done during the normal conditions only, i.e., the average employees’ job behaviour and activities should be recorded and that too only during normal conditions.

Critical Incident Method (CIT) A critical incident is a significant event that takes place in the job environment and forces the employee to respond in the form of performance or behaviour. Critical incidents are considered as snapshots in the regular course of the job. The aim of the critical incident method is to gather relevant and behaviour-centred description of the job. On the basis of the past experience, the employee would analyse the incident given to him and subsequently present a report to the job analyst. The incident and the response are assessed on the basis of the actions, consequences, processes and results that emerged from the incident. The employee’s behavioural response to the incident may or may not become part of the job, depending on how effectively it contributed to the performance. The critical incident method can be well understood through the following example. A client repeatedly called the service manager to attend to his faulty air conditioner immediately. This happened on a day when all the technicians were either on leave or off to a distant place. Now, the behaviour of the manager in such a crisis, how he handled the situation, and the reaction of the client would be assessed. If the manager’s behaviour resulted in effective handling of the situation to the satisfaction of the client, it would be considered for determining the job requirements. The major disadvantage of this method is the difficulty in converting the behavioural response into practical information for inclusion in the job description.

Interview Method In this method, the job analyst asks the employee questions about various dimensions of the job. He then contacts the employee’s supervisors to get further information and also to verify the correctness of the information collected from the employee. For data collection, the analyst can use either a structured interview with a definite format and questions or an unstructured interview with no predetermined questions. However, a structured interview format will facilitate a better comparison of information gathered from different sources. On the other hand, the open-ended questions in an interview will enable the analyst to gather even unsolicited but relevant information.

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While preparing the questions for interview, the analyst must ensure that the questions are uncomplicated and realistic in nature. He should also ensure that the questions conform to the level and language appropriate for the employees to be interviewed. Finally, the analyst must present these questions in a simple, clear and straightforward manner to the employees being interviewed. The analyst should provide clarifications about the questions, whenever the employees require them. Requirements for an Effective Job Analysis Interview The following are the requirements for an effective interview process in a job analysis: • Identifying the employees well versed with the job and calling them for a job analysis interview • Conducting the interview in a private place far from the work spot with the least distraction • Receiving the employee warmly and making him feel at ease during the interview • Explaining the purpose of the interview to the employees clearly and providing them an overview of the interview procedure • Encouraging them to clarify their doubts and misconceptions about the interview, before commencing the discussion about the job • Following the pre-planned format; the questions may be asked one after another with enough time space for responses • Reviewing the information gathered to check the completeness of the information before concluding the interview process Care should be taken to ensure that the interview process does not suffer from the interviewer’s bias and prejudice as this could vitiate the objective and process of the interview. Similarly, the analyst must ensure that there is no misrepresentation of facts on the part of the employees in their responses to the interview questions. The major advantage of the interview method is that it can be used for any job, irrespective of its nature and hierarchical levels. However, its defect is that there is a scope for bias and subjectivity in the gathered information. Besides, interviewing is a time-consuming and costly process for an organization. Lastly, the interviewer may require sufficient training and experience for successfully conducting a job analysis interview.

Diary Maintenance Method In this method, the employee is asked to keep a record of all the activities performed by him as part of the job analysis process. He should record the information in a chronological order. The information may include the actual work undertaken and the time devoted to its completion. Diary maintenance will enable the employee to keep track of all the activities, including the insignificant ones. These insignificant activities may later become critical for job performance at the time of job analysis. The major merit of this method is that it ensures continuous and better employee involvement in the job analysis process. Besides, the job analyst can be assured of getting even minute information about the job and thus ensuring completeness in data collection. The major weakness of this method is that the employee might not offer the cooperation necessary as it is a time-consuming and monotonous task for him. Being a continuous process, it requires a lot of commitment on the part of the employee to record the activities dutifully.

JOB ANALYSIS AND DESIGN

Technical Conference Method The essence of this method is that it relies on the technical soundness and experience of the supervisors for gathering relevant information about the job. Usually, a brainstorming session is organized among the supervisors to collect data about the various tasks associated with the job. In addition to the supervisors, the job holder and the representatives from the HR department could also participate in the discussion. In technical conferences, the participants discuss about the consequences of the inclusion or exclusion of each task in the job. The main advantage of this method is the availability of expert views in the job analysis process. The weaknesses of this method are: (i) it is a time consuming process; and (ii) it may elude consensus while making decisions.

Task Inventory Analysis This method focuses on identifying the list of tasks that form a part of the job. It also helps in preparing a brief description of each of these tasks. The basic aim of this method is to ascertain the KSA required for an effective performance of a job. The three steps in the task inventory analysis are interview, survey, and application of KSA matrix for creation of a task inventory. This method often utilizes the questionnaire method in order to gather the necessary information. In this method, each task is assessed by the employee, the supervisor and the job analyst. This method requires the participation of a large number of employees in constructing a task inventory in the organization. The data collection techniques in job analysis are exhaustive and ever expanding. Besides the ones mentioned here, there are other methods available for data collection in job analysis. These are threshold traits analysis (TTA), guidelines oriented job analysis (GOJA), job element method (JEM), and the Iowa merit employment system (IMES).10 However, the choice of a specific method or a combination of methods usually depends on the purpose of the analysis and the end users of the study. Since each method has its share of strengths and weaknesses, it is advisable to adopt multiple methods of job analysis for data collection.

Job Description Invariably, the process of job analysis ends with the preparation of two vital documents for the organization. These are job description and job specification. Job description is a written statement that describes all the aspects of a job. It aims at simplifying and standardizing the HR activities of an organization. It also enables the employees to understand clearly what is expected of them in their jobs. It contains both organizational information (structure, relationship, to name a few) and functional information relating to the job. But, the description of each task should be confined to a few sentences with the focus being on results. We shall now see a few relevant definitions of job description. These definitions are listed in Box 4.2. A job description should be comprehensive in every aspect. It should provide information about job title, alternate title (if any), job position in the organizational structure, relationship with other jobs, and the tasks, duties, responsibilities and accountabilities associated with the job. In addition, it should offer information on working conditions, physical hazard, and special equipments required for task accomplishment. Further, information about the KSA requirements for the job and the minimum qualifications for eligibility should also be included. Finally, a job summary should also be included in the job description statement. We shall now see a brief description of the important components of a job description statement.

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Box 4.2

Definitions

“Job description is a document that specifies the tasks, duties, and responsibilities of the job and should certainly be relevant and accurate.” 11 —Clyde E. Witt “Job description is defined as a statement that specifies the purpose of a job, also mentions where the job fits in

the organization structure, the context within which the job holder functions, and the principal accountability of job holders, or the main tasks to be carried out by them.” 12 —Michael Armstrong

Job Identification (Title) This section of the job description provides information about the job title, alternative title (if any), the code number of the job, the department, division and plant. An appropriate job title easily identifies the nature of the job and its position in the organization. This section also provides information about the location of the job in the organizational structure, the immediate supervisor’s title, for instance. A date column in the job identification indicates the date on which the job description was written. It also mentions the date on which it was last modified.

Job Summary This section provides a brief review of the content of the job. It mentions only the major functions of the job. It could also include information on the employer’s views on the role and importance of the job and its holders in an overall context. It contains a brief description of the objectives of the position, the results expected from the employee, and information on the degree of freedom available to each job holder.

Job Relationships This section indicates the employee’s relationship with other jobs located immediately above and below his job in the organizational structure. It also indicates the relationship of the job with the outsiders and higher authorities.

Job Duties and Responsibilities This section provides a comprehensive record of the duties and responsibilities associated with the job. Job description usually describes the major duties to be performed in a job.13 Usually, it also mentions the rate of recurrence of each duty and responsibility and the average time required for performing each duty. In this section, action verbs like performs, provides, sets up, or gathers are used to begin the sentences that explain each duty associated with the job. It would be ideal to complete the description of the duties and responsibilities within a few sentences. An organization finds the application for job description in almost all the HR activities of an organization. While an outdated and inaccurate job description can cause a whole lot of problems for the organization, a well-thought-out statement can be a real blueprint for the success of both the organization and the employee. Table 4.2 shows a pro forma job description statement.

JOB ANALYSIS AND DESIGN Table 4.2 A Pro Forma Job Description Statement

Job title

(should reflect the duties and level of the job in the organization)

Alternate title

(if any)

Job purpose

(Briefly mention the general purpose of the job and also its role in objective accomplishment.)

Code number

(State the job identification number.)

Job holder title

(Specify the title of the holder of this job.)

Job location

(Mention the location of the job in the organizational structure.)

Job type

(Details like full-time/part-time should be provided.)

Department/office

(Mention the name of the department/unit/office where this job is located.)

Reporting authority

(Details of the job title to which this job should report need to be provided here.)

Number of staff members reporting to this post

(State the number and name of the job titles to be controlled by this job.)

Job summary

(A brief description about the job is to be provided here.)

Job duties

(State the day-to-day tasks to be performed as part of this job and also provide the objective of each of these tasks.)

Authority limits

(Provide details regarding the prior permission requirements for select decisions.)

Working conditions required

(Identify the nature of working condition required for the job.)

Technical requirements

(Mention whether any technical specification is required.)

Skills required for the job

(State the minimum skills and competencies required for an effective performance of the job.)

Experience required for the job

(Mention the minimum experience required for the performance of the job.)

Special circumstances (Provide information about night shifts, overtime, extensive travelling) Special requirements

(Specify the special tools and equipment requirements for the job.)

Job Specification A job specification can either be part of the job description or an independent statement.14 It is actually a document that specifies the minimum acceptable qualities required for a person to complete the job satisfactorily. It usually contains the details of the employee’s characteristics and the qualifications essential for the job. The job characteristics may include

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physical, mental, social and behavioural characters of the job holders. The qualifications may include education, experience, skills and other background requirement for a job holder. Box 4.3 lists some of the important definitions of a job specification. The important components of a job specification are listed as follows:

Education and Training A job specification states whether the job requires school- or college-level education. It mentions the technical or professional qualification requirements of the job holder. Finally, it specifies the minimum training requirements the job holder must have completed.

Work Experience A job specification prescribes the work experience requirements for the job holder and sometimes also the minimum experience for effective performance.

Skills and Competencies Under this component head, a job specification states the types of skills necessary for the satisfactory performance of the job. It indicates the nature of skills required like computer skills, communication skills, technical skills, and statistical skills.

Physical Strength and Stamina If the job involves physical activities like lifting or moving heavy objects, the job specification also mentions the physical requirements of the job holder.

Stress-Coping Ability When the nature of the job requires a lot of stress endurance and involves constant work pressure in the form of deadlines or night shifts, the stress management ability of the candidate should be mentioned.

Special Needs If the job requires any special skills, knowledge and ability like extensive travelling, working at odd hours, and good memory power, it should be clearly mentioned. Quite understandably, a job specification has lots of application in HR activities like recruitment, selection, training, and compensation fixation. However, the major problem often seen in the preparation of a job specification is the job analyst’s tendency to overstate the qualification and skills required for the job. This often results in the rejection of the

Box 4.3

Definitions

“Job specification is the process of inferring the human trait requirements presumed to be necessary for successful job performance.”15 —R. Harvey and M. Wilson

“Job specification sets out the education, qualification, training, personal attributes, and competencies a job holder requires to perform her or his job satisfactorily.”16 —Michael Armstrong

JOB ANALYSIS AND DESIGN

right candidate with sufficient qualification due to an overemphasis in the job specification.17 This kind of overstatement often occurs in specifications involving education, the kind and length of job experience, and special skills like computer knowledge. Table 4.3 illustrates a pro forma job specification statement. Box 4.4 Shows a typical job description and job specification statements for the job of a development editor in a textbook publishing company.

Challenges Affecting the Effectiveness of Job Analysis The job analysis process often faces challenges from both the employers and the employees due to their fear and ignorance of its purpose and implications. Another challenge for the effectiveness of the job analysis is the human tendency to overstate the positive aspects and understate the negative aspects of the job. Similarly, workers might tend to look at the job from their own perspective rather than the job or organizational perspective. In this context, we shall now discuss a few important challenges impacting the efficiency of the job analysis exercise.

Employees’ Anxiety Many employees panic when the organization scrutinizes their job for any reason. Consequently, the job analysis often creates uncertainty in the minds of the employees. They often tend to view the whole exercise with suspicion and fear. This is because they may think that the job analyst would discover some unintended fault in their performance and behaviour. Further, the employees may also think that the results of the job analysis might restrict their independence in performing the job. It is therefore essential for the management to clarify all the doubts and fears of the employees regarding the purpose and process of job analysis. It should also clearly state the implications of the job analysis process for the employees. Table 4.3 A Pro Forma Job Specification Statement

Position title

(Indicate the title and designation of the job holder in the job.)

Department/office

(Indicate where the job holder would be posted.)

Educational qualifications and training requirements

(Specify the educational qualifications and training needs of the prospective candidate.)

Experience

(Mention the minimum number of years of experience the candidate must possess.)

Work-based skills and competencies required

(Specify the work-related skills required for the prospective candidate and also mention clearly the essential and desired skills.)

Behavioural skills and talents required

(Identify the skills necessary for teamwork, effective leadership, diagnosing the problems, motivating oneself and others, effective communication.)

Other attributes required

(Mention the special qualities required for the performance of this job.)

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Box 4.4

Sample Job Description: Pearson Education India

DEPARTMENT

Editorial–Higher Education

LOCATION

Noida

PRESENT JOB HOLDER Title

Development Editor

Reports to

Managing Editor–Development

Band

M

A. OVERALL JOB DESCRIPTION/KEY RESULT AREAS Primary Responsibilities 1. Undertake complete development of manuscripts, accompanying software, and instructor resources according to market needs, schedule, and company quality standards. 2. Conduct reviews, review analyses and competition analyses (in the form of charts and reports) including study of student feedback, previousedition feedback, focus group response and potential adopter response. 3. Create and maintain a development schedule; ensure that all materials (primary and supporting) are received and transmitted on time. 4. Gather market and product data from the sales and marketing departments; provide analysed and collated product-, competition-, and market-based reports to these departments. 5. Work closely with the author and reviewers to develop the manuscript according to the planned concept, ensuring that the style guide and manuscript-preparation requirements are understood and followed. 6. Facilitate the author’s vision and provide support (based on market research) in terms of writing, content and organization. 7. Develop art manuscripts, comment on layout design, and create cover briefs in collaboration with the author and the art/design department.

8. Obtain, or assist author in obtaining all permissions for text, photos, and illustrations as needed. 9. Provide early editorial review during manuscript selection; set quality standards and maintain such standards through every stage of development and production. 10. Provide regular updates and post-production support to the sales and marketing department on developed titles; follow up on post-publication feedback for future editions. 11. Act as student liaison, organize studentoutreach programmes and participate in campus recruitments. Secondary Responsibilities • Participate in conceiving and acquiring appropriate manuscripts and book ideas. • Participate in the discussion and evaluation of book proposals and early-stage manuscripts. • Perform other related duties incidental to the work described herein. JOB REQUIREMENTS/ENTRY CRITERIA 1. A postgraduate degree in science, commerce or humanities, or a good bachelor’s degree in engineering 2. Excellent communication and presentation skills 3. Excellent man-management skills 4. Ability to maintain development schedules 5. Ability to liaise with all departments Agreed by Head of Department

------------------------

Agreed by Job Holder

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Source : Dorling Kindersley India. Reproduced with permission.

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Management’s Attitude towards Job Analysis The management’s attitude can facilitate or hamper the effectiveness of job analysis. Past experience suggests that if the employees fear that their freedom of operation would be restricted by the management, they might not cooperate in the job analysis process wholeheartedly. Similarly, when the managers fear that the job analysis process would be used by the management to undermine their authority in dealing with their subordinates, they might summarize the job incorrectly. In contrast, when the management is sincere in its handling of the results of the job analysis, the credibility of the exercise and the cooperation of the employees would go up substantially.

Undue Importance to Job Holders Often, job analysts give more importance to what the employee does in the job than what the job actually requires. This might lead to an overstatement of the job characteristics and requirements. In such cases, the organization may mistakenly look for a person who would replace the existing job holder instead of searching for a suitable person for the job.

Environmental Influence The prevailing environment and the existing facilities usually influence the process of job analysis. If the organization undertakes job analysis in the context of the changes in the technological environment, the employees may resist it for fear of disturbances in the status quo and job losses. In such a case, if the employee unions are strong, they may resist changes in their work environment strongly and thus make the job analysis exercise unnecessary. In fact, unions often view job analysis as a prelude to major changes in the job and hence oppose the very concept of job analysis.

Absence of Follow-up Action When the organizations fail to initiate necessary changes in the job as a follow-up to the job analysis, the employees may lose their confidence in the whole process. In future, they may become indifferent to the job analysis process. Thus, it is essential for the management to carry out necessary changes in the job composition, wherever required.

Job Design In a simple sense, job design is the division of the work of the organization among its employees.18 It is basically a combination of the job content and the work method adopted in the job. Job content states the tasks to be performed as part of the job while the work method deals with the mode of performing the job. Certainly, a well-designed job can have a definite impact on the performance of the job and its contribution to the overall growth of the organization. It can also make the work experience of the employees more rewarding and productive. On the other hand, a poorly designed job often causes difficulties in strategy formulation and also in the proper alignment of various functional activities. Thus, the basic aim of a job design is to clearly establish the role of each job and the job holder in the overall system of an organization. The designing of a job often involves responding to certain questions: What tasks need to be done as part of a job? Who should do the job? How should it be done? Where should

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Box 4.5

Definitions

“Job design is the specification of the contents, methods, and relationships of jobs in order to satisfy technological and organisational requirements as well as the social and personal requirements of the job holders.” 19 —L. E. Davis “Job design is the process of determining the specific tasks to be performed, the methods used in performing these tasks, and how the job relates to other work in the organization.”20 —R. Wayne Mondy

“Job design refers to the study of jobs, tasks, constellations of tasks that encompass properties, perceptions, and response to properties and/or to perceptions. It thus includes job enrichment, job enlargement, job characteristics models and social science information processing perspectives.”21 —Ricky W. Griffin and Gary C. McMahan

it be done? While designing a job, the firm must keep in mind the organizational interest in terms of productivity, performance and quality. At the same time, it should also consider the employee interest in terms of satisfaction, challenges and the growth potential available in the job. We shall now see some of the definitions relating to the term job design in Box 4.5. Job design should always be in alignment with the strategic goals of the organization. Besides, it is essential for an organization to ensure that its jobs are designed only by the people with adequate experience and exposure in this profession. Further, the job design must be written in a simple language so that it can be easily understood by all the stakeholders. Finally, it should be agreeable to both the management and the employees.

Benefits of Job Design Job design has the following benefits: • It enables the organization to develop a competent, dynamic and responsive workforce. • It ensures that the customers get high-quality goods and services without any delay and interruptions. • It helps the firm in achieving cost reduction by eliminating the causes of accidents and injuries through enhanced health and safety measures. • It enhances the employees’ satisfaction, motivation, involvement and commitment, leading to improved cooperation between the management and the employees. • It offers wide opportunities to the employees to convey their views and opinions to the management through participative management programmes. • Its implementation often requires the employees to undergo periodic training to upgrade their skills and thus helps them in their career growth. • It contributes effectively to the organizational effectiveness and, as a result, to the competitiveness of the organization in the market.

Environmental Influence on the Job Design A job design is often influenced by the multiple forces of the environment, both internal and external to an organization. The internal environmental factors that normally determine the job design are the size and characteristics of the organization, the type of work, the nature

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of the production process, the characteristics of the workforce, the level of technology, and the stage of organizational growth. The external environmental factors that shape up the job design are the social, political, legal and cultural factors. We shall now see the important factors influencing job design.

Ergonomics Ergonomics means designing a job according to the worker’s strength and ability in order to avoid strain injuries caused by repetitive operations. A job design is certainly influenced by the existing employees available in an organization. As part of the job design process, organizations often employ psycho–physical methods to determine the suitable employee weight and force for a job. In fact, psycho–physical techniques require employees to adjust their weight or force on the basis of the job requirements in conformity with their own perception of what an acceptable workload is under exact test conditions.22 Once the employee-strength data is compiled from the majority of the employees, an organization designs the job in such a way that the physical requirements of the job do not exceed the physical strength and capabilities of the employees.23 Thus, the job design is specifically influenced by the human strength and force available in the organization.

Characteristics of Task Structure The task structure in a job refers to the manner of construction of a job and the arrangement of tasks in that job. The characteristics of a task structure normally influence the job design. These are often identified through task objectives, entrance criteria, the planned role of the job holder and his skill requirements, the input requirements in terms of materials, tools and technology, task process, quality requirements, performance evaluation tools, and the results in terms of output or goal accomplishment.24

Task Assortment A job containing a variety of tasks usually enhances the interest of the job holder in performing such a job. On the other hand, a job involving the performance of repetitive tasks causes job monotony and dullness. Thus, the extent of task assortment in a job is an important factor influencing the job design. However, the job should avoid too many varieties or too few varieties. Rather, the varieties must be properly balanced on the basis of the nature of the job and the level of its position in the organization structure. Generally, broadened and multi-skilled jobs stimulate and sustain employees’ interest and involvement by offering variety and challenges in the task performance. To enhance the employees’ motivation, commitment and involvement, E. E. Lawler25 has identified three factors as the basic necessities for a job: (1) feedback, (2) the use of abilities, and (3) self-control. Feedback refers to providing each employee purposeful feedback about his own performance in the job on a continuous basis. The use of abilities means making employees feel that their abilities are absolutely essential for the successful accomplishment of the job. Self-control refers to enabling the employees to gain confidence that they are capable of exercising self-control over their own goal-setting process and its execution.

Level of Autonomy and Responsibility The philosophy of the organization concerning job autonomy influences the job design process. Job autonomy depends on the extent of freedom available to an employee. Conventionally,

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a job with a high rate of autonomy provides better satisfaction to the employees. Thus, the degree of autonomy is one of the factors influencing the job design. However, the job with a higher degree of autonomy usually carries higher responsibilities on the part of the job holder. Each employee must be made accountable for all the decisions made by him in the course of his performance. Thus, elements like autonomy, responsibility and accountability affect job designs.

Practices Practices refer to the customs or norms developed over a period of time which deeply influence the employees’ behaviour and way of doing the work. Organizations normally combine the conventional working practices with the modern and professionally created ones to develop a job design. They redesign their jobs on the basis of the prevailing work practices. In fact, the developments and changes in the work practices are often influenced by the technological developments, the characteristics of workforce, and the strength of the union. Thus, the job design, the technology levels and the workforce abilities must be well aligned for effective work performance. Box 4.6 delineates this factor influencing job design in Wipro.

Recognition and Support In every job, the employee performing the job expects some sort of recognition and appreciation for his efforts from others. Also, he anticipates useful support from others in the effective discharge of his duties. The supervisors, co-workers and managers need to support the employee by building an environment that promotes team spirit and self-worth. Thus, the job design process is influenced by the employee’s desire for recognition and support. But, a job design that tends to promote alienation and disunity would harm the interest and wellbeing of the organization. Moreover, the organization should design the job in such a way that it facilitates the employee’s participation in decision making. Such job designs often promote a sense of belonging and high involvement. Accordingly, the job design should ensure recognition and support for the employees and their participation in decision making. Box 4.6

Workplace Practices: An Influencing Factor for Job Designs

Each organization adopts a style of its own to gather information for designing and redesigning the jobs. The prevailing culture and workplace practices play a predominant role in the job designing process. For instance, some organizations have the practice of periodically approaching their employees to gather information about different aspects of their work life. Apparently, this would also include information about their job. These nuggets of information would then be productively used for job designing. However, the method of gathering relevant information may differ from one organization to another as each organization may develop a unique method to collect the necessary information. Wipro Technologies has developed an effective feedback and communication system for information gathering for

several purposes including job design and redesign activities. For instance, it has a programme called “W10”—a ten-question survey tool for obtaining information from the employees about their perception of the health of the workplace and managerial effectiveness. Further, it conducts an “Employee Perception Survey” once in two years to identify their satisfaction levels about different performance drivers and their areas of concern. In case of teamwork, it adopts skip-level meetings to get feedback from the employees about team cohesiveness and leadership effectiveness in each team. These practices help the organization in planning midway corrections in job-related aspects to enhance the effectiveness at job. Adapted from: www.wiprocorporate.com/People/ Employee_Feedback.asp.

JOB ANALYSIS AND DESIGN

Technological Developments Technological developments have a profound influence on the job design process. The changes in the technological environment provide an organization with the opportunity to redesign its job. For instance, the computer-aided manufacturing (CAM) techniques have changed the traditional production techniques and job designs. Changes in technology may lead to either product innovation or process innovation. Product innovation usually makes little impact on employee performance and job design. On the other hand, process innovation often leads to major changes in the techniques of production and the employee’s skills necessities. These changes in production techniques and employee competencies frequently necessitate alterations in job designs.26 Thus, technological developments have a major influence on the job design process.

Strength of the Union The presence of the union in the organization can also influence the job design process. In a non-unionized environment, the management may design the job independently and to its own advantage. For instance, the job security measures and the minimum skill and qualification requirements would be decided by the management alone. Similarly, the management may not have any external pressure to ensure standard health and safety provisions and practices. In contrast, in a unionized environment, the management may be pressurized by the unions to accept its terms for job designs. For example, they may insist on comprehensive job security mechanism, minimum skill requirements for the job, high-quality tools and equipment, standard health and safety measures, and strict adherence to necessary legal provisions for different jobs. Lastly, in the absence of a harmonious management-and-union relationship, the unions may adopt a rigid approach towards the job design process and thus hurt the interests of the organization.

Corporate Culture Corporate culture refers to the norms, practices, assumptions and beliefs followed by an organization. This corporate culture determines the response of the organization to the developments in the external environment. In fact, changes in the characteristics of the labour market, developments in technological field and upheavals in the market dynamics shape and reshape the corporate culture. The corporate culture can also make an impact on job design. For instance, the status and position of the job, and the rewards and recognition available to the job are greatly influenced by the corporate culture. In fact, job designing provides an opportunity to the organization to communicate the corporate culture to the employees in many ways.

Working Conditions Working conditions refer to the physical environment which is made up of machines, space, heat and light, ventilation and safety levels. In terms of physical hazards, safety requirements and health issues, working conditions can have an impact on the job design. While designing a job, care should be taken to ensure that the job offers safe and healthy working environment to the job holders. Thus, it is essential for the organization to ensure that the job has adequate safeguards for occupational health, safety and well-being. This may be done by incorporating necessary provisions in the job design process.

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The Multi-method Job Design Questionnaire (MJDQ) created by M. A. Campion27 is worth mentioning here. This model helps an organization in developing an interdisciplinary approach to the task of job designing. It integrates the diverse views about job design drawn from different disciplines like industrial engineering, organizational behaviour and work physiology. This questionnaire has developed four general approaches to the study of job design. These are motivational, mechanistic, biological and perceptual-motor approaches. The motivational approach focuses on the satisfaction outcome of a job design process. The mechanistic approach emphasizes on the efficiency outcome while the biological approach is associated with the comfort outcome of the job design. Perceptual-motor approach studies the reliability outcome of the job design process.28 This integrated approach provides a useful insight into the process of job design and has become a popular job designing device.

Critical Components of Job Design The main purpose of a job design is to increase a firm’s ability to meet its objectives effectively and to provide job satisfaction to the employees. Usually the job design is done on the basis of the ergonomics, task characteristics, work practices, corporate cultures and technological environment. As shown in Figure 4.4, the components of any job design are job enrichment, self-managing teams, job rotation, job reengineering, job enlargement, participative management, peer performance review and high performance work design. We shall now see these concepts in detail.

Job Enrichment Job enrichment refers to the development of work practices that challenge and motivate the employees to perform better. It often results in achieving desired improvements in productivity, safety of work, quality of products/services and job satisfaction. Organizations also adopt job enrichment to encourage multitasking by the employees in the job. Job enrichment may include, among others, the formation of a quality circle, self-directed teams, job rotation and better communication. In a nutshell, job enrichment aims at

Components of Job Design

Job enrichment

Selfmanaging team

Figure 4.4 Components of Job Design

Job rotation

Peer High Job Job Participative performance performance reengineering enlargement management review work design

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achieving HR costs’ reduction and job satisfaction. In fact, studies have shown a positive correlation between job enrichment and job satisfaction.29 How to Enrich a Job The main aim of job enrichment is to provide an enhanced autonomy for the employees and increased operational efficiency for the organization. To achieve the desired results in job enrichment, the following guidelines could be followed: • Encouraging the employees to involve themselves in goal setting and accomplishment activities. • Enhancing the scope of the job to utilize the diverse skills of the employees. • Allowing the employees to do the whole job, i.e., from the beginning till the end, so that they could develop a sense of achievement. • Providing necessary autonomy to the employees on matters relating to the method, speed and order of doing the job. • Encouraging the employees to know the significance of their work in terms of its contribution to the accomplishment of the overall goal of the organization. • Constantly challenging the employees to adopt innovation in job by acquiring new knowledge and skills. • Improving the information sharing process by strengthening the existing communication channels and also by introducing new communication channels. • Ensuring that the employees get timely and adequate recognition and appreciation for their effective performance and successful completion of the job. • Enabling the employees to get constant feedback of their own performance by communicating the results of the work done by them. • Making employees believe that the present job is not an end but only a means for better prospects in the organization. Box 4.7 outlines the job enrichment efforts of a global company.

Self-managing Teams Self-managing teams are usually entrusted with the overall responsibility for the accomplishment of work or goal. They enjoy autonomy in decision making on matters involving when and how the work is done. They are given adequate freedom to determine the mode of execution by planning the pattern of work, distribution of assignments, rest breaks, performance evaluation, and so on. However, the accountability for the outcomes should be clearly defined. This method is appropriate for group activities. This method is capable of providing intrinsic motivation to employees as the team members here enjoy better work autonomy and control their own work. The self-managing teams require doing a lot of groundwork in order to ensure the success of the whole process. The preparatory requirements for self-managing teams are: Work Mapping This involves defining the boundaries of the teams clearly in terms of authority, responsibility and accountability. Each team should have a distinct identity, purpose and sphere of activities within the organization.

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Box 4.7

Job Enrichment at Volvo: The Pioneering Effort

Organizations around the world are making every possible effort to make the job more satisfying to its workforce. This is because the extrinsic satisfaction provided through economic benefits like wages, incentives and benefits may not have the desired impact on the employees while actually performing the job. Moreover, most of these benefits are intermittent benefits to the employees. Thus, there is a need to offer intrinsic satisfaction, which comes out of the job itself. Many organizations are seriously engaged in such an endeavour which is technically called job enrichment. The success of the Volvo Company in job enrichment is worth mentioning as an example. The Volvo Group is on a relentless pursuit to develop an excellent and totally acceptable work environment, to adapt machines to the people who work with them and to organize the work in such a way that the job performer has an influence on his or her own work situation and also obtains a sense of purpose and satisfaction from the job. As far as Volvo is concerned, the working

environment is not a matter of the floors, walls and roof of a building, ventilation, spaciousness or equipment alone but is very much dependent on the people working together. A close-knit work environment is indeed made up of an authentic team, which is able to communicate freely and receive appreciation for the work it does and that has a sense of accomplishment. According to Volvo, job enrichment means more responsibility to the individual in the areas of quality control, job planning, and so on. Job expansion means the deeper involvement of individuals in the work, protracted work cycle and reduced job monotony. Job rotation means that the employees in a section of production can change jobs with each other once a day or possibly more often. The purpose of such arrangement is not only to enhance the multi-skills of the employees but also to preserve the physical and psychological well-being of the employees. Adapted from: http://www.volvoclub.org.uk/ pdf/200000VolvoHands1975.pdf.

Determining the Size of the Team The size of the team contributes critically to the success of the self-managing team. The team should be neither too big nor too small. It is essential to identify the right size for the team. There are various factors that influence the decisions relating to the size of the group. These are the nature of process and products, the physical distribution of activities, the style of leadership, and the rate of delivery. Leadership Development Effective leadership is critical to the success of self-managing teams. The leaders of the teams should be given training in leadership tasks, leadership styles, communication, motivation and other necessary leadership qualities. Fixing the Team Norms It is essential for each team to develop rules and regulations to govern the behaviour of its members. It should have a categorical list of dos and don’ts for its members and they should not be allowed to misuse their authorities. The teams should have perfect clarity on matters like recruitment, training, discipline, resource management, and financial budgets. The organizations get several advantages by forming self-management teams. These are: (i) the presence of a learning organization, (ii) self-motivated employees with a high level of intrinsic motivation, (iii) cost-effective accomplishment of targets, (iv) the decentralization of authority and responsibility, and (v) a focus of the top management on non-routine tasks as it is relieved of routine activities.

Job Rotation Job rotation refers to moving employees from one job to another in a predetermined way. This enables an employee to perform diverse roles and gain exposure to the techniques and

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challenges of doing several jobs. An organization may adopt job rotation in two ways. In one case, the employee might be moved from the existing job to a new one as part of promotion or transfer after he spends a few years in the current job. The purpose here is to offer new challenges and to avoid boredom in the job. In the second case, job rotation is viewed as a part of the training process. The trainee is moved from one job to another to enable him to learn about each of these jobs. Uses of Job Rotation • It facilitates the horizontal movement of employees to widen their knowledge and varied skills. • It enables the organization to identify the skill deficit and training requirements of its employees. • It enhances the interest and satisfaction of the employees in the performance of the job. • It reduces or eliminates the boredom associated with the performance of the same job for longer periods. • It helps in the identification of the latent talents of the employees and also in finalizing the career growth plan of each employee.

Job Reengineering Job reengineering is the process of streamlining jobs in the form of combining a few jobs into one, redistributing the tasks among various jobs, and reallocation of resources. It also involves reconsideration of the methods of job performance, physical layouts and performance standards. The basic aim of job reengineering is to reduce costs, delays, absenteeism and conflicts. Michael Hammer30 defines job reengineering as “the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service, and speed.” Job reengineering involves redesigning of each work system in order to make the organization more competitive in the market. It calls for radical rethinking by the organization about the existing work pattern and its task characteristics. It involves redesigning of the process and the HR management system to achieve improved performance, productivity, quality and competitiveness. The reengineering process involves: 31 Pattern Breaking This involves radically changing the existing rules and regulations to suit the conditions of the existing environment. Realigning with Corporate Goals This implies revisiting work processes to ensure that they are properly aligned with the goals of the organization. Wherever necessary, redesigning must be done in the job activities to achieve the alignment required. Abolition of Power Structure This process involves substituting the traditional hierarchy with self-managed or autonomous teams. It also involves decentralization of authority, responsibility and accountability. Work Flow Redesigning In this process, the organization should re-examine the work flow designs to ensure that they revolve around the goals and strategies.

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Enhancing IT Applications The developments in technological environment facilitate the application of information technology (IT) in every possible sphere of process design. Similarly, IT can also be used to enable process reengineering in an organization. Redefining Titles and Positions Job reengineering may require redefining of job titles, relationships, positions and responsibilities to suit the changes made in the process. Establishing a Learning Organization Job reengineering often requires continuous learning by the employees. In this regard, ‘on-the-job training’ is emphasized to reduce the time taken to perform a task, inculcate quality-consciousness and improve productivity. Performance-based Incentives and Rewards It may require a redesigning of performance evaluation techniques to assess the individual and group effectiveness. The reward structure and incentive programmes may have to be revised as a consequence of job redesign.

Job Enlargement Job enlargement transforms the jobs to include more and/or different tasks. Its basic aim is to make the job more attractive by increasing the operations performed by a person in the job. Job enlargement techniques aim at designing jobs in such a way that the interest and needs of both the management and the employees are fulfilled. From a historical perspective, boredom and lack of job motivation were the primary reasons for the introduction of job enlargement in the 1950s. During this period, several companies initiated modifications in the jobs to make them more interesting and challenging. For instance, IBM enlarged the job of its machine operators by making them responsible for machine setting and inspection. In reality, job enlargement offers diverse tasks to the employees even while ensuring that the enlarged job requires the same level of skills. While deciding about job enlargement, the organization should consider whether it wants to adopt a horizontal or vertical enlargement. Horizontal Enlargement It refers to the degree to which a job contains many tasks. It involves the enlargement of duties by adding new but similar tasks. It aims at making the job low in specialization and boredom. It also attempts developing new skills among the employees. In practice, horizontal enlargement is adopted when the tasks are complex and structured. In this method, the percentage contribution of each employee in the complete product is increased significantly. Finally, it aims at removing difficult tasks in a job to promote greater productivity, especially in difficult jobs. Vertical Enlargement It is the degree to which the employees decide how the task is to be done. It enables an employee to participate in the planning, organizing and controlling aspects of a task. It removes some controls but the authority and the accountability are increased or retained. The primary purpose of this method is to enhance the status and self-fulfilment needs of the employees. This method involves the assignment of an absolute task unit to an employee. Vertical enlargement is suitable when the tasks are routine and well-structured.32

Participative Management Participative management means allowing employees to play a greater part in the decision-making process.33 It has been found to be useful in improving the quality of work life, job enrichment, quality circles, total quality management, and empowerment. In fact,

JOB ANALYSIS AND DESIGN

participative management is considered to be the panacea for the ailments of an organization.34 In participative management, employees are allowed to participate in the strategic planning process as part of their job. In this way, the organization makes the employees feel that their views are important for the organization.

Peer Performance Review Peer review is a performance evaluation technique adopted by an organization in which the employees in the same rank rate one another. Peer monitoring is one of the strategies for achieving job enrichment.35 In this method, team members evaluate one another’s performance. In addition to this, the team members review the performance of the entire team or group. In peer review, performance evaluation becomes a collaborative and mutual process. Performance appraisal for the employees becomes more personalized and is conducted on a regular basis. The merits of peer review as a job enrichment technique are: • Peer review usually finds better employee acceptance and involvement than other methods do. • It is normally accurate, and more target-oriented and job-relevant, as employees are more open and interactive in this method. • It improves relationships among team members and enables them to get along well with one another. • It enhances job interest and also reduces review-linked anxiety, frustration and grievance which normally arise when employees’ performances are reviewed by their superiors. However, the major defect of this method is the scope for bias and prejudice in the evaluation done by the peer group members. Peer review can also ignite avoidable rivalry and bitter feelings among members when there is a negative evaluation of someone’s performance.

High Performance Work Design Developing a high performance work design is also considered as a strategy for job enrichment. Effective work groups are created in an organization through this technique to achieve a high level of performance.36 Certainly, a high-performance system can produce the desired effects on organizational productivity and performance. It can also achieve the required employee satisfaction and involvement. The key characteristics of a high performance work system37 are: • Presence of highly skilled, dynamic, coordinated and loyal employees • Existence of flat, flexible and modern management • Capability of preserving the experienced and skilled employees for a long time • Existence of harmonious relationship between the management and the unions • Presence of full-fledged self-managed teams with adequate authority, responsibility and accountability • Existence of supportive rather than autocratic style of leadership and management • Payments system count on team performance but give due importance to the skills of the individuals.

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Limitations of Job Design Job design as a job enrichment programme was tried by Frederick Winslow Taylor (1856–1915) in a limited way. He insisted on dividing work into mental and manual categories and then developing job design appropriately. The mental work involving planning and organizing should be focused on and specialized in by the management. The manual work involving execution should be done by the workers. Taylor used job design to develop efficient ways of doing a job. However, his work met with criticism as it did not consider the human aspects of the job design programme. The next major contribution to the concept of job design was made by Frederick Herzberg in 1968. According to him, the main aim of the job enrichment technique is to enhance the workers’ motivation and performance without altering either wage and salary structure or the management’s authority and organizational structure. However, this job enrichment concept was obviously not well received by the unions. By now, it has been established that job design techniques bring several benefits for the various stakeholders. For instance, the employees find increased motivation and satisfaction in their job. Organizations get better productivity, performance and reduced absenteeism. The customers may gain substantially in the form of improved quality and prompt service. Despite all these merits, job design programmes often meet with a number of challenges that affect its efficiency. Let us study them. • Job design programmes were resisted by the employees on the ground that enriched jobs presented more challenges and thus resulted in more mistakes and lapses. Similarly, they viewed it only as job enrichment and not as job holder enrichment programme. • The unions frequently oppose job design programmes for fear of job losses that are likely to occur because of increased organizational productivity and individual performance. • Job design techniques require the managers to change their attitude and perception about the employees. They should have empathy and be ready to work sincerely to improve the job quality of their subordinates. But, managers may not be willing to spare their busy time to enrich the jobs of their subordinates. • Job design techniques are usually job-specific programmes. They may prove difficult in the case of those jobs that require sophisticated technology and specialized tools and methods. • Job designs, especially teamwork designs, often face resistance from those employees who lack interpersonal skills and team spirit. • Employees may oppose job design when they fear reduced autonomy and loss of individual identity in the team as a result of job enrichment. • Job design techniques may ultimately enhance the skills and responsibility requirements. This in turn may push up the compensation requirements for the enriched jobs. • Highly motivating jobs created out of job enrichment may cause frequent mental tiredness and stress, leading to increased absenteeism and attrition rates. • The high cost of implementing job design programmes has discouraged many companies from adopting this technique. A few companies found the job enrichment technique less viable in a cost–benefit analysis.

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Recent Trends in Job Design In the changing labour market scenario, organizations are competing with one another to devise strategies to attract and retain their best workforce. Companies no longer depend on the conventional method of monetary benefit alone to retain their employees. They effectively use intrinsic motivational techniques like job design, job enrichment and job reengineering to offer the necessary job satisfaction. We shall now see a few modern techniques.

E-commuting E-commuting (also called telecommuting) is a kind of work system in which the distance barrier is overcome by means of telecommunication. It facilitates the employees to perform their jobs without being present in office. It is a facility provided to a select number of employees. They may work from home for a relatively longer period of time. For instance, e-commuting can be extended to employees who are pregnant, sick or on long tour. Several software companies find it convenient and feasible to offer this facility to their employees. Companies are reaping several benefits from their e-commuting policies and practices. Some of these are enhanced productivity, reduced absenteeism and attrition, economy in operations and, above all, high job satisfaction and commitment. However, e-commuting has a few defects that usually hamper its emergence as a major phenomenon. These defects are: (i) the absence of social interaction and team spirit among employees; (ii) the inability to establish effective supervision and control over the employees; (iii) the high initial cost on infrastructure; and (iv) problems in evaluating the performance of these employees. Of late, a few companies have moved beyond e-commuting to even more advanced systems. For instance, part employments based exclusively on mobiles to intranets are offered to prospective candidates by IT companies. Box 4.8 outlines the benefits of e-commuting in Indian IT sectors. Box 4.8

E-commuting: A Budding Technology in India

Telecommuting as an emerging technology has helped many companies achieve cost-effectiveness in many of their operations. In fact, allowing employees to work from their home or a flexible office has enabled many companies to save substantially on their office space requirements. Similarly, it has helped organizations to save the transportation cost incurred on their employees. E-commuting has also saved the time and energy of the employees, who would have otherwise spent them on their travel to and from office. Understandably, the time and energy saved must have been utilized in their work, thus enhancing the productivity significantly. However, employees preferring telecommuting need to be selfmotivated and self-disciplined and have strong work ethics and sufficient behavioural maturity. Many IT companies in India have shifted different degrees of their workforce to the e-commuting mode

and gained immensely from the innovative exercise. For instance, Accenture India has adopted this technique to attract the best talents in the IT field, especially women and the physically challenged. Similarly, Cisco India uses this technology resourcefully to achieve work–life integration and boost up employee motivation and organizational productivity. Sun Microsystems has accomplished new milestones in the concept of e-commuting. Nearly half of its employees were brought under some form of the e-commuting scheme, which enabled the company to cut costs substantially and contributed to the cause of energy conservation and pollution control. Adapted from: http://www.expresscomputeronline. com/20080324/technologylife01.shtml and http://blogs.harvardbusiness.org/leadinggreen/2008/08/ telecommutings-small-carbon-fo.html.

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Flexitime Work Flexitime work is another alternative work practice followed by organizations to achieve better cooperation from employees and to ensure enhanced motivation and commitment. The flexitime scheme is actually a work design in which employees are allowed to work during pre-determined work hours. In this method, employees have the freedom to choose their flexible starting and ending time of work within the scheduled working hours of the organization. The individual working hours are determined as per the convenience of each employee. An employee may follow his own working hours or his team’s working hours, depending upon his requirements. It is absolutely essential for an employee to record his time of each entry and exit. In any case, the company will make no compromise on the quality of the job. The main merits of this method are: (i) It helps the employees strike a proper work–life balance. (ii) It enables the organization to create a high level of employee morale and motivation. (iii) It reduces job stress among employees substantially as stress-causing factors like inconvenient timings, logistical problems and child-nurturing difficulties can be managed effectively. (iv) It ensures the optimum use of the available infrastructure like office and parking space, equipment like computers, and other devices. (v) It is an efficient tool to reduce employee absenteeism and attrition and enhance productivity. However, coordination among employees and supervision might become a problem. Similarly, worker alienation due to reduced social interaction and difficulty in organizing unscheduled but emergency meetings are significant challenges in the flexitime work scheme.

Summary 1. Job analysis is a process of gathering of relevant information about various aspects of a job including its content, context and the job performer’s skill requirements. 2.

Job analysis information is used for job evaluation, job design, job classification, job description and specification, HR planning, recruitment, training, performance evaluation, wages administration, safety and health, industrial relations and legal requirements.

3. The steps in job analysis are: (i) determining the purpose of job analysis, (ii) gathering background information about the job, (iii) choosing representative jobs for analysis, (iv) collection of relevant job analysis information, (v) review of the gathered

information, and (vi) development of job description and job specification. 4. The job analysis techniques are questionnaire, job performance, observation critical incident, interview, diary maintenance, technical conference and task inventory analysis. 5.

The types of questionnaires available for job analysis are position analysis, functional job analysis, management position description, work profiling system, multipurpose occupational systems analysis inventory-closed ended questionnaire, common metric and Fleishman job analysis system.

6.

Job description is a written statement that describes all the aspects of a job. It contains both organizational information (structure, relationship,

JOB ANALYSIS AND DESIGN

and so on) and functional information relating to the job. 7.

The components of job description are job identification, job summary, job relationships, job duties and responsibilities.

14. Job enrichment refers to the development of work practices that challenge and motivate employees to perform better. 15.

Self-managing teams are usually entrusted with the overall responsibility for the accomplishment of work or goal. The steps in the formation of selfmanaging teams are work mapping, determining the size of the team, leadership development, and fixing the team norms.

16.

Job rotation refers to moving employees from one job to another in a predetermined way.

8. Job specification is a document that specifies the minimum acceptable qualities required for a person to complete the job satisfactorily. 9. The components of a job specification are education and training, work experience, skills and competencies, physical strength and stamina, stress-coping ability and special needs, if any. 10. The challenges that a job analysis faces are employee’s anxiety, management attitude towards a job analysis, undue importance to job holders, environmental influence, and the absence of follow-up action. 11. Job design is basically a combination of the job content and the work method adopted in the job. 12.

The environmental factors influencing job design are ergonomics, characteristics of task structure, task assortment, level of autonomy and responsibility, practices, recognition and support, technological developments, strength of the union, corporate culture, and working conditions.

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17. Job reengineering is the process of streamlining jobs in the form of combining a few jobs into one, redistributing the tasks among various jobs, and reallocation of resources. 18. The basic aim of job enlargement is to make the job more attractive by increasing the operations performed by a person in the job. The two types of enlargement are horizontal enlargement and vertical enlargement. 19. When team members evaluate one another’s performance, it is called the peer performance review. 20.

13. The components of job design are job enrichment, self-managing teams, job rotation, job reengineering, job enlargement, participative management, peer performance review and high performance work design.

Recent trends in job design are e-commuting and flexi-time work. E-commuting facilitates the employees to perform their jobs without being present in office. Flexitime work is a work design in which employees are allowed to work during predetermined work hours.

Review Questions Essay-type questions 1. 2. 3. 4.

Examine critically the steps in the job analysis process with relevant examples. Discuss in detail the uses of job analysis in human resource management. Describe the different techniques available for data collection in job analysis. Evaluate critically the characteristics of the various questionnaire methods used in job analysis.

5. Enumerate the conditions required for an effective interview process in job analysis.

6. Illustrate the important components of a job description statement with examples. 7.

Evaluate the challenges affecting the effectiveness of the job analysis process.

8. Trace the environmental factors that decisively influence a job design. 9.

Explain clearly the critical components of job design process with relevant examples.

10. List out the strategies available to HR managers for enriching jobs in an organization.

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11. “Job analysis is an essential human resource management activity.” In the light of this statement, identify the significance of job analysis. 12.

Describe the extent of relationships among job analysis, job description and job specification.

14. Explain the recent trends in the field of job design with necessary examples. 15. “Job design should always be in alignment with the strategic goals of the organization.” Discuss.

13. How will you prepare a job analysis report for the job of a lecturer in an educational institution?

Skill-development Exercise Objective – The objective of this exercise is to show you how to conduct a job analysis in an organization for a predetermined job in an effective way. Procedure Note – The class is split into groups. Each group has (1) an HR manager, (2) a job analyst, (3) a floor shop supervisor (whose job is studied for job analysis purpose), (4) a production manager (the immediate supervisor for the floor shop supervisor), and (5) two observers of the meetings. The role of the observers is to observe and report about the various aspects of the role-playing sessions.

production department. Besides, the computerization of operations changed the content and context of the jobs and also the job holders’ duties and responsibilities. Consequently, the management promptly decided to undertake a fresh job analysis for all the jobs for which the existing job analysis reports were found to be outdated and inadequate. In this regard, the management directed the HR manager to first carry out job analysis for the job of floor shop supervisor. At present, the HR manager begins the job analysis process for the floor shop supervisor post.

Situation Prolific Chemicals is engaged in the production of highand low-tension insulators. The company has nearly 3,800 employees on its list. It has recently automated a few of its production-related activities including purchase and store-keeping. However, the automation of the manufacturing process failed to yield the desired results for the company. More than that, it caused a lot of disorder and disquiet in the production department. The management was perplexed by the developments and it swung into action. It appropriately ordered the HR department to investigate the cause of the commotion in the production department. The scrutiny of the job analysis records and also the interviews with a select number of employees and supervisors revealed serious deficiencies in the existing job description and job specification statements of a few jobs in the

Steps in the exercise There are four steps in the exercise: Step 1: The HR manager meets the job analyst to plan the process of job analysis for the floor shop supervisor position. Step 2: The job analyst meets the floor shop supervisor and the production manager separately to collect information about the job. Step 3: The job analyst once again meets the HR manager to deliberate on the information he has collected and also to finalize the job analysis report. Step 4: The observers analyse and provide feedback on the performance of the members in the role-playing session.

Case Study Aravind Suitings is a global textile company based in India. The company has presence in more than 35 countries. It has succeeded in getting a decent share in an increasingly competitive global market. It has employed more than

5,800 employees. This company always views its employees as its strength and as the secret of its success. It has got several HR practices oriented towards employee satisfaction and motivation. The uniqueness of the HR practices

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of this company are: (i) its accent on extensive training programme for its employees during their probationary period of two years; and (ii) its compensation packages, which are excellent for the industry. The HR department of the company is managed by Mr Ravi Varma, a postgraduate in human resource management. However, the company has been plagued by quite a few HR-related problems in the recent past. One of them is the high rate of attrition witnessed by the company, especially among the employees promoted to the higher positions in the organization. Some other recently promoted employees were asking for reversals to their original positions. Apparently, the company was perplexed by the developments as the employees leaving the organization were indeed performing activities critical to the organization. The company took the matter seriously and was determined to identify its reason. It appointed a team of HR experts to look into the issue and suggest necessary remedial measures. The team approached all the employees who were leaving the organization and conducted an exit interview to ascertain the reason for their quitting the firm. It also interviewed the employees who applied for reversals to their previous positions. Similarly, it interviewed all the existing employees in that cadre as on that date. Finally, it went a step ahead and contacted the employees who had already left the company in the recent past and elicited their views on the different aspects of employment and the reason for leaving. Shockingly, almost all the employees spoke negatively about their job. They also informed the team about the presence of an anomaly in authority, responsibility and accountability. A number of them perceived a lack of fit between the level of authority and responsibility. They opined that the job carried too huge a responsibility but provided little authority for the job holder. They also revealed that the lack of demarcation of job authority of different employees often led to misunderstanding and

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quarrels with their subordinates. Several employees felt that the compensation package was not commensurate with the difficulty and accountability of the job. Based on its interviews with the present and former employees, the team of HR experts prepared a report and presented it to the top management. The report squarely blamed the job analysis report (that had been made earlier) and the resultant HR practices as responsible for the present situation. It held the job analysis report as poorly investigated and drafted. The HR manager was asked to respond to the report and present his own report about the situation. In his report, the HR manager cited the lack of cooperation of the employees for job analysis exercises as the reason for inaccuracies in the job analysis report. However, he strongly defended the methods and techniques adopted in the job analysis process. Finally, the company decided to undertake a fresh job analysis for all the job titles and integrate the information with the HR practices by revising these practices thoroughly. An external HR consultancy agency with relevant expertise in job analysis was hired this time to prepare the job analysis report even though it charged a high fee. Questions for Discussion 1.

How do you view the developments in Aravind Suitings from your perspective?

2.

Do you agree with the findings of the team of HR professionals regarding the recent spate in employee resignations and requests for reversal?

3. What is your response to the report of the HR manager Mr Ravi Varma blaming employees for the defective job analysis report? 4. Do you have any alternative suggestions for controlling attrition in Aravind Suitings?

Notes 1. Lawrence S. Kleiman, Human Resource Management: A Managerial Tool for Competitive Advantage, 3rd ed. (New Delhi: Wiley India), p.11.

3. Arun Monappa and Mirza S. Saiyadain, Personnel Management, 2nd ed. (New Delhi: Tata McGraw-Hill, 1996), p. 135.

2. R. J. Harvey, “Job Analysis” in M. D. Dunnette and L. Hough (eds.), Handbook of Industrial and Organizational Psychology, 2nd ed. (Palo Alto, CA: Consulting Psychologists Press, 1991).

4. R. Wayne Mondy, Robert M. Noe, and Robert E. Edwards, “What the Staffing Function Entails,” Personnel, 63 (April 1986): 55–58.

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5. M. T. Brannick and E. L. Levine, Job Analysis: Methods, Research, and Applications for Human Resource Management in the New Millennium (Thousand Oaks, CA: Sage Publications, 2002). 6.

7.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page Limited, 2001),pp. 92–96.

9. Refer to http://www.humanresources.hrvinet.com/ 18-methods-of-job-analysis for a detailed discussion on these methods. 10. John W. Jones, Brian D. Steffy and Douglas-Weston Bray, Applying Psychology in Business: The Handbook for Managers and Human Resource Professionals (Lexington, MA: Lexington Books, 1991). Clyde E. Witt, “The Right Stuff: Be a Better Talent Scout,” Material Handling Management, 61 (March 2006): 44–49.

12. Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 327. 13. Clint Parry, “Make Position Description Work for You,” Inside Tucson Business, 15 (22 August, 2005): 17. 14. Ernest J. McCormick and Joseph Tiffin, Industrial Psychology (Upper Saddle River, NJ: Prentice Hall, 1974), pp. 56–61. 15. R. Harvey and M. Wilson, Journal of Organizational Behaviour, 21, no. 7 (2000): 829–854. 16. Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 327. 17.

Arthur R. Pell, The Complete Idiot’s Guide to Managing People (Alpha Books, 2003) pp.143–147.

18. Richard B. Freeman and James L. Medoff, What Do Unions Do? (New York: Basic Books, 1984).

L. E. Davis, “The Designs of Jobs,” Industrial Relations, 6 (1966): 21–45.

20. R. Wayne, Mondy, Human Resource Management, (Upper Saddle River, N.J.: Pearson Prentice Hall, 2008) pp. 114–117. 21.

Ricky W. Griffin and Gary C. McMahan, “Motivation Through Job Design” in Jerald Greenberg (ed.) Organizational Behavior: The State of the Science (Mahwah, NJ: Lawrence Erlbaum Associates, 1994), p. 24.

22.

S. H. Snook, “Psychophysical Considerations In Permissible Loads,” Ergonomics, 21: 963–985.

Inga Pioro and Nina Baum, “How to Design Better Job Application Forms,” People Management, 11 (16 July, 2005): 42–43.

8. E. L. Levine, Everything You Always Wanted to Know about Job Analysis (Tampa, FL: Mariner Typographers, 1983).

11.

19.

23. Waldemar Karwowski and William Steven Marras, The Occupational Ergonomics Handbook, (Boca Raton, FL: CRC Press, 1999), pp. 371–386. 24.

Transformation and Integration Methodology: Task Structure, www.comsysprojects.com/ SystemTransformation/TMtaskstructure.htm.

25. E. E. Lawler, “Job Design and Employee Motivation,” Personnel Psychology, 22 (1969): 426–435. 26. Maryellen R. Kelley, “New Process Technology, Job Design, and Work Organization: A Contingency Model,” American Sociological Review, 55, no. 2 (April 1990): 191–208. 27. M. A. Campion, “Interdisciplinary Approaches to Job Design: A Constructive Replication with Extensions,” Journal of Applied Psychology, 73, no. 3 (1988): 467–481. 28. Ricky W. Griffin and Gary C. McMahan, “Motivation Through Job Design” in Jerald Greenberg (ed.) Organizational Behavior: The State of the Science (Mahwah, NJ: Lawrence Erlbaum Associates, 1994), pp. 24–29. 29. Robert D. Mohr and Cindy Zoghi, “Is Job Enrichment Really Enriching?” (2006); available at www.bls.gov/osmr/abstract/ec/ec060010.htm. 30. Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution (New York: Harper Collins Publishers, 1993), p. 32.

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31. Howard Wilbert Miller, Reengineering Legacy Software Systems, (Newton, MA: Digital Press, an imprint of Butterworth–Heinemann, 1998), pp. 3–7.

35. Robert D. Mohr and Cindy Zoghi, “Is Job Enrichment Really Enriching?” (2006); available at www.bls.gov/ osmr/abstract/ec/ec060010.htm.

32. Gordon Bitter Davis (ed.), The Blackwell Encyclopedic Dictionary of Management Information Systems (Cambridge, MA: Blackwell Publishers, 1999) pp. 161–165.

36.

33. B. Stevens, quoted at the conference of the Institute Of Personnel Management, Harrogate (1990). 34. Charles Ehin, Unleashing Intellectual Capital (Woburn, MA: Butterworth-Heinemann, 2000), pp. 16–18.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), pp. 282–285.

37. R. E. Walton and G. I. Susman, “People Polices for the New Machines,” Harvard Business Review, 86 (1987): 71–83.

CHAPTER

5

Human Resource Planning

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the significance of human resource planning 2 List the factors affecting human resources planning 3 Elucidate the process of human resources planning 4 List the barriers to effective human resource planning

Crompton Greaves is a private sector company engaged in designing and manufacturing electrical products and services. It is a subsidiary of the U.S. $3 billion multinational Avantha Group. It is well known for its HR policies and programmes. In fact, it has won quite a few awards for its unique HR practices over several decades. The businesses of the company are built upon five HR values: leading-edge knowledge, nurturing, customer orientation, performance excellence, and intellectual honesty. Further, it has also developed positive and negative behavioural indicators for each of these values. The company has a well-established and standardized procedure for developing and executing its HR plans. It has a strong conviction about the necessity and significance of involving line managers in the process of HR planning. For instance, it has established an internal HR Council comprising all business heads. This high-level HR council plays an active role in all the HR planning and implementation

process of the HR department. Crompton Greaves also believes firmly in goal-setting exercises for its employees as part of the HR planning process so that the performance excellence threshold improves continuously. Over a period of time, the successive HR plans of Crompton Greaves brought out several changes in the HR activities of the organization. Currently, its compensation philosophy focuses on differentiation based on professionalism, performance excellence and the complexity of responsibilities. Its training policy emphasizes on a corporate training calendar for planning and conducting training programmes. Lastly, its recognitions and reward system now includes financial and non-financial performance enablers. The HR planning process of Crompton Greaves and its accomplishments clearly establish the relevance of good HR plans for the success of an organization. Let us now discuss the different aspects of HR planning in this chapter.

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Introduction Human resource planning is basically a process of identifying the right person for the right job at the right time and at the right cost. This process involves the estimate of the future manpower needs of an organization and meeting them through the labour force available with it. Human resource planning is the first step in the process of recruitment and selection of employees after a job analysis has been completed. From a broad organizational perspective, HR planning intends to achieve better customer satisfaction, quality enhancement and improved employee motivation. From a functional perspective, it aims at enhancing the employees’ motivation and commitment, team spirit, mutual trust, and creativity. The three basic objectives of any HR planning are: (i) attracting, developing and retaining an efficient workforce, (ii) evaluating and rewarding its performance, and (iii) inventing and controlling HR plans and programmes to optimize the HR cost. However, the direct and immediate purpose of human resource planning is to investigate, forecast, plan, control and match the demand for and the supply of manpower.1 Broadly, HR planning is affected by two important factors—the HR requirements of an organization and its availability within and outside the business. With regard to HR requirements, the role of human resource planning is the estimation of the number and nature of people needed for the accomplishment of the goals and strategies of an organization. As regards the HR availability, the task of human resource planning is to scan the environment in order to identify the availability of people with appropriate characteristics and skills. In the past, HR planning was considered a short-term activity and a problem of the line managers. However, intensified competition, technological changes, changing labour characteristics and other such changes in the environment forced the organization to view HR planning as both long- and short-term activities. Though the essence of HR planning is the identification of the demand for and the supply of labour to accomplish the organizational goals on a sustained basis, different authors have defined it with slight variations. Box 5.1 lists these definitions. We may define human resource planning as a process of identifying and then matching the human resource requirements and availability in order to determine the future HR activities of the organization on the basis of the overall organizational objectives. Box 5.1

Definitions

“Human resource planning is the process of analysing an organization’s human resource requirements under changing conditions and developing activities necessary to satisfy these needs.”2 —James W. Walker “Human resource planning is the process for identifying an organisation’s current and future human resource requirements, developing and implementing plans to meet these requirements and monitoring their overall effectiveness.”3 —Beardwell, Claydon and Beardwell “Human resource planning is the process for ensuring that the human resource requirements of an organization

are identified and plans are made for satisfying those requirements.”4 —D. N. Bulla and P. M. Scott “Human resource planning is a process of determining and assuming that the organization will have an adequate number of qualified persons available at the proper times, performing jobs which meet the needs of the enterprise and which provide satisfaction for the individuals’ involved.”5 —Dale S. Beach

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Characteristics of Human Resource Planning The main focus of human resource planning is on choosing the required number and types of personnel for appropriate jobs in a cost-effective way. The following are its characteristics: • HR planning aims at fulfilling corporate strategies and goals through effective utilization of human resources. As such, it is effectively aligned with the business strategies of the organization. • It is not a solitary act; rather, it is a process involving a series of related activities carried out on a continuous basis. • It not only meets the short-term HR requirements of an organization but also determines its long-term strategies and future directions from the HR perspective. • It is a logical and efficient decision-making activity involving systematic analysis of data gathered in a scientific manner. Thus, it is neither a haphazard nor an ad hoc activity. • It emphasizes both the quantitative (number of personnel) and the qualitative (nature of personnel) dimensions of human resources at every stage.

Significance of Human Resource Planning Until a few decades ago, organizations considered human resource planning neither essential nor inevitable. In fact, it received much less attention in the overall planning of an organization. This is because firms, in those times, had a relatively stable external environment. The presence of factors like manageable competition, sluggish progress in technologies, and traditional and regionally concentrated labour force created an environmental certainty for those organizations. However, in the subsequent period, the external environment has undergone several changes and is thus causing a lot of uncertainty to the organizations. For instance, developments like globalization, intensified competition, changing characteristics of the labour force, government interventions and a plethora of laws have created an unstable environment for business. This environmental uncertainty has enhanced the need for and importance of HR planning in the organizations. Contemporary HR planning is mainly concerned with the effective deployment of the precious human resources of an organization. An organization first establishes its strategic goals like gaining competitive advantage, expansion programmes, enhancing organizational effectiveness and employee satisfaction. Depending upon the chosen goals, it develops and executes specific HR plans and programmes. These programmes include, among others, recruitment and selection, training, compensation, and performance management. On the whole, HR planning is now an effective means of accomplishing the business strategies of the organization. We shall now discuss in detail the importance of HR planning in human resource management.

Assessing Future Recruitment Requirements The fundamental purpose of HR planning is determining the number and nature of personnel required by an organization to meet its objectives and strategies successfully. Thus, identifying the future manpower requirements of an organization is a key element in the HR planning process of a firm. HR plans can provide fairly accurate information about the personnel requirement of an organization over a definite period.

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In determining the personnel requirements, an organization may adopt hard or soft HR planning techniques.6 In the case of the hard planning technique, only the number of personnel (called the numerical head count) is considered for determining future requirements. In contrast, the soft planning technique considers the characteristics, skills, aptitude and attitude aspects of the personnel required for future assignments. Many small organizations are adopting the hard human resource planning technique for estimating the future personnel requirements. Alternatively, large organizations adopt a mix of hard and soft approaches to determine their future personnel requirements. Thus, HR planning helps in analysing the use of existing human resources, estimating the future surplus or shortage, planning the reallocation of employees, and then finalizing the recruitment requirements of the organization.

Optimum Utilization of Available Human Resource Employees are the precious asset of an organization. HR planning helps in achieving costeffectiveness by optimizing the utilization of this asset. In contrast, the lack of human resource planning often results in under-utilization of human resources and, thus, pushing up the cost of labour. In fact, one of the primary purposes of HR planning is the minimization of employee cost and maximization of employee efficiency and involvement. HR planning constantly assesses the HR requirements of different departments to identify the surplus and shortage of manpower in them. It also estimates their future requirements on the basis of precise records and forecasting techniques. Finally, it allocates or reallocates human resources to different departments to ensure their best possible deployment. Similarly, HR planning also helps in preventing the wastage of physical assets that may be caused by the sudden shortage of human resources. This is done by forecasting the probable time and cause of skill shortage arising out of foreseen factors like retirement, resignation, death and discharge. In keeping with the skill requirements, organizations develop strategies to tackle skill shortage without much loss of time. Box 5.2 outlines the significance of HR plans for organizations.

Box 5.2

HR Planning as a Basis of HR Philosophy: The Bata Style

HR planning forms the basis for all decisions involving human resource management. It specifies the norms for each of the HR functions like recruitment and selection, training and development, compensation, and performance evaluation. It also ensures that the HR activities are aligned well with the organizational objectives and contribute completely to their accomplishment. Besides, it helps in determining the HR philosophy of a firm. As part of HR planning, organizations undertake environmental scanning to identify the developments in the external environment. Based on the developments in that environment, the HR philosophy may be framed or reframed. For instance, an organization may reorient its HR policies to recruit more number of women and

physically challenged people on the basis of its assessment of the changes in the societal environment. The Bata Shoe Company is a case in point. The HR philosophy of the company is based on the principles of non-discrimination and respect for human rights and individual freedom for all employees. Bata also makes a commitment to be a socially responsible employer. Its recruitment philosophy considers knowledge, imagination, skills, diversity, teamwork and integrity as essential for serving the needs of its unique customers. Its training philosophy focuses on developing employee qualities like technical know-how, managerial and organizational skills as well as a result-oriented approach. Adapted from: http://www.bataindia.com.

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Developing Training and Retraining Programmes HR planning facilitates organizations in devising training programmes to meet the diverse needs of the employees. This is because it determines the skills and competencies of the required personnel. Thus, it helps in predetermining the nature and duration of training for employees. It also helps in determining the retraining needs of the surplus employees so that they can be redeployed in some other positions available in the organization. Of late, organizations have gone forward in their training approach and are conducting outreach programmes like summer internships to train the prospective candidates even before they take up employment with the firm.7 Internship programmes of companies are the outcome of their HR plan to identify the aptitude and skills levels of the students, who would normally be absorbed by these companies later.

Formulating Compensation Policies Compensation is always considered a key variable in the implementation of an organizational competitive strategy. An organization has to necessarily ensure that its compensation plan is aligned well with the HR plan and organizational strategy. For this, the HR plan gathers the necessary information about the conditions prevailing in the external and internal environments of the organization. This information is then used as a critical input for designing the compensation programmes. HR planning also facilitates the achievement of internal consistency and external competitiveness through a compensation policy. Thus, it helps in attracting and retaining the talented workforce. Besides, HR planning helps in the construction of base pay profiles, incentive schemes and promotions for both individual employees and the group. It enables the organization to undertake periodic compensation reviews across different departments and business units.

Determining Management Development Programmes In the long term, the success of an organization depends on the ability of its managers to cope with the changes in its internal and external environment. It is thus the responsibility of the organization to recognize the necessary ability and requirements of its managerial personnel in the near and distant future. It should also help the managers in identifying the opportunities to get relevant and recent knowledge in their field. In this regard, HR planning will be central to all management development programmes. Succession planning, which is an example of the management development programme, is the process of transferring the control of business to others in a planned and systematic way. Developing an effective succession planning programme is pivotal to the stability and success of an organization. The managers identified as possible successors and future leaders should be groomed appropriately. These managers should be given training in skills and competencies required for the future business environment. In such a scenario, HR planning helps in identifying the skills and necessities of an organization in the short, medium and long terms. It also assists the organization in identifying the critical jobs to be included in its succession planning programmes. Box 5.3 specifies the relevance of HR plans for executive development programmes.

Gaining Competitive Advantage In a changing external environment, many organizations have begun to view HR as a substitute for technology and cost leadership in gaining a definite competitive advantage. They strongly

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Box 5.3

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Competency Building Measures at Wockhardt

HR planning provides a critical input to the organization in determining the objectives and methodology for training programmes. The goals of the workers’ training and executive development are framed on the results of the environmental scanning done as part of the HR planning process. Thus, HR plans help in identifying the skills which are more relevant for the present situation and which need to be specifically focused on by the company. The nature of the business, environmental challenges, the existing strengths and weaknesses of the business, and its future strategies combine to influence the HR and training plans of the organization. It is pertinent to see the training goals of Wockhardt, a global pharmaceutical and biotechnology company as an example of this.

On the basis of market-driven workforce skills and capability requirements, Wockhardt has identified some important skills and capabilities as critical for developing competitive advantage in the market through its employees. These skills pertain to varied areas such as the employee’s communication and negotiation skills, business acumen, problem-solving abilities, to name a few. They are branded as Wockhardt holistic excellence enhancement lever (WHEEL). To enable their employees to develop these skills, Wockhardt has initiated programmes like Edge (a distance learning programme), a distinct competency building exercises, and ACE (Aim for Competitive Excellence)—a special “fast track” programme for developing skills. Adapted from: http://www.wockhardt.com/learning.html.

believe that good human resources developed through inimitable and non-substitutable HR policies and programmes can get them real and lasting competitive advantage in the market. These HR policies and practices aim at achieving cost reduction even while attaining optimum labour efficiency. This would obviously help the organization in claiming cost leadership in market in due course of time. In fact, HR planning helps in discovering not only the existing talent but also the future skill requirements of the employees. Thus, it facilitates the development of HR policies concerning various aspects of human resources management.

Shaping Future Plans and Strategies The survival capabilities of large business organizations are usually much stronger than those of the small business units during lean seasons or economic recessions. It thus becomes a compulsion for an organization to constantly devise plans and strategies to enhance business operations and to gain the required stature and size. Quite obviously, no business can develop its growth strategy independent of the HR strategies. The growth strategy may involve a vertical or horizontal business expansion. Similarly, it may be an expansion within or across the nation. Irrespective of the nature and size of the expansion, HR planning plays an indispensable role in every expansion programme of the business organization. In fact, it prepares the ground for effecting the necessary changes in HR activities including recruitment, training, compensation, and performance evaluation to accomplish future strategies. Organizations improve their industrial relations by sharing the data gathered through HR planning with the labour unions. Harmonious labour management relations based on mutual trust and transparency normally facilitate the smooth introduction of changes in the organization.

Factors Affecting Human Resource Planning Human resource planning is influenced by a variety of factors. Some of these are external in nature while others are internal. These factors are: the strategy of the organization, the culture

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of the organization, the competitive and financial environment, the current organizational situation, and the need for human resources including skills levels and quality.8 We shall now discuss these factors in detail.

Strategy of the Organization Strategy formulation indicates the response of an organization to the developments in the external environment. The nature and type of response would indicate the strategy of the organization. Certainly, these strategies are capable of providing a new direction to an organization. For instance, an organizational strategy may aim at mergers, acquisitions, product line expansion, and new market entry or product revival in the market. For effective accomplishment, the organizational strategies should be aligned well with the functional strategies like marketing strategies, finance strategies, and human resource strategies. In the last stage, each individual and the group should be made responsible for achieving the aims for which the organizational strategies were set up. In accordance with the business strategies, an organization should develop human resource plans for a definite period. The HR department should, in turn, prepare specific HR strategies like recruitment strategy, selection strategy, training strategy and compensation strategy based on those HR plans. As such, business strategy becomes the critical input for the HR plans and programmes of the organization.

Culture of the Organization The culture of a group is a set of beliefs, values, thoughts, assumptions and, traditional practices shared by the members of a group—society or region. By extension, the organizational culture is the commonly held beliefs, attitudes and values that exist within an organization for a relatively long duration and are shared by its members. Within a culture, sub-cultures based on age, ethnicity, gender, and regional affiliations may also exist. These cultures and sub-cultures shape the personality of the members of the organization by influencing their thoughts, emotions, motives, attitudes and behavioural patterns. In fact, the role of organizational culture in the development of business strategies and functional strategies is remarkable. Certainly, the organizational culture influences the values systems and the decision-making patterns of an organization. The primary functions of the organizational culture are formalization and adaptation of decisions, combination of activities, and ensuring employee motivation and decision implementation.9 Thus, cultural change is an essential prerequisite for carrying out the strategic plans and changes. By revamping its culture and sub-culture, an organization can create a perfect fit between the organization and its mission, vision and goals.

Competitive and Financial Environment Before the advent of globalization and complex technologies, the external environment of the business remained relatively stable and definite. Organizations gave little thought to environmental factors while determining their HR plans. In fact, HR actions and policies were guided primarily by the organizational issues and objectives. Today, these organizations no longer have the comfort of working in such stable environments. The changes in the nature of technology, competition, financial and labour markets have created an acute uncertainty and unpredictability in the external environment. Consequently, organizations have now

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understood the need to develop HR plans based on the conditions prevailing in the external environment. In a competitive labour market environment, organizations should conduct environmental scanning to identify, classify and prioritize skills based on their availability in the market. They should also estimate the time required to obtain the necessary skills from the labour market in both surplus and shortage scenarios. This is because the timely availability of labour has a decisive influence on the implementation of HR plans.

Current Organizational Situation Outwardly, organizations may appear to have common characteristics but, in reality, every organization is distinct and dissimilar to others. Organizations differ in terms of capabilities, adaptability, development stage, managerial styles, order of acquisitions, change management process and workforce competencies. Thus, it is essential for the HR managers to consider the current situation and capabilities of the individual organization while devising HR plans. For instance, HR planners should consider the training capabilities of the organization before determining the recruitment strategy for filling the job vacancies. If the organization has a strong training infrastructure, it can choose employees directly from the campuses and train them well through its extensive training programmes. But in the absence of training facilities, it must recruit only skilled and experienced people, perhaps for a higher salary. Likewise, the financial capabilities of the organization should be considered for determining the compensation packages of the existing employees as well as the new recruits.

Quantity and Skills Levels of Required Human Resources The number and nature of job vacancies existing in the organization should also be considered while determining the HR plans of the firm. Factors like the need for human resources in terms of the number of personnel required, location of these vacancies in the organizational structure, skills and competency requirements, and the degree of difficulty in getting suitable persons must be considered at the time of devising HR plans. Similarly, the corporate policy towards seniority and merit in promotions, the proportion of internal sources in recruitment to external ones, and agreements with the unions, if any, must also be reckoned. For instance, job vacancies at the lower levels of the organizational structure may require fewer skills and, as such, it is relatively easy to fill those vacancies at a short notice. On the other hand, when the vacancies involve a high degree of technical and managerial competencies, the time required for filling up such positions could become relatively longer. Thus, the skills and competencies requirements of the human resources also affect the HR plans.

Human Resource Planning Process Human resource planning is the ongoing process for an organization to manage the changes in its internal and external environment on a sustained basis. The basic elements involved in human resource planning process are jobs, time, persons and funds.10 It is a continuous process because these elements always keep changing. One such instance would be the entry and exit of employees. The employees might periodically leave the organization on account of retirement, resignation or death. Similarly, new employees might join on account of the vacancies caused by the quitting employees or by the expansion programmes undertaken.

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Although every organization should develop a tailor-made HR plan process to meet its own specific needs, the following HR planning process (see Figure 5.1) can be adopted by any organization with necessary modifications. The steps in a general HR planning process are: (i) considering organizational objectives and strategies, (ii) assessment of external environment, (iii) preparation of an in-house skill and competency inventory, (iv) HR forecasting—need assessment, (v) HR forecasting—estimation of availability, and (vi) developing HR plans and programmes. We shall now discuss these steps in detail.

Considering the Organizational Objectives and Strategies The first step in the HR planning process is the consideration of organizational objectives and strategies. The organizational strategy along with the mission and vision statement clearly expresses the future intent of the organization. The examination of the organizational strategy would provide a clear indication about the future HR requirements of the firm. Thus, HR plans are guided by the overall organizational objectives and strategies. Each organizational strategy has direct and indirect implications for the human resources of the organization. In fact, HR plans are derived from the contents of the organizational objectives and strategies. Thus, HR managers should consult the organizational objectives and policies for framing guidelines concerning hiring policy, training policy, promotion policy, union issues and automation. Certainly, the complete knowledge of the organizational objectives is the first and the essential prerequisite for an effective HR planning process. If the HR planning is to be genuinely effective, it should be aligned with the various levels of general business plans not as an end itself, but as a means to building a prosperous organization.11

Setting organizational objectives and strategies

Scanning the environment

Preparing an in-house skill and competency inventory

HR forecasting–need assessment

HR forecasting–estimation of availability

• Developing HR plans and programmes • Recruitment/reduction Figure 5.1 The Human Resource Planning Process

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Scanning the Environment Organizations undertake environmental scanning to identify the changes in the external environment. This also helps in analysing the impact of those changes on the organizational present and future activities. Environmental forces are defined as those events that can cause a company to achieve or fail to achieve business objectives.12 The basic purpose of any environmental scanning is to examine the business environment to seize the opportunities and tackle the threats. Environmental scanning involves collection of information in the form of statements, actions and responses of people associated with the environment. This information is then closely scrutinized to figure out the likely changes in the environment. Figure 5.2 illustrates the important external environment factors that usually affect the HR plans of the organization. Let us now discuss each of these factors. Economic Situation The economic conditions prevailing at a particular time have a direct and clear influence on the HR requirements of the organization. In fact, the different phases of an economic cycle shape its HR plans. When the country experiences an economic boom, organizations usually engage in massive hiring to meet the growing demand for products by expanding their business operation. This often leads to labour shortage in the market and a subsequent rise in wage levels of the employees. In contrast, during recessionary trends, organizations reduce the size of their workforce to save labour costs. Besides, they become more conscious about the cost associated with recruitment, selection, compensation, and training programmes. Legislative Measures Generally, the philosophy and policy of the government deeply affect business plans and preparations. The business philosophy of the government can be understood through its economic and commerce policies and also through its various labour and industrial laws. HR planners must be aware of the attitude of the government towards the business. They should also know the limitations imposed by the government rules and regulations on the HR practices. Again, they should take advantage of the relaxation offered by the rules and regulations that come into being. For instance, the Government of India amended the Industrial Disputes Act of 1947 as part of the labour reform process. This decision enabled companies with a strength of up to 1,000 to retrench employees without getting prior approval from the government. This change has apparently provided more flexibility to the employers in the labour-separation process.

External Environment Factors

Economic situation

Legislative measures

Figure 5.2 External Environment Factors

Labour market scenario

Techonological advancements

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Labour Market Scenario The extent of competition in the labour market and the recruitment strategy of the rival organizations also influence the HR plans of an organization. When the HR plans require relocation of employees in the form of transfers or redeployment, the response of the affected employee would usually be based on the conditions of the labour market. When there is a labour shortage, the employee might seek a job change by quitting the company. In such a situation, the HR planner must be more prudent in implementing sensitive HR decisions. Besides, the intensity of the competition and the recruitment strategy of the competitors in the industry should also be considered while determining the pay scales and incentives. In the case of existing employees, the pay scale must be sufficient to protect them from being poached by the rivals. As regards the new entrants, the compensation package must be adequate to attract the best persons to the organization. The globalization process has widened the labour market and thus sharply increased the importance of labour market scanning while devising HR plans. Technological Advancements Technological developments have significantly changed the nature and composition of the present-day workplaces. The introduction of new technologies warrants a revamp of the work culture and development of new skills and competencies. It has also created more high-tech jobs in organizations. In fact, the increasing presence of knowledge workers in high-tech jobs rendered several of the existing HR policies and practices obsolete. Consequently, organizations are now forced to develop creative and resourceful HR initiatives to satisfy this new breed of employees. Therefore, HR planners must scan the technological environment before preparing HR plans. In addition to these factors, HR planners should also consider the relevant changes in the characteristics of the workforce while formulating HR plans. The influence of socio– cultural factors and demographic factors like age, educational levels and gender justice on HR plans must also be assessed.

Preparation of In-house Skills and Competency Inventory In the next phase of HR planning, the organization must assess the present strength of its labour force by preparing a skill inventory. A compilation of skills, competencies and qualifications of the entire workforce is described as a skill inventory. Its preparation may involve the determination of the sum of the employees’ experience, knowledge, education, and skill levels. Actually, the quality and size of the skill inventory of an organization will influence its business strategy and HR plans decisively. Skills Audit Before preparing the HR plans, HR managers should know what skills and knowledge the organization requires and what it possesses currently. In this regard, HR managers usually conduct a skills audit to assess the current skill levels of the organization. It involves assessing the performance of the employees from the task perspective. It also helps in identifying the employees’ strengths and weaknesses and the skill gap (skill requirements) within the organization. Further, it assists in determining whether the present skills inventory is sufficient to meet the organizational goals. It also aims at identifying the area of improvement in various skill levels. Box 5.4 shows the relevance of a skills audit and skill gap analysis for IT companies. Core Competency Analysis Core competencies are the extraordinary abilities of an organization that enables it to acquire competitive advantage in the market. These abilities may be its advanced technology, well-reputed management, problem-solving ability,

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Box 5.4

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A skill audit is a technique adopted by an organization to get the right mix of skills, qualities and experiences for enhancing its operational effectiveness. It helps the organization in listing the range of skills available with the present workforce. This list is popularly called a skill inventory. Studying the existing skills available to the organization, it can decide what skills are needed for the organization in the future and, thus, what should be expected from the future recruits. The skill inventory is primarily used for identifying the skill gaps in an organization. It also helps in initiating appropriate remedial measures. Many IT companies have a system of conducting a skill audit, developing a skill inventory and identifying the skill gaps.

TCS has adopted the Tata Interactive System (TIS), a skill inventory and skill gap analysis system based on a competency model. This has become a universally acclaimed model and is certified for P-CMM Level 5. In fact, TIS comprised several hundred multidisciplinary specialists. As part of the skills audit and tracking, the employees’ performance in terms of knowledge, abilities and skills are assessed at TIS within a period of six months. The results of the skills audit serve multiple purposes. They are used to determine the future recruitment and training goals and also provide quick feedback to the employees besides identifying the skill gaps. Adapted from: http://www.financialexpress.com/news/ building-a-skills-inventory/132755/1.

employees’ KSA. From the HR perspective, core competency means the skills and knowledge of the workforce available within an organization that differentiates it from its rivals in the industry offer value (some benefits) to the customers. A core competency analysis is basically an internal analysis of the general strengths and weaknesses of a firm. Organizations conduct it to identify their distinct competencies, systems and processes suitable for further development necessary to gain a competitive advantage. The results of a core competency analysis usually form the basis for formulating corporate strategy and HR strategies. The core competency approach has wide applications in HR activities involving recruitment, selection, training, compensation management and performance management. Once the organization gets to know its strengths and weaknesses and the skill gap of its existing workforce through the skills audit and core competency analysis, it should proceed with the next step of forecasting the demand for and supply of labour.

HR Forecasting—Need Assessment The success of HR plans depends on the accuracy of the HR forecasts that are needed to implement the organizational strategies. These forecasts involve estimating the future requirements of the organization in terms of the nature and the number of people. The information gathered through external environmental scanning and internal skill assessments are used to predict the future HR requirements of the organization. However, HR forecasting usually depends on an organization’s estimation of future demand for its goods or services in the market and the resultant profits. In addition to demand forecasting, an organization may also consider several other factors like management philosophy, absenteeism and labour turnover rates, organizational growth pattern, planned technological improvements, the proposed changes in product lines, and the financial capabilities for forecasting HR requirements.13 An organization may use one or more of the forecasting techniques available to assess the future HR requirements. In fact, the accuracy of HR forecasting largely depends on the ability of the forecasting techniques in rightly projecting the future. Figure 5.3 lists the different forecasting techniques that an organization can use to assess its HR needs. We shall now discuss these forecasting techniques commonly used for human resource forecasting.

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HR Requirements’ Forecasting Techniques

Trend analysis

Ratio analysis

Delphi technique

Normal group technique

Managerial judgement

Work study

Zero-base forecasting

Simulation model

HR allocation model

Figure 5.3 Human Resource Requirements’ Forecasting Techniques

Trend Analysis Trend analysis is a simple technique used for forecasting the HR requirements on the basis of past events. It involves the comparison of any factor that influences HR requirements (for example, the average number of resignations in a year) over a considerable period of time (for example, ten years) through a simple statistical analysis. The general trend obtained in that factor is used to project the future direction of that factor as well as the HR requirements. Trend analysis is, therefore, a tool for examining the employment-related factors over a period of time to forecast the future needs. However, it is a tool suitable only for a preliminary assessment of HR requirements. This is because HR forecasting is often influenced by multiple factors and past trends is just one among them. Trend analysis totally ignores other factors. Ratio Analysis Ratio analysis is the analysis of the relationship between any two numerical variables. As a forecasting technique, it presumes a certain relationship between two given variables and, using that relationship, predicts the future HR requirements. For instance, an organization can predict the number of people additionally needed for a likely increase in demand for a product. Let us see a simple case. If an organization produces 50,000 units of a product with 1,000 current employees, the ratio of the units produced to the number of employees would be 50:1. In such a scenario, when the organization estimates that the production would increase by another 25,000 units in the near future, the HR forecasting based on the ratio analysis would state a requirement of 500 more employees (25,000/50 = 500). Although it is an effective tool for prediction, the weakness of this method is that it ignores other important factors like the increase in employee efficiency and the improvement in technology. Delphi Technique The Delphi technique is basically a group-based systematic forecasting method. This technique does not require any face-to-face participation by the experts. In fact, the identity of the experts remains anonymous till the end of the whole process. In the first phase of the Delphi technique, a group of independent experts forecast the HR requirement of the organization on the basis of the input provided by the organization. In the second phase, a summary of the experts’ forecasts is prepared and sent back to them for their opinions and suggestions. This act is repeated several times till a consensus is reached by the experts on the final HR requirements for the organization. This method aims at maximizing the benefits and minimizing the dysfunctional aspects of group decision making as it eliminates group dynamics and individual dominance from the process.14 Another important merit of this method

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is that the forecasting is more objective and reliable. However, the Delphi technique is timeconsuming. Besides, it requires the participants’ commitment and self-motivation. Normal Group Technique This is also a group forecasting method. It is an interactive mode of decision making with a difference. Each expert in the group independently develops HR requirements and presents it before other experts in the group. The group evaluates each member’s presentation and eliminates duplication, if any. Then, each member’s proposal is relatively graded and the top-ranked proposal is selected as the final HR forecast. This technique is ideal for reaching a quick decision. It is possible to get immediate clarification from experts about their proposals and evaluate all the proposals collectively. The weakness of this method is the scope for bias and prejudice in the evaluation of the proposals. Managerial Judgement In this method, forecasts are made about the HR requirements, usually by the senior managers of the organization. The forecasting here is based on the managers’ subjective views on the possible human resource requirements in the future. The decisions are mostly based on the experience and expertise of the managers and there is little emphasis on data collection and interpretation. In this method, managers consider even non-quantifiable factors like trends, fashions, opinions and perceptions to determine the HR requirements. This method is suitable when the external environment remains unstable and the future cannot be predicted accurately through an analysis of the past events. In the managerial judgment method, opinions of the managers are pooled together in two ways. These are: (i) the bottom-up approach and (ii) the top-down approach. Let us now see these approaches briefly. Bottom-up approach—In this approach, HR forecasting is done in a decentralized decision-making style. The process of HR forecasting begins with the lowest level of the managerial hierarchy. The managers in charge of each division or department forecast the HR requirements on the basis of the organizational and unit-wise goals. This forecasting process is then moved up gradually to the higher levels of the management. Finally, the aggregate forecast of the HR requirements is developed. The basic philosophy of this approach is that the line managers alone can make the best forecast of the HR requirements. This is because managers are generally well aware of the work environment, the existing HR performances, the technology used, and the practical constraints. The weakness of this method is the possible bias in the HR’s need estimation as the managers may tend to overstate their HR requirements. Besides, the managers at the lower levels may not have adequate exposure in forecasting and decision making. Also, the internal politicking and local interest might affect the objectivity of the whole process. Top-down approach—The purpose of this approach is to have the minimum involvement of the line managers in HR forecasting. In this method, experts working at the highest levels of the management forecast the HR needs of the organization on the basis of the information available and the field expertise. The HR forecast is then affirmed by the top management after duly considering the financial and other implications of the forecast. The forecasting is generally more objective and resourceful than the bottom-up approach. However, the major limitation of this method is the likely indifference and lack of commitment on the part of the line managers. Organizations often toe the middle line in HR forecasting by combining both the approaches to improve employee involvement and forecast accuracy.

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Work Study Technique The work study technique aims at examining the business operations to achieve the optimum utilization of the human and physical resources available. The major purpose of this technique is to improve the employees’ productivity and the organizational efficiency. When the results of the work study are implemented in the organization, they often affect its HR requirements. Thus, work study technique emerges as important for HR forecasting. This technique is normally carried out through method study and work measurement techniques. In method study, the methods of performing the job are critically reviewed to develop the best way of doing it and achieve labour cost reduction. Work measurement involves measuring the time needed for a successful performance of the job. The strength of the work study technique is its ability to predict scientifically the changes in the future HR requirements of the organization. The weakness of this method is that it can only supplement and not substitute other methods in determining HR requirements. This is because HR forecasting is influenced by several other factors like organizational objectives and changes in environment. Zero-base Forecasting This method is a new entrant in the existing series of techniques to forecast the HR requirements of an organization. It requires lines managers to justify the need to continue with the positions or jobs that fall vacant in their department. It does not consider any position as eligible for routine continuance. Line managers should state logically why the vacancy should not be abolished and why it is necessary to continue with it. Zero-base forecasting requires managers to conduct a comprehensive study of the utility of each vacancy before seeking replacements. This technique is derived from the widely popular concept of zero-base budgeting. The merit of this method is that it does not consider labour cost as an incremental expense but as a cost that should begin from zero. Its limitation is that it is tedious and time-consuming for the line managers to justify the utility of every job every time it becomes vacant. Simulation Model Simulation model is a mathematics-oriented, software-enabled technique with growing applications in HR forecasting. It is a team-based approach towards HR forecasting. It helps the organizations in determining the current and future HR requirements of their business. In recent times, exclusive HR planning simulation models are available for HR forecasting. These models simulate the HR requirements and availability to determine the likely gap between the demand for and the supply of human resources. The working of the simulation model involves asking several what-if questions to develop alternatives in the forecasting process. For example, what would be the impact if the organization laid off two per cent of its workforce? What would be the impact on HR requirements if the organization increases its production by 5,000 units? The merit of this method is that the simulation of a real-life situation enables managers to try different and drastic solutions to it without being troubled by its consequences. Organizations implement these decisions in real life only after they gain deep insight into the dimensions of the decisions. The limitation of this method is that it is not only costly but also time-consuming. Human Resource Allocation Approach It is an HR forecasting method based on object-oriented simulation model.15 This method has four components: (i) employees, including their education, experience and competencies, (ii) functions, including job structure and the changes in them, (iii) a matching model, and (iv) a formal rule structure comprising the

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policy of the organization towards job allocation. This method allows comprehensive modeling of the interaction among these components. The matching model deals with allocation of different jobs to employees. It equates the competencies of the employees and the required competencies of the jobs. Depending on the outcome of the matching model, an organization can forecast any one of these situations: (i) The organization has the required number of employees with appropriate competencies; (ii) The organization has a shortage of employees to fill all the jobs; and (iii) The organization has employees either with inappropriate competencies or a rendered surplus due to non-availability of jobs. An organization would make HR forecasting based on the specific outcome of the matching model. This method permits an in-depth analysis of the factors affecting the HR forecasting of the organization. It involves a complicated estimation and, thus, is difficult to practise.

HR Forecasting—Estimation of Availability Once the human resource requirements of the organization are assessed, the next critical process is the estimation of the availability of the required number of employees. Through supply forecasting, an organization gets a fairly good idea about the availability of employees with the necessary KSA. It also locates the sources of persons suitable for employment. Usually, organizations have two prominent sources to meet their recruitments: internal and external. In HR forecasting of the employee availability, four scenarios are possible: (i) getting a sufficient number of employees from internal sources; (ii) getting them from external sources; (iii) combining both sources to get adequate numbers; and (vi) failing to get the required numbers of suitable employees from these sources. On the basis of the outcome of the HR forecasting, the organization will determine its future HR activities. Internal Supply of Employees Internal supply refers to the availability of employees within the organization. The existing employees are the main source of recruitment for an organization. In fact, the exact determination of the availability of employees is a critical task for the HR managers. However, several techniques exist to measure the HR availability. We shall now discuss these techniques in detail. Replacement Charts Replacement charts are efficient forecasting tools to find out the employees readily available for promotion to predetermined positions. Basically, replacement charts are records that contain details about the currently serving employees and the possible replacements for the present job holders. They also contain information about the potentiality of the existing employees for future promotion. The replacement chart may classify the potentiality of the employees as: (i) fit for immediate promotion; (ii) ready for promotion but requires a little training; (iii) good enough for the present job but not for promotion; and (iv) is found to be incompetent and needs to be replaced. Replacement charts are usually computerized by the organization to enhance their accessibility. These are periodically reviewed to make them up to date, and as and when replacements are required, these charts are referred to for choosing the employees fit for promotion. The merit of this method is that it clearly describes the mode of filling job vacancies through internal sources. Replacement charts are classified into two categories: Position replacement chart—It indicates the possible replacement candidate for each position in the organization.

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Personnel replacement chart—It indicates the potential for promotion of the internal candidates for different positions of the company. Turnover Rate Turnover indicates the number of replacements required during a year. The labour turnover rate provides information about the likely availability of employees in the organization. Certainly, any HR forecasting is effected by the labour turnover rate of an organization. Studies have shown that the turnover rate is closely associated with employee background and commitment.16 Many organizations are including turnover rate as an HR forecasting tool to determine the future availability and requirements of employees. The turnover rate is normally calculated through the following equation: (Number of replacements during the year) / (Average number of employees on the staff roll during the year) × 100 On the basis of the results of the turnover rate for a few continuous years, an organization can estimate the availability of the employees within the organization for every year. Also, the organization can reprioritize the sources of its recruitment if there is any significant relationship between a specific source and the labour turnover rate.17 For instance, if the attrition rate among the employees from a specific region is high, the organization may reduce recruitment from that region. Thus, the turnover rate acts as an important tool for prioritizing the sources and determining the availability based on past performance and utility value. Human Resource Management Information System (HRIS) Human resource management information system (HRIS) is an online software that meets the various HR requirements of an organization. HR supply forecasting gains immensely from it. HRIS contains information pertaining to the skills, abilities, qualifications, job performance and job-related behaviour of the employees. It is capable of assisting the HR planner with the necessary information about the competency level of each prospective candidate available within the organization. The main merit of this system is its quick accessibility and dynamism. Its main weakness is its high cost of installation. Productivity Level Productivity and performance levels also influence the HR forecasting of an organization. When the productivity levels increase, they bring down the HR requirements of the organization. In such cases, the employees rendered surplus by production increases are usually considered for other vacant positions. They are retrained and transferred to other jobs. Thus, HR supply forecasting includes them as the HR available for meeting the HR demands of an organization. A numerical example can help understand the situation. Let us say that the average productivity of each employee in the organization is 120 units per day. The total employees’ strength in the organization is 2,000. Now the gross production would be 240,000 units. If the productivity of these employees is increased to 130 units per person, then the number of employees required for maintaining the existing level of gross production would be approximately 1,846 (= 240,000/130). The surplus employees numbering 154 could now be used for fulfilling the future HR demands of the organization. Overtime and Absenteeism The overtime policies of an organization can also influence its HR availability. When the organization allows overtime for its employees, its future HR demands could be met through the existing workforce. Similarly, the policies regarding holidays, shift system and retirement can also determine the availability of employees for an organization. Besides, absenteeism (unauthorized leave) can influence the availability of HR in

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the organization critically. When absenteeism is well under control, it can help the organization achieve production goals with the presently available human resources. In contrast, the organization may require additional employees if absenteeism is continuously high. Thus, there is a direct relationship between the level of absenteeism and the HR requirements and availability. Succession Planning The purpose of succession planning is to ensure that the transfers at the top levels of the management are carried out with the least disturbance to business. The system of identifying a potential successor for future openings within the organization is usually a long-term goal of the firm. Succession planning assists HR forecasting by making suitable persons available for the critical positions of the organization. The prerequisites for an effective succession planning are: (i) an objective and systematic performance evaluation system; (ii) goal-based executive development programmes; and (iii) a long-term approach towards human resource management. However, many organizations in India prefer to keep their succession planning informal and unwritten. Small and medium-sized organizations do not think about succession at all. (For a detailed discussion on succession, refer to Chapter 11). Other Factors The movements of employees can influence the HR forecasting of an organization. When there is an outward movement of employees in the form of resignations, retirements, discharges and deaths of the employees, it may push up the HR demands of the organization. In contrast, the return of employees from long leaves like sabbatical, maternity leave, prolonged medical leaves, and recalls from lay-offs can push up its HR availability. Organizations constantly match the inward and outward HR movements to determine the labour surplus or shortage for a specific period. This helps in forecasting the HR needs of the organization. Besides, organizations publish job postings to know about the employees who aspire for the job vacancies created in the organization. A job posting is an internal advertising to inform the employees about the job availability within the organization. In addition, there are a few quantitative methods available for forecasting the internal supply of the employees. These are the (i) Regression model, (ii) Time-series model, (iii) Econometric model, (iv)Linear programming model and (v) Markov Model.18 The choice of a specific HR forecasting technique depends on factors like the size of the organization, the level of competition, the nature of external environment, the characteristics of the labour market, and the condition of the economy.19 External Supply Generally, organizations get a major chunk of their HR supplies from external sources. The size and characteristics of the labour market usually determine the mode of HR forecasting for an organization. While determining the HR availability from external sources, the organization should consider factors like demographic changes, technological developments, labour characteristics, trends in mergers and acquisitions, government rules and regulations, the attitude of unions, deregulations, income tax rates, labour mobility, and the phases of economic cycle like depression and boom. The availability of human resources depends on the nature and reputation of the industry in general and the organization in particular. Of late, globalization has encouraged organizations to meet their HR demands even through the employees located across the nation.

Developing HR Plans and Programmes Once the organization completes the process of forecasting HR requirements and availability, the next step is its comparison. The estimated HR needs are matched with the estimated HR

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availability to identify the skill shortage or surplus. Comparisons of the HR availability with the requirements help the organization in determining the viability of the strategic business plans.20 The outcome of such comparisons would be either the recruitment of more employees or a reduction of the existing workforce. In case of shortage of labour, the organization would undertake HR activities like recruitment and selection, training and development, and placement of employees. In the event of surplus, the organization might resort to employee reduction programmes like a hiring freeze, downsizing, voluntary retirement schemes, reduced working hours or days, and restricted overtimes. It is a difficult task for an organization to properly respond to the situation arising out of the HR forecasting process. In a surplus scenario, an organization may resort to short-term measures like downsizing and reduced working hours. However, in shortage scenarios, the organization may require long-range, strategic responses like training and development to tackle the situation. Therefore, an organization should come up with the HR policies and programmes necessary to deal with the situation.

Requirements for Effective HR Planning The following conditions should be fulfilled for the successful development and execution of HR planning: • HR plans should be aligned properly with the organization’s mission, visions and strategic goals. • The active involvement and proper guidance of the top management is essential for the success of HR planning. • HR managers should have a clear understanding of the requirements of HR planning and be aware of its critical role in goal accomplishment. • Sustained communication and harmonious relationship between line managers and HR manager is absolutely essential. • HR planning requires objective and comprehensive data for decision making. It is thus essential for an organization to maintain up-to-date and accurate HR records. • HR planning should be viewed as a continuous process, and constant improvementbased feedback is a basic necessity. • Forecasting techniques needed for estimating HR demand and supply should be chosen carefully on the basis of the merit of the situation. • The system and process involving HR planning should be simple to understand and easy to operate for all those associated with it. • Basically, human resources should be viewed as the core competency of the organization and also its essential competitive advantage in the market.

Benefits of HR Planning HR planning has gained wide recognition as a reliable tool for effective human resource management. In recent times, even the medium and small-scale organizations have realized the critical role of HR plans in goal accomplishment and cost reduction. We shall now see the important benefits of the HR plans:

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• HR planning helps the organizations in utilizing human resources better through effective planning and timely execution. • It assists the organization in anticipating the future trends in the demand for and supply of labour. • It replaces haphazard and thumb-rule approaches towards human resource management with a well-planned, systematic and scientific approach. • It forms the basis for all HR activities including recruitment, training, performance evaluation, and compensation fixation and employee retention. • HR plans are capable of serving both the long-term and short-term HR requirements of the organization. • It provides adequate time to the organization to prepare itself and its workforce for any possible changes in the future like downsizing, lay-offs, mergers and acquisitions. • It facilitates better information-sharing between the management and the unions and, thus, helps in improving industrial relations. • It helps the organization in determining the career growth of each employee in a systematic manner. • It ensures continuity in the business operations by enabling an organization to develop succession plans for critical job positions. • It helps the organization in creating and maintaining a satisfied, well-trained and skilful workforce.

Barriers to the HR Planning Process Although many organizations have shown a keen interest in the implementation of HR planning, they have faced a few critical problems. The presence of these problems affect the success of HR planning. These problems have been listed below.

Insufficient Realization of the Importance of HR Plans In several organizations, the top management has failed to have a cohesive approach towards HR planning. It continues to follow outdated HR practices in human resource management. Moreover, many small and medium organizations are not concerned about their future HR requirements. As such, these companies are concerned more about their immediate business problems than about their future HR requirements.

Glut in the Indian Labour Market The surplus conditions in the labour market in India have not helped the cause of HR planning. Due to an excess supply in the labour market, many organizations prefer to adopt a short-term, necessity-based approach towards human resource management rather than a long-term, strategic approach.

Union Resistance Employees and their unions often view HR planning as an anti-labour measure. They perceive HR planning as an attempt by the management to overburden them with increased workload.

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They often look at HR plans as a prelude to subsequent undesirable actions like lay-offs and downsizing.

Cost–benefit Misconceptions Many employers resist the introduction of HR planning in their organizations because of the increased labour cost associated with HR forecasting and plan implementation. Increased training requirement as part of the HR plan can also push up the cost of labour of an organization.

Absence of Coordination Lack of support from line managers can also affect the efficacy of the HR planning process. In fact, HR planning is an integrated and organization-wide activity and, therefore, requires complete cooperation and involvement of all line managers. However, these managers consider HR planning as a distraction and also as the responsibility of HR managers.

Future Uncertainty Uncertainty is a characteristic associated with the future. Since HR plans are made for the future, its accuracy is often affected by changes in the environment. The changes in economic conditions, technological environment and government regulations affect the correctness and immediate relevance of the HR plans adversely. Since many HR activities are decided on the basis of HR plans, a flawed HR plan can cause serious problems for the organization.

Summary 1. Human resource planning is the process of identifying and then matching the HR requirements and availability in order to determine the future HR activities of the organization on the basis of the overall organizational objectives. 2. HR planning helps in assessing future recruitment requirements, utilization of available human resource to the optimum, developing training and retraining programmes, formulating compensation policies, determining management development including succession planning programmes, gaining competitive advantage, and shaping the future plans and strategies of the business. 3.

The factors affecting HR planning are the strategy of the organization, its culture, the competitive and financial environment, the current organizational situation and the quantity and skill levels of the human resources required.

4. The steps in HR planning process are setting organizational objectives and strategies, assessing the

external environment, preparing in-house skills and competencies inventory, HR forecasting—need assessment, HR forecasting—estimation of availability, and developing HR plans and programmes. 5. The techniques for forecasting HR requirements are trend analysis, ratio analysis, Delphi technique, normal group technique, managerial judgment, work study techniques, zero-base forecasting, simulation model, and human resource allocation approach. 6. The techniques for forecasting HR availability through internal sources are replacement charts, turnover rate, human resource management information system (HRIS), productivity level, overtime and absenteeism, and succession planning. 7. The barriers to the HR planning process are insufficient realization of the importance of HR plans, a glut in the labour market, union resistance, cost– benefit misconceptions, the absence of coordination, and future uncertainty.

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Review Questions Essay-type questions 1.

Evaluate critically the factors influencing the human resource planning process.

2. Discuss the steps involved in the human resource planning process. 3.

Enumerate the various techniques available to forecast the HR needs of an organization.

4. Examine the relevance of the different techniques used to forecast the human resources available to an organization. 5. Explain the conditions required for the successful development and execution of human resource planning.

6. Describe the barriers to an effective human resource planning process. Suggest also how to overcome these. 7. “Human resource planning is a precondition for efficient management of human resources.” Elucidate. 8. “As the business becomes increasingly global, human resource planning becomes more significant and complex.” Analyse the statement. 9. Assume yourself to be the HR manager of an imaginary company, prepare an HR plan for effecting a merger and acquisition proposal. 10. How will you determine the demand for and supply of human resource for a large organization?

Skill-development Exercise Objective – The objective of this exercise is to show you how to conduct environmental scanning to understand the changes in the external factors and to develop an appropriate HR plan based on the analysis of the internal and external situation of the organization. Procedure Note – The class is divided into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two HR experts from outside the organization, (4) two union representatives, and (5) two observers of the meetings. The role of the observer is to observe and report the various aspects of the role-playing sessions.

diversification, it decided to enter the field of telecommunications in a big way. After making the necessary budgetary provisions, the company directed the HR department to develop an HR plan for implementing this proposal. It instructed the HR department to undertake an extensive survey of the economic and industrial environment and forecast the HR requirement and availability accordingly. The whole exercise was meant to aim at optimizing the labour cost. Steps in the exercise

Situation

There are three steps to the exercise:

Rathosh International Limited is a leading company dealing with the production of polyester fabrics. The company has shown a steady performance for the past several decades. It has a commendable HR team with an excellent track record in employee productivity and satisfaction. The HR department has also succeeded in maintaining a long period of industrial peace and harmony. The company has a strong work culture with clear emphasis on commitment, competency and consistency. Its HR policy is aligned closely with its corporate strategy.

Step 1: The HR manager meets the external HR experts to assess the developments in the external environment of the organization and their implications for the HR plan.

In such a situation, the management of the company recently came up with the decision to diversify its operations drastically. As a first step in the process of

Step 2: The HR manager conducts talks with the union representative to ascertain the internal situation of the firm. Step 3: The HR manager convenes a meeting attended by the two HR team members to develop an appropriate HR plan. The plan would then be sent to the top management for approval. Step 4: The observers analyse and give feedback on the performance of the members in the role-playing session.

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Case Study Unique Airways is a large airline company in India with over 300 domestic flights and 30 international flights to all the major cities. The company has a strong workforce of 10,200 employees, including 1,500 pilots and 1,100 aircraft maintenance engineers. It figured among the top-five airline companies in the country. The company has an excellent work culture and developed a high level of commitment and involvement in its workforce. It won several awards for its distinct HR practices. The HR department of the airlines is headed by HR Director Ramesh Divan, who is assisted well by a team of committed HR professionals. A year back, Unique Airways initiated an ambitious expansion scheme to double its operations. The company directed the HR department to recruit and train the required number of employees to feed its expansion scheme. Subsequently, the HR department formed a panel to scan the external environment. After extensively scanning the economic, political and labour market environment including industry performance, it prepared a detailed report and submitted it to the HR manager. The report stated that the domestic labour market conditions were difficult for jobs like pilots and maintenance engineers due to a vibrant and booming economy. Alternatively, the company could exercise the option of employing foreign pilots and maintenance engineers. Although foreign employees are readily available, their salaries and other allowances are on an average 40 per cent more than their Indian counterparts. Still, the panel was in favour of appointing foreign employees on the ground that the aviation industry was expected to perform well in

the future and the expected increase in the revenue could easily compensate the wage differences. The report thus recommended the appointment of foreign pilots and flight engineers in substantial numbers. It was subsequently implemented and the company gradually appointed foreign pilots and engineers in sizable numbers. Soon after these appointments, however, the economy was gripped by recessionary conditions. The aviation industry proved to be no exception. Unique Airways witnessed a slowdown in its passenger traffic, especially on the international routes. Its sales and profits came under increasing pressure. The management found the salary bill of the foreign pilots and engineers unbearable and unreasonable. They began to blame the HR department for not assessing the external environment properly and for making extraneous recommendations. However, the HR Director resolutely defended the panel by arguing that its recommendations were highly relevant at the time of its submission. He contended that the economy turned weak suddenly and most unexpectedly. However, the management did not accept the view of the HR director and seriously pondered a future course of action. Questions for discussion 1. What is your assessment of the developments in Unique Airlines? 2.

Do you agree with the view of the management that the panel misguided it?

3. If you were to be the panel member, what would be your recommendation?

Notes and R. Tripp (eds.) Human Resource Forecasting and Modeling, (New York: The Human Resource Planning Society, 1994).

1. Human Resource Planning, The Human Resource Planning Society, Orient Blackswan, 1999, pp. 162–168. 2. James W. Walker, Human Resource Planning (New York: McGraw-Hill, 1980), p. 5. 3. Ian Beardwell, Tim Claydon and Julie Beardwell (ed.), Human Resource Management: A Contemporary Approach, 5th ed. (Harlow, Essex: Prentice Hall, 2007), p. 159. 4.

D. N. Bulla and P. M. Scott, Manpower Requirements Forecasting: A Case Example in D. Ward, T. P. Bachet

5. Dale S. Beach, Personnel: The Management of People at Work (New York: Macmillan, 1975), p. 411. 6. Alan Price, Principles of Human Resource Management: An Active Learning Approach (Oxford: Blackwell Publishers, 2000), pp. 84–86. 7.

N. Perry, “Saving the Schools: How Business Can Help,” Fortune, (7 November 1988): 42–52.

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15.

Wilfred S.J. Geerlings, Alexander Verbraeck, John van Beusekom, Ron P. T. deGroot and Gino Damen, “Strategic Human Resource Allocation Model for an Internal Labour Market: A Human Resource Forecasting Model for the Royal Netherlands Navy” in Mehdi Khosrowpour (ed.), Challenges of Information Technology Management in the 21st Century (Hershey, PA: Idea Group Inc (IGI), 2000), pp. 231–235.

16.

Wayne F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 6th ed. (New Delhi: Tata McGraw-Hill, 2002), p. 176.

Cherrie Jiuhua Zhu, Human Resource Management in China: Past, Current and Future HR Practices in the Industrial Sector (Abingdon, Oxon: RoutledgeCurzon, 2005), pp. 130–134.

17.

12. Charles Halliman, Business Intelligence Using Smart Techniques: Environmental Scanning Using Text Mining and Competitor Analysis Using Scenarios and Manual Simulation (Oregon: Quality Books, 2006), p. 3.

Cherrie Jiuhua Zhu, Human Resource Management in China: Past, Current and Future HR Practices in the Industrial Sector (Abingdon, Oxon: RoutledgeCurzon, 2005), pp. 130–134.

18.

M. J. Duane, Customized Human Resource Planning (Westport: Quorum Books, 1996), p. 8.

8. Robert L. Mathis and John H. Jackson, Human Resource Management, 10th ed. (Mason:Thomson South-Western, 2004), pp. 33–35. 9.

Toyohiro Kono and Stewart Clegg, Transformations of Corporate Culture: Experiences of Japanese Enterprises (New York: Walter de Gruyter, 1998), pp. 103–124.

10. Richard C. Grinold and Kneale T. Marshall, Manpower Planning Models (New York: Elsevier North-Holland, 1977), p. 29. 11.

13. Bill Macaler and Jones Shannon, “Does HR Planning Improve Business Performance?” Industrial Management, January/February 2003, p. 20. 14. S. E. Jackson and R. S. Schuler, “Human Resource Planning: Challenges for Industrial and Organizational Psychologist,” American Psychologist, 45 (1990):163.

19. Eddy Madiono Sutanto, “Forecasting: The Key To Successful Human Resource Management,” Jurnal Manajemen dan Kewirausahaan, 2, no. 1 (March 2000): 1–8. 20. G. G. Alpander, Human Resources Management Planning (New York: AMACOM, 1982), p. 79.

CHAPTER

6

Recruitment

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the features of recruitment and a recruitment policy 2 Explain the benefits of organized recruitment 3 Enumerate the steps in the recruitment process 4 Define the sources of recruitment 5 Understand the recruitment practices in India

Although Yes Bank started its operations in 2004, by 2008 it had a significant presence in corporate and institutional banking, financial markets, investment banking, business and transactional banking, retail banking, and wealth management. The company attributes its success to its highquality human capital built painstakingly with the help of its HR practices, especially through its recruitment drives. Since its inception, the promoters of Yes Bank have viewed human resources as a source of competitive advantage and as an enabler of the operational strategy of the bank. To begin with, the company depended a lot on employee referrals, consultants, and Web-based hiring to source the best talent. For instance, well-known HR consulting agencies like ABC Consultants, Planman Associates, Emmay and Kom/Ferry International were lending a helping hand in its

recruitment campaigns to attract top performers to the bank. As a long-term measure, Yes Bank is striving hard to create a strong employer brand in terms of its employee value proposition. This, in turn, is integrally linked to the core values of the bank and all its HR systems and processes. The essence of employee value proposition is to enable employees to absorb organizational values and then share the same values with its valuable customers. The ultimate aims of the brand creation measure adopted by the bank are retaining talented employees in the bank and making it a preferred destination for superior human resources. The case of Yes Bank makes it amply clear that recruitment strategies can contribute effectively to the accomplishment of organization goals. In this context, we shall now discuss recruitment in detail in this chapter.

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Introduction The primary task of human resource management is to choose the right kind of person for the right job. This is because the ability of an organization is determined to a great extent by the ability of its workforce. The old belief that capital was fundamental to the progress of the organization does not hold good any longer as employers around the world have begun to believe that a smart workforce is the key to the success of an organization. In fact, it is with people that quality performance begins and ends.1 However, the major challenge of HR managers lies not in choosing the right people but in locating and reaching out to these people and motivating them to offer themselves as prospective job aspirants. Recruitment provides the first contact for an organization with its potential employees. An organization must have an effective recruitment policy and process to inform candidates about the job openings and persuade them to apply for the available positions. The efficacy of the recruitment process may be measured in terms of the quality and quantity of the applicant pool (the grouping of applicants based on the type of job) created by it. A good recruitment strategy should inform qualified individuals about employment opportunities, create a positive image of the company, provide enough information about the job so that applicants can make comparisons with their qualifications and interests, and also generate enthusiasm among the best candidates so that they may apply for the available positions.2 Thus, recruitment needs to attract not just candidates but qualified candidates who meet the expectations of the firm. We shall now see the meaning of the term recruitment before discussing recruitment policy and process in detail.

Definitions of Recruitment Box 6.1 showcases the various definitions of recruitment that will provide an insight into the salient features of the term. Thus, recruitment may be defined as a search for promising job applicants to fill the vacancies that may arise in the organization.

Features of Recruitment The characteristic features of recruitment may be classified as follows: Box 6.1

Definitions

“Recruitment means attracting candidates, which is primarily a matter of identifying, evaluating and using the most appropriate source of applicants.”3 —Michael Armstrong “Recruitment is the process of searching for prospective employees and stimulating and encouraging them to apply for jobs in an organization.”4 —Edwin Flippo “Recruitment is a process to discover the sources of manpower to meet the requirements of the staffing schedule

and to employ effective measures for attracting that manpower in adequate numbers to facilitate effective selection of an efficient working force.”5 —Dale Yoder “Recruitment is the process of finding and attracting capable applicants for employment. The process begins when new results are sought and ends when their applications are submitted. The result is a pool of applicants from which new employees are selected.”6 — Werther and Davis

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• It is a positive act since it attempts to encourage potential applicants to seek jobs in the firm. • It is not a single task; rather, it involves a series of planned activities. • It represents the first contact that an organization has with its potential employees. • It proposes to develop an applicant pool in the desired hiring ratio (the number of applicants for a job) to ensure an effective selection procedure. • It aims to discover and determine the sources of manpower to be utilized in tune with the strategic goals of the organization. • It intends to locate and reach out to the potential applicants, wherever they are, and offers an incentive to stimulate them to apply for the vacancies offered. • It is a function that calls for continued contact between the organization and the community as the latter makes the requisite human resources available to the former.

Recruitment Policy Recruitment policy is the guiding principle that governs the HR practices relating to recruitment. It provides a broad framework for the HR department to choose its priorities relating to recruitment. These priorities may include, among others, the gender equation, options for the socially marginalized and the physically challenged, and compassionate appointments for the dependents of the deceased and retired employees. A good recruitment policy can save an organization from facing situations like unproductive tests and interviews due to non-availability of the right candidate in the applicant pool, compromising on the selection of good candidates, high attrition rate, low productivity, and low motivation among existing employees as a result of faulty policies. A methodical recruitment policy can ensure the availability of suitable persons at the appropriate time with the least disturbance to the production schedule. Factors like the image of the company, labour market conditions, government regulations, and the economic situations may also contribute to the success of the recruitment policy. Box 6.2 outlines the essence of a recruitment policy.

Features of a Good Recruitment Policy • A good recruitment policy should be in conformity with the relevant public policy and legislations. Box 6.2

Emphasis on “Learnability” in the Recruitment Policy of Infosys

The recruitment policy of an organization can have a significant impact on its recruitment process. In fact, recruitment policies are developed by organizations for the very purpose of streamlining their recruitment processes and ensuring consistency in the recruitment of people for various jobs. Besides, they enable HR managers to initiate the hiring process at any point of time during the year to select suitable employees.

The recruitment policy of Infosys is a case in point. While recruiting new employees, Infosys looks for qualities like superior academic records, technical skills, and ingrained capacity for hard work in all the candidates. Similarly, it concentrates on recruiting candidates who exhibit a high degree of “learnability”—the ability of a candidate to derive generic knowledge from specific experiences and apply it to new situations. Adapted from: www.infosys.com.

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• It should supplement the HR policies of the organization. In other words, it must not contravene the provisions of the general personnel policies. • It must display enough dynamism and progressiveness in its approach to attract the best talents for the organization. • It must constantly strive to make the necessary human resources available to match the skills requirement of the organization. • It should ensure equal employment opportunities for all sections of the society.

Factors Governing the Recruitment Policy The recruitment policy of an organization is an integral part of its HR policy. Obviously, the factors influencing the recruitment policy are the same that determine the HR policy of an organization. These factors can broadly be classified into two categories, namely, internal factors and external factors. Let us discuss the nature and the extent of influence of these factors in determining the recruitment policy briefly. Internal Factors Internal factors are those factors that are well within the control of an organization. There are several internal factors that influence the recruitment policy of an organization. A brief description of the key ones is presented as follows. HR policy of the organization—The overall HR policy of an organization shapes its recruitment policy. The HR policy presents specific guidelines to HR managers on various matters concerning employment. It states the intent of the organization about recruitment, selection, training, promotion, compensation and other aspects of human resource management. For instance, the organization may state in its HR policy that it believes in recruiting people who have the ability or potential to meet the high standards of performance that will be expected.7 In accordance with such an HR policy, the HR department may prepare and execute its recruitment policy. Nature of the job—The nature and position of the job in the organization have a bearing on the recruitment policy of the organization. The recruitment policies may be different for managerial and non-managerial positions in the management. For instance, an organization may have to recruit far and wide to fill key positions in the management. The non-managerial positions, on the other hand, may be filled by recruiting at a local level. Thus, the recruitment policy normally varies for different jobs, depending upon the education and technical background required to perform each job. Similarly, the number of vacancies also determines the recruitment policy. When the vacancies are large in number, the organizations may adopt multiple sources to identify the potential applicants. Reputation of the firm—The goodwill enjoyed by an organization in the labour market also influences its recruitment policy. When an organization has a positive image among the prospective job-seekers, it can easily attract the required number of candidates with little effort. Often, the HR policies and practices adopted by an organization determine its image in the labour market. On this count, large organizations generally enjoy an advantage over smaller ones in attracting prospective candidates with ease. Conventional wisdom—Organizations tend to adopt past practices in the future as long as the practices work well. They may change these practices only when it is necessary and unavoidable. The purpose of this approach is to ensure consistency in recruitment practices

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for a fairly long period of time. However, excessive reliance on past practices may affect the dynamism and flexibility of the recruitment policy. External Factors External factors are those factors that are beyond the control of an organization. These factors usually affect the quantity and quality of labour available to an organization. Hence, external factors should also be considered while framing the recruitment policy. These factors are as follows: Labour market conditions—The demand for and supply of labour in the market influence the recruitment policy of an organization. When there is a shortage of talent, an organization may be forced to adopt aggressive recruitment programmes to build up its applicant pool. However, it can opt for simple recruitment practices if the supply of workers exceeds the demand. In India, the labour market situation is paradoxical. On one hand, there is a vast demand for skilled workers (like software developers, computer engineers and senior executives) in the market but they are in short supply. On the other hand, the supply of unskilled workers surpasses the demand for them in the market. Practically, it is not possible to determine the exact demand and supply of labour as the geographical boundaries of a labour market cannot be defined in any clear-cut manner.8 Legal provisions—Government policies and legal provisions also contribute to the formation of the recruitment policy of an organization. The government has enacted several legal provisions to protect the interests of the various sections of the society. Organizations consider those provisions while framing their recruitment policy. For example, reservations for various categories of the society like the scheduled tribes, scheduled castes, backward castes and others in public sector employment, the Child Labour (Prohibition and Regulation) Act of 1986, the Employment Exchange Act of 1959, and other such provisions have their own influence on the recruitment policy of an organization. Socio-economic factors—The changing characteristics of society like the level of education, the average age of the people available in the market, the economic necessity of the labour force, the licensing and certification requirements to perform a job, the attitude of society towards the weaker sections like women and the physically handicapped have an effect on the recruitment policy of the organization. Similarly, the availability of technology as a substitute for the workforce also has an impact on it. Depending upon the situation prevailing in the labour market, an organization may adjust its recruitment policy. For instance, when the supply of labour is restricted in the market, the organization may adopt one or more of the following ways:9 • Improve the characteristics of vacant positions, for example, by raising salaries or increasing training and educational benefits. • Reduce hiring standards. • Use a larger number of and more expensive recruiting methods. • Extend searches over a wider geographical area.

Recruitment Organization In a small organization, line managers may handle all aspects of human resources work on their own. But as the organization grows in size, they may find it difficult to carry out

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personnel duties in addition to their routine work and may devote insufficient time to this kind of activity. Consequently, large organizations usually establish separate HR departments and centralize HR activities like recruitment. In such a situation, the HR department first receives the request for recruitment from line managers of the operating departments and then, after considering the request duly, begins the process of recruitment to fill the vacancies in these departments. Centralized recruitment has many advantages for the organization: • It ensures uniformity in the recruitment policy of the organization. • It helps reduce cost since the administrative costs can be kept to a minimum; for instance, by placing common advertisements for all vacancies. • It ensures the best possible utilization of the expertise of the HR professionals of the organization. • It can avoid personal bias and prejudice in the process of recruitment and selection. • It facilitates the maintenance of the centralized talent pool to cater to the needs of different departments. • It allows line managers to devote more time to operational activities. However, centralized recruitment suffers from the limitations of procedural delay. The need for centralization or decentralization ultimately depends on the situational necessities and the corporate policy and philosophy of an organization.

Recruitment Process The recruitment process is concerned with the procedure for the identification and classification of the potential source of human resources supply and effectively utilizing those sources. In the overall process of procuring and inducting human resources in the organization, recruitment is one of the critical sub-processes. A well-planned and well-managed recruiting process is essential for attracting high-quality applicants. Figure 6.1 illustrates the steps in a recruitment process.

Steps in the Recruitment Process Merely placing an advertisement or employing professional agencies to recruit candidates does not complete the recruitment process. There are several important steps involved in the whole process. We shall now discuss these steps in detail.

Human Resources Planning The first step in the process of recruitment is the framing of human resources plans in tune with the organizational objectives. Human resources plans clearly estimate the levels and kinds of human resources required to ensure the accomplishment of the strategic plan of the organization. Human resources planning involves the estimation of how many qualified persons are necessary to carry out the assigned activities (personnel demand), how many people will be available (internal supply), and what must be done to ensure that the personnel supply equals the personnel demand at an appropriate point in the future (the reconciliation process). Thus, the first step is the estimation of the future HR requirements of the organization and a decision to meet the personnel demand with an adequate supply through recruitment.

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Human Resources Planning

Determination of strategy

Evaluation of sources of recruitment

Implementation of recruitment methods and strategies

Feedback and control Figure 6.1 Steps in the Recruitment Process

Determination of Strategy The second step in the process of recruitment is the determination of strategy for choosing the candidates. It may include, among others, the development of different sources of recruitment, the preferences to be followed, the recruitment method to be used and the series of activities to be undertaken. Job specification reports that specify the quality and quantity of personnel required for the organization help us in determining the strategy to be adopted. The strategy must be designed in such a way that it attracts as many applicants as possible.

Evaluation of the Sources of Recruitment Once the strategy is finalized, the next step is the evaluation of each source of recruitment. There are two important sources of recruitment in every firm, namely, internal and external. Internal sources include, among others, the existing employees, the former employees and employee referrals, while the external sources refer to all sources other than the internal ones. For instance, employment exchanges, employment associations, professional associations, public advertisements and educational institutions constitute external sources. Evaluation refers to the assessment of strengths and weaknesses of the sources available to an organization. One of the studies10 mentions that the measurement refers to finding an answer to the question, “How many applicants did we generate through each of our recruitment processes?” Organizations can attract a good number of qualified applicants by combining one or more sources. The evaluation of each one of these sources has been done in detail later in this chapter under the section “Sources of Recruitment”.

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Implementation of Recruitment Methods and Strategies Having evaluated the various sources of recruitment, the next stage is the finalization of the sources and the actual implementation of strategies. Regardless of whether the organization decides to recruit from internal or external sources, the recruitment method and strategy must be implemented in accordance with all relevant laws and regulation.

Feedback and Control As recruitment is a continuous process, it is essential to evaluate it to enhance its effectiveness. The quality of the applicant pool is an indicator of the efficacy of the recruitment process. If the process discourages the potentially qualified individuals from applying, limits the size of the applicant pool or results in inferior applicants becoming the employees of the organization, there is a need for a change in the recruitment process.

Sources of Recruitment Developing different sources of recruitment is essential for an organization. When the organization is successful in gathering a large applicants’ pool, it can adopt a rigorous procedure in choosing the best employees from such a pool without compromising on quality. However, there is no single combination of resources and methods that will work well for all organizations or, for that matter, across all labour markets, or even within a labour market.11 Thus, an organization should use multiple recruitment sources to build its applicants’ pool. Box 6.3 shows multiple recruitment methods as a viable means to build an applicants’ pool. We shall now discuss in detail the different sources of recruitment mentioned in Figure 6.2.

Internal Sources Internal recruitment usually refers to filling open jobs with the current employees of the organization. It is a process designed to create sufficient interest among the current employees to cause them to formally indicate an interest in a given position. The position applied for may represent a promotion, a transfer, or even a demotion in a few cases.12 It is to be understood here that there must be an active and voluntary participation of the existing employees in the process of recruitment to call it an internal recruitment. Internal sources normally consist of Box 6.3

The Multiple Recruitment Strategy of Tata Business Support Solutions

Organizations usually depend on more than one source of identifying the candidates to build a large applicants’ pool. This enables them to adopt a rigorous selection process to choose the most suitable candidates for the job vacancies. However, each organization may follow a unique combination of recruitment sources, depending upon the nature and number of job positions available. For instance, Tata Business Support Solutions uses multiple recruitment sources

for choosing the best talents at all levels of the organization. These are: • • • • • •

Direct walk-ins Referral walk-ins Consultant services Campus recruitments Recruitment advertising Internal job postings Adapted from: www.tata-bss.com/people2.htm.

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Sources of Recruitment

Internal Sources Existing employees Former employees Employee referrals

External Sources Employment exchanges Outsourced to recruitment agencies Advertisements and campus recruiting Walk-ins, write-ins and Internet recruiting Raiding or poaching

Figure 6-2 Sources of Recruitment

the existing employees, the former employees, and employee referrals. Each of these sources has been discussed here briefly. Existing Employees The most common source of internal recruitment is through existing employees. Organizations normally maintain inventories of qualifications to choose employees for suitable vacancies. Such inventories contain data such as the current employee’s performance, educational background and suitability. The usual method of creating a pool of internal applicants is through job postings. A job posting refers to the process of advertising available positions to the employees. They evaluate job opportunities relative to their skills, experience, interests, and career goals and indicate their interest formally to their immediate supervisor or through the HR department. Promotions and transfers from among the existing employees are examples of internal sources of recruitment. However, there is a strong possibility that this method may create a bitter feeling amongst those not selected.13 Box 6.4 highlights an internal recruiting style at Wipro. Former Employees Former employees are also considered as an internal source of recruitment for they are acquainted with the policies and practices of the organization. Besides, they enjoy familiarity with the present employees in most cases. It is now increasingly common to take back employees who left the firm for various reasons. This is because

Box 6.4

The Job Posting System: A Tool for Recruitment

A growing number of companies in India are extensively using their in-house magazines and intranets to publicize the job openings available in their organizations and also the relevant eligibility criteria. They also encourage the suitable candidates to make use of these opportunities to effect job changes. These instruments provide the employees with the necessary flexibility and information to plan their progress, to apply for the post of their choice,

and to chart their own career. For instance, Wipro has a popular and transparent job posting system—“Wings Within”, an intranet site to communicate all vacant job positions to the employees and also to prompt the eligible candidates to apply for job changes by making use of these opportunities. Adapted from: www.wipro.com.

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the ex-employees’ performance and attitude are well known to the organization and the risk involved in choosing them is relatively less. Employee Referrals This method refers to the practice of the present employees providing information about the candidates who are willing to be considered for the present vacancies. The applicants may be the friends or relatives of the referring employees. Referral is also a cost-effective source of recruitment. Its effectiveness lies in the assumption that the present employees will recommend only suitable candidates for the vacant jobs lest their own credibility be affected. Employee referrals are also an effective tool to stem the tide of attrition. When friends work together, they are less likely to leave a company soon. However, employee referrals may prove to be a major source of irritation in the employer–employee relations, if such referrals are rejected. Box 6.5 describes the role of employee referrals in the recruitment plans of select companies.

Evaluation of Internal Sources Merits

Internal recruitment has the following merits:

• It helps the organization in offering career development plans to its employees. • Internal candidates may require less orientation and training than outside ones. • Internal recruitment can act as a good motivator and morale-booster if the employees see promotions as a reward for and recognition of their hard work and efficiency. • It facilitates better utilization of skills, experience and qualifications of the existing employees. • It is easy to induct existing employees into the work environment as they are normally familiar with the job, people and workplace. • It is economical and less time-consuming when compared with external sources. • It can enhance loyalty among the employees as it allows them to feel more secure about their future in the organization and thus ensures cordial industrial relations in the firm. Limitations Although internal recruitment has a significant number of advantages, it has its limitations also. These are: Box 6.5

Employee Referrals: A New Horizon in Recruitment

The toughest challenge facing HR managers today is finding talents necessary to meet manpower requirements of the rapidly growing organizations. Many companies are now looking at employee referrals as a viable, trusted and cost-effective recruitment source to identify suitable candidates for the job openings. Since skills’ shortage is more pronounced in the IT sector of India, most IT companies depend critically on employee referrals for recruitment. For example, Cisco hires 55 to 60 per cent of employees through referrals in India, while in Infosys 40 per cent

of the hiring is done laterally. In the case of TCS, hiring through the employee referral channel has increased in the last two years by almost 175 per cent. Similarly, SAP Labs India hired nearly 60 per cent of its 3,000 new recruits through referrals as against 30 per cent the previous year. Again, out of a total addition of 4,400 employees, Patni recruited 2,000 through referrals. Source: http://www.citeman.com/ 1153-referrals-in-recruitment/. Reproduced with permission.

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• Internal recruitment may restrict the option of recruiting a more diverse workforce, thereby keeping a large pool of potential employees in the labour market untapped. • It may provide an organization with a better applicant but not necessarily the best applicant as it may be hard to find the most suitable person for a job within the organization itself. • Too much emphasis on internal recruitment may result in in-breeding, which may not be good for the future plans and prospects of the organization. • Internal recruitment can affect the unity and integrity of the organization if the employees perceive the selection procedure as unfair and discriminatory. • It may be difficult to infuse the organization with fresh talent and creativity if there is undue dependence on internal recruitment. For instance, employees may prefer to maintain the status quo, even if far-reaching changes and entirely new directions are required in the organization.

External Sources The external sources of recruitment refer to reaching out to the external labour market to meet the labour requirements. They are huge, diverse, and important for recruitment. Tapping these sources calls for careful planning and proper execution by the organization. The following are the important external sources: Employment Exchanges Employment exchanges have been established by the government to act as a liaison between job providers and job seekers. In fact, these exchanges were set up all over the country in compliance with the Employment Exchanges (Compulsory Notification of Vacancies) Act of 1959. The twin tasks of employment exchanges are to help employers locate suitable candidates for the vacancies arising in their organization and the job seekers get information about such job opportunities. The Employment Exchanges Act stipulates that all industrial undertakings with not less than 25 workers should notify their vacancies to the employment exchanges before filling them up. Employment exchanges would find a match for these vacancies with the job aspirants who have registered their names with them. The functioning of these employment exchanges cannot be termed as effective in India except that they are helpful to the government institutions in finding appropriate candidates. Table 6.1 shows the number of employment exchanges and the number of registrants in India over the past few years. Outsourced to Recruitment Agencies Transferring the whole or a few parts of the recruitment process to an external HR consultant rendering recruitment services is called outsourcing recruitment. In recent decades, there has been a sizeable increase in the number of private employment agencies that engage themselves in the task of shortlisting and providing qualified applicants to the private organizations in need of them. These agencies specialize in recruitment activities and become professionals. They normally charge fees either from the applicant or from the organization or from both for the successful placements. In brief, these agencies are readily available sources of qualified applicants for an organization and also make the subsequent selection process a simple affair with no need to evaluate unqualified candidates. Box 6.6 highlights the growing popularity of outsourcing recruitment.

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Table 6.1 Employment Exchange Statistics

Year

Number of Exchanges*

Registration (‘in thousands’)

Placement (‘in thousands’)

Application on Live Register (‘in thousands’)

1999

955

5,966

221

40,371

2000

958

6,042

178

41,344

2001

938

5,553

169

41,996

2002

939

5,064

143

41,171

2003

945

5,463

155

41,389

2004

947

5,373

138

40,458

2005

947

5,437

173

39,348

2006 (Jan to June)

947

3,621

105

40,676

* (Data including University Employment: Information and Guidance Bureau) Source: Department of Economics and Statistics, Tata Services Limited, Statistical Outline of India, 2007–2008. Reproduced with permission.

Box 6.6

Outsourcing Recruitment—A Competitive Advantage

The concept of outsourcing recruitment is gaining prominence in India. Outsourcing enables companies to save up to 40 per cent of their recruitment costs, which may be one of the main reasons for its growing popularity. In fact, many large and medium-sized business organizations in the country are outsourcing whole or part of their recruitment process. Lately, outsourcing has been tried for recruiting employees at almost all levels of the organization. Undoubtedly, the growth of the outsourcing industry has been phenomenal, especially in recent times. At present, the value of the recruitment process

outsourcing industry (RPO) in India stands at a whopping $2.5 billion and it is projected to grow at an annual rate of 30–40 per cent for a few more years. For instance, Yes Bank outsources nearly 50 per cent of its recruitment processes. Wipro has outsourced its recruitment process to MeritTrac while Vodafone outsources its recruitment process to Alexander Mann Solutions (the RPO service provider). Adapted from: www.recruitment.naukrihub.com/ outsource-recruitment.html.

Advertisements Printed advertisements are a preferred mode of external recruitment for several reasons. As printed advertisements reach many people in a short period of time, the vacancies can be communicated to the potential candidates quickly. They enjoy a wider coverage and better reach. They are cost-effective when the vacancies are large in numbers. Besides, it is possible to place anonymous advertisements and the employers may thus hide their identity if required. In the case of job positions that require special skills, qualification, knowledge and experience, the advertisements may be placed in professional or trade journals to reach the target group effectively. However, the success of an advertisement lies on its attractiveness, comprehensiveness and timing. Campus Recruiting When company representatives are sent to college campuses to recruit applicants to create an applicants’ pool from graduating classes, it is called campus recruiting. In recent times, with the advent of knowledge-based companies in large numbers, campus recruitment has emerged as an important method of external recruitment in India. This source of recruitment is ideal for entry-level managerial and professional jobs like

142 Box 6.7

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L&T’s Accent on Campus Recruitment

Many companies have been increasing their campus recruitment drives steadily over the past few years to select fresh graduates. This obviously makes campus hiring one of the major sources of external recruitment in India. Many companies in India are highly optimistic about the future prospects of campus recruitment since businesses are growing at a constant pace. For instance, L&T, a reputed engineering company in India, is aiming

to achieve a 40 per cent rise in its campus recruitment intake in the coming years. Interestingly, L&T looks for requisite skills and knowledge in the fresh graduates in the form of value-system match, knowledge base, the skill to apply concepts, self-motivation, and commitment to and passion for excellence. Adapted from: www.larsentoubro.com.

those of management trainees and technical personnel. The aim of any campus recruitment programme is to attract good candidates. Since college graduates have no first-hand knowledge of the visiting company, they generally go by its reputation and the growth and career prospects it offers. Nevertheless, college applicants prefer well-informed, objective, wellmannered and sincerely interested interviewers. Organizations regularly visit the campuses of premier institutions to recruit graduates. Wipro, L&T, Infosys, TCS, HCL, HUL and Citibank are just a few examples. Although this source of recruitment is apt for entry-level openings, it may not be viable or attractive for higher levels where the emphasis lies on experience.14 Box 6.7 shows the increasing importance of campus recruitment. Walk-ins and Write-ins When applicants directly write to the organization or just walk in to the office to state their interest for employment, we call it write-ins and walk-ins. The walk-ins may be self-initiated or in response to the advertisement placed by the organization in newspapers. Walk-ins and write-ins are helpful in strengthening the applicants’ pool maintained by the organization and are a suitable method for immediate selection and placement. Many business process outsourcing companies (BPO) and other Information Technology (IT) companies are recruiting candidates through walk-ins to meet their huge labour demands. Internet Recruiting Internet recruiting refers to placing an advertisement on the Internet for inviting applications from the potential applicants to fill the vacancies specified. In recent times, there has been a steep rise in the number of Indian companies opting for the Internet as a tool for recruitment. Organizations can also use computers to scan, digitize and process the applicants’ resumes automatically. Electronic curriculum vitae (CVs) are used in Internet recruiting to collect information about the candidates. These CVs are scanned and converted into basic text format by the computer. The computer can also carry out the analysis of the CVs on pre-determined criteria to list the candidates who satisfy the requirements. Internet recruiting has its own advantages. Compared to print media, it is economical and has a longer life span. It gets huge responses as it is relatively easy for the applicants to respond to the advertisements on the Internet. These factors have contributed to the growing popularity of Internet recruiting. Large companies in general and IT companies in particular have their own dedicated recruitment sections on their Web sites to attract the prospective candidates to apply for jobs in their organizations, while others use the services of professional job sites. In India, several job sites provide recruitment services to their clients. A few popular ones among them are Naukri.com, MonsterIndia.com, JobsAhead.com and Timesjobs.com. Box 6.8 talks about the popularity of Internet recruiting agencies.

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Box 6.8

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Internet Recruiting: A New Horizon in Recruitment

Internet-based job sites are nothing but employment exchanges on the Internet. Lately, several business firms have been opting for such job sites to meet their growing HR requirement. Many professional job sites in India are now offering their services to their client organizations

for a fee. These job sites identify the potential candidates, shortlist them and then forward their name to their clients for further processing. Adapted from: www.rediffmail.com

Raiding or Poaching Raiding or poaching refers to cajoling or attracting the employees of the rival organizations with attractive offers. Organizations may directly or indirectly contact the talented employees of their rivals and gradually persuade these employees to join them. Normally, some sort of secrecy is maintained in these operations till the mission is completed. These days, on-demand recruiting services (ODRS) vendors, the professional consultants who specialize in raiding and poaching operations, offer these services to organizations for a fee. Though considered unethical, this practice is widely prevalent in many Indian organizations, particularly in IT companies. Naturally, companies are adopting several counter-measures to protect their employees from being poached by the rival organizations. Seema Shukla15 lists out the following anti-poaching techniques usually adopted by Indian organizations to safeguard their workforce: Co-operation Agreements: Two or more companies agree not to touch each other’s employees. Access Restrictions: Gate-keepers are trained to screen calls and block access to organization charts. Mock Raids: Mock recruiters and fake recruitment ads are used to identify weak links. Benchmarked HR Practices: Better HR practices are always a magnet for employees. Retention Bonus: Cash incentives are linked to the years in service. Employee Contracts: The employee promises not join the competition at once and also promises not to hire his/her former colleagues. Tit-for-Tat Threats: Threats of legal action or reactive behaviour could stop some poachers. Empanelled Search Firms: Hiring the competitor’s recruiter or retaining more than one search firm could help. Reporting Bonuses: Cash incentives are given to the employees who report the offer they receive. Information Security Protocol: Employees are trained not to give out information about reporting relationships. Box 6.9 highlights the anti-poaching techniques of select Indian companies. In addition to these external sources, organizations are following several other methods to create and strengthen their applicants’ pool. For instance, they conduct centralized job fairs in select cities to recruit prospective graduates from different institutions. In some cases, they utilize the services of the labour unions and labour contractors in order to recruit personnel. Personal contacts, professional associations, deputations from other firms, mergers and acquisitions and electronic media are other noteworthy sources of recruitment.

144 Box 6.9

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Anti-poaching Techniques: Novelty is the Core

To stem the tide of attrition, particularly due to poaching, organizations are coming up with novel ideas and schemes to protect their vulnerable workforce. These techniques and schemes need not be identical for all organizations. Every organization can devise its own style and strategy to tackle such situations. The automotive giant Eicher has insured its top employees with LIC under an insurance scheme called the Key Man policy. A notable feature of this scheme is that the insured employee is entitled to the sum assured

only if he stays in the company for an agreed duration, otherwise the company would get a major share of the sum assured. Likewise, Mahindra & Mahindra offers 50 per cent of the employees’ bonus (similar to stay-on bonus) in the form of a fixed deposit, which gets encashed only after the expiry of the mutually consented time period. Adapted from: http://www.india-today.com/ btoday/20010916/feature4.html.

Evaluation of External Sources Merits The external sources of recruitment enjoy the following advantages: • They enable an organization to generate a large pool of applicants, thereby increasing its chances of choosing suitable candidates for the positions available. • The organization can adopt a rigorous, competitive and uncompromising selection procedure to choose the requisite type of employees from the applicants’ pool. • The composition of the applicants’ pool is generally broad-based and representative of the real labour market. In other words, external sources provide an equal opportunity for participation to all types of individuals and all sections of the society in the selection process. • They allow an organization to bring in fresh talents, adopt innovations in practice and modify the existing work culture. • They enable an organization to exploit the labour market conditions (changes in demand and supply) to their advantage to save labour cost. Limitations The external sources of recruitment suffer from a few disadvantages. These are as follows: • The existing employees might be frustrated if they do not get adequate opportunities for promotion. This could affect their motivation, commitment to work, and productivity. • When compared with internal sources, these sources are costly and time-consuming. They may not be ideal when vacancies are to be fulfilled in a short span of time. • Induction and socialization may not be smooth for the new employees as they may face resistance from the existing ones. • The outside candidates may be susceptible to poaching and raiding by rival concerns as they may be less committed than the long-serving existing employees. • There is a greater possibility of hiring a wrong person from external sources since the selection process alone may not enable the organization to assess the person’s skills and suitability for a job correctly.

RECRUITMENT Table 6.2 Categorization of Sources of Recruitment

Degree of Tightness in the Labour Market

Sources Used in Recruiting

Loose (vast surplus of required skills in the labour market)

Direct and immediate recruitment such as walk-ins and write-ins

Intermediate (reasonable surplus of required skills in the labour market)

Employee and union referrals and employment exchange

Tight (reasonable shortage of required skills in the labour market)

Wide publicity through advertising

Very tight (acute shortage of required skills in the labour market)

Head-hunting like raiding and poaching

Ultimately, the source of recruitment for a particular job is determined on the basis of the nature of the job and the labour market conditions prevailing in that region. For instance, when there is a shortage of prospective candidates in the labour market for a job, the company should widen the search for the candidates. Table 6.2 shows the categorization of the sources of recruitment done by F.T. Malm.16 This is done on the basis of the labour market conditions.

Recruitment Practices in India Since 1991, the business environment in India has been dynamic and continuously changing. Business organizations have been growing at a very rapid pace and globalizing. Consequently, organizations are now looking for a globally competitive workforce. These changing expectations and requirements have compelled the Indian industrial management to introduce changes in every sphere of HR activity, including recruitment. There is a marked shift in the approach to the concept of recruitment strategy and process. Companies, now, judiciously combine the traditional recruitment sources and the modern ones to procure the best-of-the-breed labour force. They are increasingly searching for human resources best suited to achieving their long-run objectives and strategies rather than searching for only prospective employees. At managerial levels, they place greater significance on professional competence and academic excellence apart from qualities like analytical ability, teamwork and leadership potential, communication and innovation skills, together with a practical and structured approach to problem solving. The major sources of recruitment in India are explained as follows:

Internal Sources Many organizations in India are considering current employees and the referrals provided by them as important internal recruitment sources. Let us discuss these sources now. Existing Employees Indian organizations, particularly the IT companies, are focused more on training employees to make them fit to be considered for future openings in the company through promotions and transfers. Employee Referrals When recruitment is externally sourced, entry-level recruitment costs are substantial for a firm, and this can further go up in the case of senior-level

145

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recruitments. When the same hiring is routed through employee referrals, the cost comes down substantially. Indian companies have now started to look at employee referrals as a major source of recruitment. Many companies have already put a ceiling on external hiring and are busy offering attractive bonuses and cash incentives to those employees who provide referrals. This policy of getting employees to recommend their friends and relatives makes great financial sense to organizations, especially for smaller organizations, for which employee referrals or personal contacts are an important cost-effective source of recruitment.17

External Sources Advertising, placement agencies and Internet recruiting are the three major sources of external recruitment in India. These sources together control a sizeable portion of recruitment market. We shall discuss these sources briefly. Advertising This is a traditional mode of recruiting employees in India. Advertisements in print media like magazines, newspapers and journals are preferred by all kinds of organizations, including the small ones, to reach out to the prospective candidates. Newspaper advertisements together with employee referrals and consultants remain the major source of recruitment for many small scale businesses.18 But, the problem with advertisements is that they may not provide complete information to the job aspirant about the job offered.19 The prospective applicants may hesitate to respond on the basis of inadequate information. Private Employment Agencies Indian employers are increasingly realizing the utility of entrusting private employment agencies like HR consultants with the task of choosing suitable persons for openings at senior levels. This saves the time of top-level management, who, otherwise, would get involved in the time-consuming recruitment and selection process. However, government organizations in India are usually required to meet their manpower needs through public employment exchanges. Internet Recruiting This is another rapidly growing source of recruitment in India. A few companies have their own dedicated recruiting sites on the Internet while others employ the services of professional job sites. The other notable sources of recruitment in our country are walk-ins (normally to fill immediate and urgent vacancies), gate-hiring (by manufacturing firms, of casual workers who stand at the entrance of the factory), and campus recruiting (mostly by information technology companies). The major sources of recruitment used by Indian organizations, especially in relatively smaller organizations, are the friends and relatives of the proprietors and the employees, advertisements in newspapers, employment exchanges, placement agencies, and labour contractors who have vast pool of workers. Of these, advertisements in newspapers and placement agencies are the sources preferred for executive categories while employment exchanges, walk-ins and labour contractors are suited better for clerical and similar cadres.20 The Indian Institute of Personnel Management identified the important sources of recruitment in India as temporary workers (badlis), employment agencies, casual callers (walk-ins or write-ins), referrals by existing employees, advertisements (print and electronic media), and labour contractors.21

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Summary 1. Recruitment may be termed as a search for promising job applicants to fill vacancies that may arise in an organization. 2.

implementation of recruitment methods and strategies, and feedback and control. 6.

Organizations have two sources of recruitment. One is internal recruitment, which refers to filling open jobs with the current employees of the organization, and the other is external recruitment, which refers to reaching out to the external labour market to meet the labour requirements.

7.

Examples of internal sources are the existing employees, the former employees, and employee referrals. Examples of external sources are employment exchanges, private employment agencies, advertisements, campus recruiting, walk-ins and write-ins, Internet recruiting, raiding or poaching.

It aims to discover and determine the sources of manpower to be utilized in tune with the strategic goals of an organization.

3. Recruitment policy is a guiding principle that governs the HR practices relating to recruitment. 4. Recruitment is one of the critical sub-processes in the overall process of procuring and inducting human resources into the organization. 5. The steps in the recruitment process are human resources planning, the determination of strategy, the evaluation of the sources of recruitment, the

Review Questions Essay-type questions 1. Explain the steps in the process of recruitment. 2.

What are the key recruitment practices followed in Indian organizations?

3.

Enumerate the kinds, merits and limitations of the various internal sources of recruitment.

4. Discuss critically the various external sources of recruitment. What are the relative merits and demerits of this source? 5. You have been appointed as the human resource manager of Renaissance Industries Limited, Bangalore. It proposes to select management trainees for its different departments. What sources should it explore and how should the trainees be selected?

Skill-development Exercise Objective – The purpose of this exercise is to show you how to make a decision on the recruitment programmes that will generate an adequate applicants’ pool and achieve the desired competitive advantage in recruitment. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager, (2) two HR team members, (3) a professional recruiter and (4) two observers of the meetings. The role of the observer is to observe and provide feedback on different aspects of the role-playing sessions. Situation Retell is an Iron and Steel company located in a rural area. This company has been having difficulty filling its

engineering and other high-tech positions that demand superior competencies. The company depends on advertising and professional agencies for recruitment at present. However, these sources are not only expensive but also inadequate for building an adequate applicants’ pool for choosing the most suitable candidates through a rigorous selection process. Moreover, this company has not been gaining any competitive advantage in recruitment since it has not been successful in holding down the hiring cost. In this situation, the top management asks the HR department to identify the recruitment sources that can provide suitable candidates, achieve competitive advantage and keep the productivity levels constant.

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Steps in the exercise There are three steps in the exercise: Step 1: The HR manager meets a professional recruiter to gather information about the prevailing labour market conditions.

Step 2: The HR manager conducts a department meeting to decide about the recruitment programmes including the identification of new recruitment sources. Step 3: The observers analyse and provide their feedback on the performance of all the members in the role-playing sessions.

Case Study Rationality of Promotion Policy in a Software Unit Mountway is a software company with an annual turnover of Rs 3,800 million and a staff strength of 950 employees. The HR policy of the company states that the entry-level posts alone are to be filled through external recruitment, while the higher posts are to be filled only from internal sources—through the promotion of the existing employees. However, the external sources can be used as a last resort for filling the higher posts if either the existing employees are not sufficiently qualified or the job position cannot be left vacant for a long time. The accounting package development division of the company has the following organizational structure: Project manager

↓

Team leader

↓

Tier-II members

↓

Tier-I members (entry level) In each position, an employee has to complete five years of service before he becomes eligible for promotion to higher levels. In 2003, a tier-II member suddenly resigned his job and left the organization. To complete an ongoing project, the company urgently required a person in that category so it released an advertisement calling for applications from those who had completed at least two years of experience in that or equivalent category. Though quite a few candidates applied for the post, Mr Guru Prasad, who had four years of experience in the same field, was eventually selected on the basis of his excellent performance in the interview and tests. As per the company policy, he was appointed as the junior-most staff member in the tier-II category, below the six persons who were already working in that cadre. His performance in the job was quite impressive and he exhibited leadership skills too. One year after his joining the job, the post of team leader in his department fell vacant as the person in that position

suddenly resigned to join another company. As the existing employees in the tier-II cadre did not possess the requisite years of experience (five years) for being considered for the team leader post, the company decided to fill the vacancy through external sources by placing an open advertisement through newspapers. Accordingly, the company called for applications from the candidates who had five years of experience in tier-II or equivalent cadre. Mr Guru Prasad, who had four years of experience in his previous employment plus one year in the present company in the same category, met all the specifications mentioned in the advertisement. Hence, he applied for the post through the proper channel. However, the HR department took a different view of his application and decided to reject his candidature for the post. The argument of the HR department was that, if selected, • Mr Guru Prasad would get a higher post after completion of just over one year’s service in this organization as against the normal requirement of five years’ experience in each category. •

When Mr Guru Prasad joined tier-II, he was the junior-most in his category. If he was offered the higher post, he would, all of a sudden, become the boss of those in tier-II cadre. This could demoralize his senior members in his present cadre. There is every possibility that they might seek to leave the company at the earliest.

Discussion Questions 1.

Did the management make a mistake by not calling a capable person like Mr Guru Prasad, with a proven record, for an interview, just because he was an existing employee?

2. Are there any drawbacks in the recruitment/promotion policies of the company? 3. What are your suggestions to rectify the anomaly in the present situation? How will you avoid such situations in the future?

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Notes 1. Jeffery J. Hallet, “Why Does Recruitment Cost So Much?” Personnel Administration (December 1986): 22.

12.

2.

13. Arun Monappa and Mirza S. Saiyadain, Personnel Management, 2nd ed. (New Delhi: Tata McGraw–Hill, 1996), p. 134.

Rick Stoops, “Recruiting as a Sales Function,” Personnel Journal (December 1982): 890.

3. Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 390. 4. Edwin B. Flippo, Personnel Management (New York: McGraw-Hill, 1984), p. 131. 5.

Dale Yoder et al., Personnel Management and Industrial Relations (New Delhi: Prentice Hall Of India, 1975), p. 63.

6.

William B Werther and Keith Davis: Human Resources and Personnel Management, 4th ed. (New York: McGraw-Hill, 1993).

7.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 292.

8. L. G. Reynolds, S. H. Masters and C. H. Moser, Labour Economics and Labour Relations, 9th ed. (Englewood Cliff, NJ: Prentice Hall, 1986). 9. Wayne F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 6th ed. (New Delhi: Tata McGraw-Hill, 2002), p. 206. 10. Kevin Carlson, Mary Connerley and Ross Mecham, “Recruitment Evaluation: The Case for Assessing the Quality of Applicants Attracted,” Personnel Psychology, 55 (2002): 466. 11. Stephen L. Magnum, “Recruitment and Job Search: The Recruitment Tactics of Employees,” Personnel Administration (June 1982): 96–102.

Terry L. Leap and Michael D. Crino, Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 204.

14. Arun Monappa and Mirza S. Saiyadain, Personnel Management, 2nd ed. (New Delhi: Tata McGraw–Hill, 1996), p. 134. 15.

Seema Shukla, Best Practices: Keeping Head-Hunting Pests at Bay!; available at http://www.india-today. com.

16. F. T. Malm, Recruiting Patterns and the Functioning of Labour Market, cited by John Minear and Mary Green Minear in Personnel and Industrial Relations: A Managerial Approach (New York: Macmillan, 1977), p. 262. 17. K. Eresi, “Personnel Practices in SSI in Bangalore City: A Survey,” SEDME, 28, no. 2 (2001): 1–15. 18.

P. Jyothi, “Practices of HR function in a Small Scale Organization,” SEDME, 31, no. 4 (2004): 19–26.

19. D. A. Ramasubramanian and P. Sridevi, “Recruitment Advertising,” Indian Management, 23, no. 8 (1984): 33–38. 20. M. Srimannarayana, “Human Resource Management in Small Business,” Indian Journal of Industrial Relations, 41, no. 3 (January 2006): 318–322. 21. The Indian Institute of Personnel Management, Personnel Management in India, Kolkata, 1973, p. 221.

CHAPTER

7

Selection

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand selection 2 Differentiate between recruitment and selection 3 Enumerate the steps in the selection process 4 Understand the meaning and types of selection tests 5 Develop a test programme 6 Enumerate the objectives and kinds of selection interviews 7 Understand the selection process in India

Compulsory background verification, reference checks and ascertaining the authenticity of the candidates’ CVs as part of the selection process is something that is increasingly important. Several companies, including a few reputed software firms, had to terminate the services of some of their employees when they detected false information in their curricula vitae (CVs), which they had tried to pass off by furnishing fake documents. Serious discrepancies were found in the areas of work experience, academic

qualifications, professional skills, and earlier compensation packages in their CVs. In addition to the loss of time and resources entailed by the defective selection process, abrupt actions against the erring employees are also likely to derail the manpower plans and the production schedules of the organizations. It is, therefore, important for an organization to have a proper selection process. This chapter looks at the selection process in detail and how businesses can use it to recruit the best candidates.

Introduction Once the applicant pool is prepared, the next step for the HR department is to implement the predetermined selection process in order to select the best candidate for the job. The aim of this process is to finally end up with candidates best suited for the vacant jobs. The organization

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Box 7.1

151

Definitions

“Selection is the process by which candidates for employment are divided into two classes—those who will be offered employment and those who will not.”2 —Dale Yoder “Selection is a managerial decision-making process to predict which job applicants will be successful if hired.”3 —David A. Decenzo “Selection is the process of choosing from among the candidates, from within the organization or from the outside, the most suitable person for the current position or for the future position.”4 —O. Donnell

“Selection is the process of differentiating between applicants in order to identify (and hire) those with a greater likelihood of success in a job.” 5 —Thomas H. Stone “Selection means offering jobs to one or more applicants from the applications by establishing the ‘best fit’ between job requirements on the one hand and the candidate’s qualifications on the other.” 6 —Arun Monappa and Mirza S. Saiyadain

must be able to distinguish the applicants who are most likely to perform well as employees from the others who are less suitable. Of late, the hirers are attempting to measure even the candidate’s mental make-up and personal values to decide how closely they match those of the organization.1 Obviously, selecting the most suitable candidate for a job is never an easy task for an organization, but it becomes all the more difficult when the organization has to screen candidates to fill vacancies that are critical to the organization. This is because any faulty decision in the selection of employees can have a far-reaching impact on performance and future of the organization. Box 7.1 has some of the definitions of the term selection. We may conclude that selection is a systematic process of identifying suitable candidates for the jobs available in the organization from the available applicant pool.

Differences Between Recruitment and Selection Though the terms recruitment and selection are often treated as interchangeable, there are differences between the two terms. Though few, they are worth mentioning. Table 7.1 shows the differences between recruitment and selection.

Phases of the Selection Process As there is no commonly accepted selection process available, organizations may have to adopt different selection processes for different jobs, depending upon their nature and requirements. Nonetheless, the aim of any selection process is to gather relevant and critical information about an applicant at every stage of the process in order to determine his/her suitability for the job offered. The selection process broadly involves measurement, decision making, and evaluation, as explained in Figure 7.1. A good selection process must be able to distinguish applicants who are likely to perform well in the job from those who are not. An organization adopts various steps in the selection

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Differences between Recruitment and Selection

Recruitment

Selection

1. The process of procurement begins with the recruitment of candidates from different sources.

The process of procurement ends with the selection of the necessary number of suitable candidates for the job.

2. Since the aim of recruitment is to gather as many applicants as possible for the jobs in an organization, it is a positive task.

Selection attempts to eliminate applicants in different stages to end up with a smaller number of requisite candidates, and is thus a negative task.

3. Recruitment is comparatively easy as it does not require expertise on the part of the recruiters to build an applicant pool.

Selection is a difficult job as it requires specialized knowledge and skills on the part of the selectors to choose the best candidates by predicting their likely performance.

4. Recruitment is basically a searching function as it searches for prospective candidates for the jobs offered.

Selection is basically a screening function as it screens the candidates for their suitability for the job offered.

Phase 1: Measurement

Phase 2: Decision Making

Verification of the accuracy and consistency of selection techniques

Ensuring the completeness of employee data to make accurate and uncompromising selection decision

Phase 3: Evaluation Identifying the role and effectiveness of the selection process from the organizational perspective

Figure 7.1 Phases of the Selection Process

Adapted from: Cynthia D. Fisher, Lyle F. Schoenfeldt and James B. Shaw, Human Resource Management (New Delhi: Biztantra, 2004).

process to predict the likely performance of each applicant in the job. These steps are briefly presented as follows: 1. Employment Application Forms/Blanks: These refer to a standardized format to collect the necessary information about an applicant to determine his suitability for the job. 2. Selection Test: This is a psychological test for comparing and contrasting the behaviour of two or more persons on the basis of a standardized measure in order to predict their likely job performance, if selected. 3. Selection Interview: This is a face-to-face conversation with the candidate to collect the required information that could not be collected through other selection tools to determine his suitability for a job. 4. Reference Check: This is a process of cross-checking information provided by the candidates in different stages of the selection process with the references cited by the candidates themselves.

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5. Physical Examination: This is a medical test to ensure that the candidates selected meet the physical requirements of the job. 6. Job Offer: A job offer is a formal communication from the employer to the selected candidate that specifies the details of an offer of job. This job offer generally provides information about job description, reporting authority, pay particulars, and leave eligibility. Once suitable candidates are identified at the end of the selection process, the organization would proceed with the issue of job offers to the selected candidates. Normally, the candidates respond by accepting or rejecting such job offers. Box 7.2 outlines the selection process of select companies. Now we shall discuss in detail the various phases of selection process adopted by organizations to choose their employees. Figure 7.2 enumerates the steps involved in a selection process.

Employment Application Forms/Blanks The purpose of an application form is to collect the necessary information about an applicant in a short span of time. These bits of information are extremely useful in determining the suitability of the applicants for the job and also in predicting their likely job performance, Box 7.2

The Selection Process for Choosing the Most Suitable Candidates

Different organizations may adopt different selection processes to choose suitable candidates for job openings. Even within the same organization, the length of the selection process may differ, depending upon the nature and number of job openings. It is not necessary to go through the entire length of the selection process every time and for every job. A curtailed selection process may be enough for certain jobs while others may require an exhaustive process. For instance, Larsen and Toubro (L&T)’s selection process for campus recruiting comprises written tests to measure the intelligence and engineering aptitude of

Step 6

Job offer

Step 5

Physical exam

Step 4

Reference checks

Step 3

Selection interviews

Step 2

Selection tests

Step 1

Application forms/blanks

Figure 7.2 Steps in the Selection Process

candidates and a technical interview to choose bright engineering graduates from the applicants’ pool created through campus interviews. The selection process of Intergraph, a Hyderabad-based software company, consists of resume screening, followed by a technical test and two rounds of interviews. In normal circumstances, the whole process of selection from the time of the decision to appoint someone to the final selection could last about 45 days. Adapted from: www.hinduonnet.com and www.larsentoubro.com.

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if chosen. Therefore, the information collected must be relevant, reliable and accurate for decision-making. To achieve this, the application form must be prepared carefully and reviewed regularly to ensure the reliability and validity of the information gathered. Some organizations use weighted application blanks to gather relevant information and also to predict the chance of success for a candidate in the job. This is possible when the organization is aware of the statistical significance of the relationship between the bio-data characteristics and the chances of success in the job. Suppose an organization is convinced that the presence of certain characteristics or skills in a candidate contributes to his/her success in job performance. Then, that organization may give more weightage to such characteristics in its application blanks. Such application blanks are known as weighted-application blanks. For instance, if an organization is convinced that good communication skills in sales personnel contribute to their success in selling, then, it may give more weightage to this particular skill in its application form. Application forms normally solicit the following information from the candidates: a) Biographical information includes the name of the applicant, father’s name, date of birth, age, gender, nationality, physical features (height, weight, and so on), marital status, identification marks, and family details. b) Educational qualifications such as courses completed, year of passing, subjects studied, and percentage of marks secured, division or rank obtained, name of the educational institutions, and scholarship awarded. c) Work experience like positions held, tenure in each position, nature of job, pay and other benefits, details about the present and previous employers, explanation for break in employment. d) Pay and other perquisites such as information about candidate’s expectation about salary and other benefits. e) Additional information like participation in sports, games, cultural activities, nationbuilding activities such as NSS, NCC, and honours obtained. f) References Names and addresses of a few references that have knowledge about the applicant and who may be contacted by the organization, if required. Box 7.3 lists the guidelines used for evaluating an application form.

Box 7.3

Guidelines for Evaluating an Application Form

While evaluating an application form, adherence to the following guidelines can ensure that all the relevant information about the candidates are procured to decide whether the applicant’s case is fit for further evaluation by the HR department: 1. Finding out why the applicant left the last job 2. Assessing the applicant’s educational background 3. Examining the application to assess his selfreliance

4. Determining whether the applicant exhibits adequate intelligence while responding to the questions 5. Looking for clues regarding the applicant’s attitude and behaviour 6. Evaluating the applicant’s employment records 7. Ascertaining the quality of applicants’ writing 8. Making use of the application details to decide on the nature and content of the interview Adapted from: “Recruitment”, Personnel Journal (January 1989): 22–24.

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Box 7.4

155

Definitions

“A psychological test is a standardized measure of behaviour.”7 —Wayne F. Cascio

“A test is a systematic procedure for comparing the behaviour of two or more persons.”9 —Cronbach

“A test is a sample of an aspect of an individual’s behaviour, performance and attitude”.8 —Milton M. Blum

Selection Tests Since there are differences in the abilities, aptitudes, interest and personality traits of individuals, it is essential to measure these differences effectively and accurately to determine their suitability for the jobs. This may be done with the help of selection tests, also called psychological tests. The term test is used here as a standardized measure of behaviour (for example, attitudes, interest, and aptitude) of the applicants. There are several definitions of a test. Box 7.4 lists these definitions. We may define a test as a standardized assessment of a sample but critical behaviour of candidates to determine their suitability for the job. One of the common ways to test candidates is to test them psychologically.

Characteristics of Psychological Tests The common characteristics of psychological tests based on the definitions listed in Box 7.4 may be summed up as follows: Objectivity Objectivity in tests refers to the validity and reliability of the measuring tools. Reliability in tests refers to their consistency. A reliable test is one in which the scores are consistent even if a person takes the same test on different occasions or takes two alternate forms of the same test. The validity of a test refers to the correctness of the inferences made on the basis of the test results. It ensures that the test is job-related and the test performance is the real predictor of the subsequent job performance of a candidate. These two aspects together determine the objectivity of a test. Standardization Standardization means that there is uniformity in the procedure followed in conducting the test and in the terms and conditions associated with the test, such as time limit, instructions, the tester’s state of mind and health, and the availability of required facilities. Sample of Behaviour It refers to test contents that should predict the representative sample of eventual behaviour of the candidates since a total replication of reality in any testing condition is impracticable. Thus, the behaviour predicted through a test need not strictly resemble the actual behaviour that the test is supposed to predict. Uses of Psychological Tests Psychological tests are useful for HR managers in several ways. These tests are essential for • Selecting and placing employees • Determining their career plan

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• Assessing their job performance and potential • Counseling them in conflicting situations Obviously, different situations need different kinds of tests, depending upon the nature and requirements of a job. Each test must have norms to compare and contrast the performance of the candidates. However, in practice, many organizations lack clear-cut norms for judging the performance of these candidates.10 Types of Psychological Tests Now we shall discuss in detail the nature and utility of tests and also their applicability in different situations under four broad categories—ability test, personality test, interest test, and honesty test. As specified in Figure 7.3, an ability test is further classified as intelligence test, aptitude test and achievement test. Ability test—Ability refers to the capacity of a person to do a particular job. The ability of a person commonly denotes the combination of mental ability (like memory and inductive reasoning), physical ability (like stamina, body coordination and physical strength) and motor ability (like finger dexterity and reaction time). To measure these abilities, an organization may resort to any one or more of the following tests: Intelligence (IQ) test—The aim of an intelligence test is to measure the general intellectual abilities of a person. This test assesses the memory, vocabulary, verbal comprehension, thought fluency, inductive reasoning, and numerical skills of a candidate. The uniqueness of this test is that it measures several abilities of the candidate and derives the intelligence score. This score is then compared with the average intelligence score of the organization to determine whether the candidate is above or below the average. To know the Intelligence Quotient or IQ of a child, the equation IQ = (Mental age/actual age) × 100 may be used but it has little relevance for adults.

Psychological Tests

Ability test

Personality test

Intelligence test Aptitude test Achievement test Figure 7.3 Types of Psychological Tests

Interest test

Honesty or integrity test

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Aptitude test—An aptitude test measures the latent talents of a person that may be crucial to performing the job successfully. This test is normally given to those applicants who have no previous experience in that field. Hence, aptitude tests are appropriate for predicting the future ability and/or performance of the candidate. These tests are found to be more effective for jobs requiring mechanical and spatial relationships like those of engineers, designers and machinists. Box 7.5 highlights the status of psychometric tests in India. Achievement test—The aim of an achievement test is to measure the knowledge gained by a person in his/her job. It evaluates the claims made by the job holders regarding their performance and skills acquired in the job. It is also called proficiency test, performance test or trade test. A typing test is an example of achievement test as it intends to measure the speed and accuracy of a typist in his job. The tests that measure the subject knowledge of pupils at schools and colleges are also examples of an achievement test. Similarly, organizations test the job knowledge of their employees to determine their suitability for future promotions and also for salary fixation. Personality test—Personality refers to the sum of the characteristics of a person which reflect on his/her response to a particular situation. The characteristics may include, among other things, introversion, inter-personal skills, motivation, stability, self-belief, courage, attitude and temperament. A personality test proposes to assess and predict these basic characteristics of a person. Its results are useful in predicting the future performance of the candidate. Projective tests are ideal for evaluating the intangible characteristics that make up the personality. Through these, the psychologists measure the response or reaction of the candidates, for example, to confusing stimuli (input) in the form of a distorted picture, incomplete information or even a simple ink dot. The response reveals the candidates’ inner qualities, which are then correlated with the job requirements. Rorschach Blot Test (RBT), Thematic Apperception Test (TAT), Minnesota Multiphasic Personality Inventory (MMPI) and Myer-Briggs type indicator (MBIT) are some of the popular forms of personality tests. In countries like France and Israel, many companies are using graphology—the analysis of handwriting—as a tool for personality measurement.

Box 7.5

Psychometric Tests in the Selection Process

Psychometrics is concerned with the measurement of psychological variables such as aptitude for various kinds of jobs. The fundamental objective of a psychometric test is to help screen candidates at the initial stage of recruitment. It is a tool to help understand the personality of the potential candidates at the selection stage, and to exploit his latent qualities to his and the organization’s advantage at a future stage. In fact, adding a psychometric test to the selection process can increase the accuracy of the candidate’s assessment to 85 per cent. Though several top companies like TCS, InfoTech, Escosoft Technologies, UB, Bharti and LG have

incorporated psychometric tests in their selection process, this concept is yet to gain recognition as a prominent selection tool in India. This could be due to the negative perception among the companies that there is no immediate benefit available to the employers from the psychometric test, which measures the latent talents of the candidates. Thus, they attach more importance to measuring technical knowledge of the candidates rather than to assessing the psychological aspects. Adapted from: www.itpeopleindia.com/ 20030120/cover.shtml.

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Interest test—A person’s mental and physical abilities are not sufficient to achieve a desirable job performance. Apart from these, the person must have a strong and inherent interest for that job. The aim of the interest test is to know the interest, attitude and preference of a person towards the job offered. Its purpose is to identify the interest of a person, say, in marketing, accounting, mechanical, computational, and clerical activities to determine the job best suited for him. The Kuder Preference Record and Strong Vocational Interest Blank are some well-known interest tests. Honesty or integrity test—Organizations may feel a need to ascertain the honesty of the candidates to ensure that they have not furnished any false information in the application form and also to safeguard themselves from frauds and misappropriation. In an honesty or integrity test, the questions are asked in such a way that the attitude and actual behaviour of the candidates can be found out. However, the reliability and validity of the honesty tests have not been conclusively proved and they are rarely used in India. Evaluation of Psychological Tests Organizations consider psychological tests an important tool to evaluate and hire employees. This is due to the fact that these tests can help the employers to get that information which may not be accessible in other phases of selection process. We shall now see a brief description of the merits and limitations of psychological tests. Box 7.6 outlines the relevance of web-based recruitment efforts of an Indian IT company. Merits—Psychological tests offer variety of advantages to an organization. These are listed as follows: Objective in evaluation—Selection tests are reliable and impartial tools to measure and choose the best candidate for a job. When compared with other selection techniques like interviews, the tests are free from personal bias and prejudice. Ideal for large groups—The inherent advantage of a selection test is that this can be simultaneously administered to a large number of applicants. When suitable candidates are to be chosen from a big pool of candidates, selection test is the only time-saving and costeffective technique. Box 7.6

Web-based Tests at Wipro Technologies

Web-based tests are also called online pre-employment testing programs. They are gradually replacing the conventional form of paper–and–pencil tests. Through this method, the applicants are tested for mental ability, analytical skills, aptitude, and interest. Information technology firms, especially call centres, are applying this method effectively to test the job aspirants. The case of Wipro Technologies is worth mentioning here. Wipro Technologies adopts different techniques for recruiting the best talents in the company. One such technique is the utilization of services of professional recruiters

to get the required talents from the labour market on a time-bound basis. Wipro has a web-based recruitment process called “Synergy” to attract and empanel these professional recruiters termed as “Resource Partners”. In fact, Wipro uses Synergy effectively for empanelling professional recruiters, who would in turn provide the best of talents to the organization. Throughout the recruitment process, Wipro remains in touch with the resource partners through Web-based techniques. Adapted from: http://careers.wipro.com/ consul_ps_story.asp.

SELECTION

Predictor of intangible talents—Selection tests are capable of predicting the talents and skills that are invisible and abstract in nature. They can measure not only the performance but also the potential of the prospective candidates. Goal-specific and target-oriented—Employers have the option to choose from a variety of selection tests to measure the specific quality of an applicant. For instance, achievement tests may be used to identify the existing performance of the applicants while aptitude tests are appropriate for measuring the future performance. Record for future—The records pertaining to the selection tests can be preserved for future references and researches. The analysis of the results may provide way for further improvement in the content and conduct of the test. The effectiveness of a test can be understood by comparing the actual job performance with the test performance of the employees. Limitations—Though selection tests enjoy several advantages, they suffer from a few limitations. For example, tests can be used only as supplements rather than as a substitute for other methods of selection like application forms and interviews. The other limitations are: Lack of flexibility—Since the content of the selection tests are predetermined, it can not be altered often to suit the changing situation. Further, as it is an impersonal technique, it may overlook the critical individual differences vital to the job performance. Unsuitability for smaller groups—Selection tests are not cost-effective for choosing the best candidate if the number of applicants is small. It requires a lot of time and money to prepare these tests and check their validity and reliability.

Developing a Test Programme Since the purpose of a test is to predict how the applicant would perform if selected for the job, organizations need to make a strategic decision regarding the development of a testing programme. They must begin the preparation for planning, development and administration of the testing programme with due care and diligence. The steps given below are necessary for a successful testing programme: Determining the Job and Skills Requirements The first and foremost step in the process of developing a testing programme is to predetermine the qualities and skills that are essential for an effective job performance. Job description specifies the duties and responsibilities associated with the job while job specification mentions the human qualities necessary to perform the job. It is also essential to identify the human qualities that can predict success on the job. These human qualities are called predictors. Deciding the Types of Test Once the human qualities essential for the successful performance of a job are identified, the next step is to determine the series of tests to be undertaken to measure these qualities. While choosing the tests, the reliability, validity and relevance of the results of the tests are important considerations. Depending upon the requirement, the organization may develop its own testing tools or it may make use of the published testing tools available.

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Developing the Success Criteria The next course of action is to select the relevant criteria for each job. Criteria are nothing but the standard of success. These criteria must envisage the likely success of the candidates in the job. The organization must determine what constitutes success on the job. For instance, factors like the quantity and quality of the goods produced, absenteeism, attrition rate, accident history, and the length of service may determine the success and can become the criteria. Rodger has developed a seven-point plan for determining the criteria for candidate selection.11 The plan covers 1. Physical make-up: Health, physique, appearance, bearing and speech 2. Attainments: Education, qualifications and experience 3. General intelligence: Fundamental intellectual capacity 4. Special aptitudes: Mechanical skills, manual dexterity, and facility in the use of words or figures 5. Interests: Intellectual, practical, constructional, physically active, social and artistic 6. Disposition: Acceptability, influence over others, steadiness, dependability and selfreliance 7. Circumstances: Domestic circumstances, and occupations of family. Alternatively, Roberts has suggested a competency-based approach in which core competencies required for the job are used as a framework for the selection process. He mentions that “the benefit of taking a competencies approach is that people can identify and isolate the key characteristics which would be used as the basis for selection … The competencies therefore become a fundamental part of the selection process.”12

Administering the Test Having decided the human traits to be measured, the types of tests and the success criteria, the next step is to administer the test to the candidates. The candidates may be outsiders seeking employment in the organization or the existing employees looking for promotion. As far as possible, the testing conditions must be near normal.

Evaluating the Results In the next stage, the results are matched with the success criteria to determine whether the applicant succeeded in the test. The significance in the relationship between the scores of the applicant and the performance criteria should be continuously studied to see whether the applicant eventually emerges as a high, low or average performer. Now that we have discussed the phases of selection, let us look at the next step in the selection process—the selection interview.

The Selection Interview The selection interview is one of the most widely used means of collecting necessary information about applicants. In fact, it is an indispensable part of any selection procedure. It provides an opportunity for the employer to have a face–to–face interaction with the candidate. It is used for gathering information that has not been collected through other selection

SELECTION

tools. The organization may require one or more interviews for an applicant, depending upon the nature and number of job vacancies. Let us now see how different authors have defined the term interview. An interview can be defined as “a selection procedure designed to predict future job performance on the basis of applicants’ oral responses to oral inquiries.”13 Or, “as a purposeful exchange of ideas, the answering of questions and communication between two or more persons.”14 In other words, an interview is a face–to–face conversation to collect information from a candidate to determine his suitability for a job.

Objectives of an Interview Though the primary purpose of an interview is to predict an applicant’s likely performance in the job, it helps the organization in several ways. Some of the main objectives of interview are: • It fills the information gap in the personnel selection process. In other words, it can supplement application forms and selection tests effectively by gathering additional information necessary for determining the suitability of a candidate for the job. • It enables an organization to establish a direct and personal contact with the applicant to verify the information obtained through other sources. • It facilitates a two-way communication process. The organization can mutually exchange information with the candidate to reach a better understanding and an enduring relationship. • It provides a platform for the organization to create goodwill in the labour market by offering good hospitality, courtesy and personal care to the applicants.

Kinds of Interview Interviews have the capability to serve different purposes of different persons. For instance, they are useful not only for selecting an employee but also for knowing the reason for an employee leaving the organization (exit interview). The common forms of selection interview, listed in Figure 7.4; are as follows: Structured Interview Structured interview, also called directive or patterned interview, is a popular form of interview technique. In this method, the interviewer predetermines the questions to be asked. He merely follows the same template to ask the interviewee a series of questions with little or no deviation. This method ensures uniformity in the interview process and facilitates easy comparisons among the candidates. It also enjoys better reliability and validity. Unstructured Interview This method is also known as non-directive or free interview. In this type of interview, the interviewer does not pre-plan the questions to be asked. In fact, he decides on the questions as the interview proceeds. The purpose of this method is to allow a free discussion on any topic as it emerges. Interviewers generally avoid asking the same or similar questions. Qualities like analytical skills, presence of mind, and motivation are tested. However, this kind of interview usually suffers from lack of uniformity and objectivity.

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Panel interview

Stress interview

Structured interview

Selection Interview

In-depth interview

Unstructured interview

Figure 7.4 Kinds of Selection Interviews

In-depth Interview As implied by the term in-depth, the purpose of this interview is to discuss the information concerning the candidate in detail. The intention of this exhaustive interview is to ensure that no information vital to decision making is missed out. This method normally covers the subjects of mutual interest like specialization, motivation, qualification and career plan of the candidates on one hand, and the firm’s offer on the nature of job, pay and perquisites, career opportunities on the other. This method is more appropriate for executive cadres. Stress Interview The purpose of a stress interview is to put the candidate in an uncomfortable situation to see his/her ability to handle stress. The intention of the interviewer here is to identify the sensitive candidates who have low-stress tolerance. This may be done by identifying the area of weaknesses of the applicant in advance and repeatedly questioning him about it. This may annoy or frighten the applicant, forcing him/her to lose his patience. The other ways of creating stressful situations are—asking rude questions, criticizing the interviewee for his/her answers unreasonably, disturbing the candidates with frequent interruptions, and asking the applicant impolitely and repeatedly to pick up the objects placed on the floor. However, the success of a stress interview depends upon the skilful handling of the situation by the experienced interviewers. Box 7.7 shows the essence of a stress interview. Panel Interview In this method, the applicant is interviewed by more than one interviewer. A panel of two or more interviewers is formed to interview the candidate. The interviewers are generally drawn from different fields. They ask questions from their respective fields and award marks. These marks are finally consolidated into a panel score. Panel interviews are normally comprehensive in nature. They are considered more reliable than

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Box 7.7

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Stress Interview: A Game to Test Forbearance

In a stressful corporate world where employees are under constant pressure to complete the projects on or ahead of time schedules in order to beat the deadlines, organizations are looking for stress-proof employees who can perform in all-weather situations by effectively tackling stress-causing factors. When an employee is bogged down by stress, he may not be successful in his job and, in that case, his other skills may prove to be futile. Hence, it is absolutely essential for the employers to measure the ability of the candidates in handling stressful situation. This is where stress interviews come in handy. The selection process for those jobs that require frequent interaction with the public usually includes stress interviews. These interviews are widely used for selection in banking, insurance, pharmaceutical and IT sectors. They are also found to be apt for filling positions in marketing fields.

The purpose of a stress interview is to create anxiety and trouble for the candidates at the time of the interview. The basic idea is to put the candidate in a spot just to ascertain how he tackles stress without losing his cool. A panel of interviewers plainly shoots all sorts of questions at the candidate just to provoke him. In the course of the interview, the candidate is intimidated, challenged, treated shabbily and spoken to rudely. Often, his basic knowledge is questioned, with no time to think and plan the answers carefully and then explain them. Obviously, in a stress interview not only are the quality and content of the responses scrutinized but also the style of response, including facial expressions. At the end, the panel decides whether the candidate is capable of handling a high-pressure job. Adapted from: www.hinduonnet.com/ jobs/0709/2007092650040800.htm.

individual interviews (where only one person interviews the applicant) as the personal bias and prejudice would have less effect on the panel score. Computerized Interview Computerized interviews are slowly gaining momentum in India. Many organizations are now resorting to this kind of interview to choose suitable candidates. In this method, the applicant is asked computerized oral questions and his oral or computerized replies are recorded. Computerized interviews are often used as preliminary interviews. Those who are successful in the computerized interview are considered for face–to–face interview. This kind of interview can spare the HR and other line managers from interviewing too many candidates, thereby saving their precious time.

Strategy for an Effective Interview Process A successful interview requires meticulous planning on the part of the interviewer. The following steps can enhance the effectiveness of an interview process:

Becoming Familiar with the Information Available The first step in the interview process is that the interviewer acquaints himself with the information already collected about the applicant. This will help the interviewer gather from the interviewee only what is further required. The interview will also be more productive as duplication of work is avoided.

Getting Ready with an Interview Plan Keeping the requirements of the job in the background, the interviewer has to finalize the interview plan. The plan may include, among others, determining the interview method,

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the skills to be tested, the questions to be asked and the clarification required. The interviewer should also decide on the criteria for evaluating the interviewee’s responses.

Creating a Supportive Environment Undoubtedly, an interview is an emotionally stressful event for a candidate. It is therefore essential to provide a helpful and encouraging physical setting to the interviewee to make him feel at ease and confident. In order to ensure this, noise- and interruption-free private room, proper ventilation, light, and comfortable furniture are helpful.

Conducting the Interview This is an important phase in the interview process. All the plans regarding the interview are executed at this stage. The interview should be smooth and systematic from the beginning to the end to produce the desired outcome. Every effort must be made to gather the maximum information from the candidate.

Ending the Interview It is the responsibility of the interviewer to properly finish the interview. At the end, the candidate should be given an opportunity to say or seek information, if he desires so. It will be fine if the interview ends on a positive note.

Reviewing the Performance Once the interview is over and the candidate leaves the room, the interviewer should begin the process of evaluating the performance of the candidate immediately. This will help the interviewer to recall and record his impression of the performance of the interviewee clearly and award the marks or grades objectively. After the interview is over for all the candidates, the interviewer should rank the candidates on the basis of their overall performance.

Weaknesses of the Interview Method Although interviews are used extensively as a selection tool, there has been a debate going on about the usefulness of interview as an effective predictor of the applicant’s job performance. This is because the selection interviews suffer from the following limitations:

Lack of Objectivity In interviews, there is always a scope for personal bias and prejudice, and this may affect the objectivity of the whole exercise. The interviewer may tend to overemphasize the facts and characteristics with which he is familiar. He may also inadvertently favour those candidates who are similar to him in personality traits, qualities, gender and educational or social background.

Halo Effect This problem arises when the interviewer attempts to judge the personality of the interviewee on the basis of a single or a few dominant characteristics. For instance, an interviewee’s age, qualification, experience, and striking physical feature may individually or collectively

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create a halo effect. The interviewer should not be swayed by a few traits and should assess the candidate in his entirety.

Inadequacy of Time Another criticism of interview is the lack of adequate time to evaluate the interviewee. It is definitely difficult to assess the skills and traits of the candidate accurately within such a short duration. This may in turn affect the efficiency of the interview.

Lack of Uniformity When the interviews for job aspirants are conducted by two or more interviewers, the evaluation of the candidates may not be uniform. This is because the marks or grades are usually awarded by the interviewers on the basis of their personal judgment. This can affect the final rankings of the candidates. The uniformity of interviews is a prerequisite for a meaningful comparison of the candidates’ job-related traits. In contrast to the interviews, the selection tests can ensure perfect uniformity as all the candidates appearing for identical jobs take the same test.

Absence of Training for the Interviewers The absence of training for the interviewers in interviewing skills is the important reason for many of these defects in interviews. In fact, organizations are devoting little time and resources for training their managers in interview techniques. The inexperience and lack of training may seriously impair the judgment of the interviewers, making the whole exercise useless. Instead of depending too much on interview techniques, organizations can also develop alternative methods to assess the presence of critical factors relevant for the successful performance of the applicants in the jobs offered, if selected. 15

Reference Checks The next step in the selection process is checking the references furnished by the candidates. Many organizations have reference columns in their application forms. They instruct the applicants to mention a few names as referees. The purpose of collecting such references is to cross-check the information provided by the candidates in the different stages of selection process. The persons known to the candidates are normally cited as referees. They may be the friends, relatives, previous employers, faculty of educational institutions where candidates studied or any other prominent persons familiar with the candidate. However, this is not an effective selection tool in India as the referee’s reports here are hardly objective and productive. Box 7.8 describes the growing relevance of reference checks.

Physical Examination Physical examination is the penultimate stage in the selection process. The aim of this examination is to ensure that the selected candidate meets the physical requirements of the job. Physical examination can also protect organizations from employing persons with preexisting ailments. However, organizations in our country have no uniform policy regarding physical tests. Some organizations believe in comprehensive medical tests for their candidates while others are not serious about these tests. Once these steps have been carried out, the last phase is that of the job offer.

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Outsourcing Reference Checks: Need of the Hour

Reference check remained a neglected area of the selection process for a long period in India, perhaps because it involved a lot of time and resources for the employers. A proper reference check also lengthened the selection process of an organization. For those organizations that worked under tight deadlines and client pressure to finish the projects, reference checks proved to be a stumbling block. All these factors discouraged the HR managers from undertaking a full-fledged reference check. However, the surfacing of large-scale fake CVs, especially in the IT sector, proved to an eye-opener for the organizations and for the HR people in particular. Industrial surveys for the IT and ITES sectors revealed that nearly 30 per cent of resumes contained misappropriation of

facts. In a number of cases, candidates forged the records to cover up the gaps in their employment or to increase the duration of their earlier employments. Organizations may outsource reference checks by employing professional agencies to carry out these checks. Though it may be a costly proposition to engage external parties to verify the antecedents of the candidates, not checking these may prove to be even more costly for the organizations in terms of financial loss, misuse of the position by fraudulent persons, and loss of credibility to the company. Many IT companies are now outsourcing their reference checks to prevent or minimize their future losses and embarrassments. Adapted from: www.itpeopleindia.com/20020304/ management1.shtml.

Job Offer The last step in the process of selection, in practice, is intimating the candidates about their provisional selection. A job offer (an appointment order specifying the terms and conditions of employment) is issued to the candidates who have been successful at the end of selection process. Once the employee positively responds to the offer of employment, the process of integrating that employee into the job is set in motion. However, an applicant’s decision to accept or reject a job offer is influenced by the presence or absence of the following factors: • Alternative job opportunities available, including the number and nature of alternative opportunities • Job attraction like the nature and extent of supervision, work schedule, and the amiability of co-workers • Positive features of the company such as pay and benefits, advancement opportunities in career, and the company’s reputation as a good place to work • Recruitment activities like the manner in which the candidate is recruited and in which the information is conveyed to the candidate. Let us now look at the selection process in India.

The Selection Process in India The selection process in India is paradoxical. On the one hand, large organizations are continuously developing and standardizing a rigorous selection process to choose the best possible employees for their organizations. On the other hand, small firms mostly satisfy themselves with a mediocre process to select their employees. In fact, quite a few small organizations

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appoint employees for unskilled cadres without putting them into any of the formal steps in the selection process.16 The selection process in large Indian organizations is normally systematic and in compliance with the overall HR policy and philosophy of the organization. However, the selection techniques may vary, depending upon the number of applicants and the nature of job offered. When there is a large number of applicants for the job offered, psychological tests invariably become part of the selection process to choose the candidates suitable for further consideration, especially in public sector industry.17 Further, the selection process is usually exhaustive and rigorous for managerial jobs, and this may involve steps like meticulous screening of application, several rounds of interviews including preliminary and final, and group discussions to test the attitude, personality, subject and general knowledge, clarity of thought and logic, persuasiveness, leadership qualities and communication skills of the candidates. But, these organizations normally adopt a shorter selection process for non-managerial positions. This process may involve steps such as application scrutiny, selection tests (if necessary) and interviews. Smaller organizations in India, in contrast, adopt a simple process for selecting their employees. For instance, trade test (proficiency test) and interviews are the preferred selection tools for technical jobs while interviews are used to choose the appropriate candidates for managerial positions.18 It is to be understood clearly that the selection policy and process will vary from one organization to another, even from one situation to another, depending upon the number and categories of job positions, the exigency of the situation and the overall HR policy of the company.

Summary 1. Selection is a systematic process of identifying suitable candidates for the jobs available in the organization from the available applicant pool. 2.

The process of selection begins once the applicant pool is assembled through the recruitment process.

3. The various stages of the selection process are employment application forms/blanks, selection tests, selection interview, reference checks, physical examination and job offer. 4.

Employment application forms/blanks are used to collect biographical information, educational qualifications, work experience, pay and other perquisites, and other relevant information of the candidates and also a few references.

5. The selection test is a psychological test for comparing and contrasting the behaviour of two or more persons on the basis of a standardized measure of behavior.

6. The selection test must ensure objectivity, standardization and sample behaviour. The types of tests are the ability test, intelligence (IQ) test, aptitude test, achievement tests, personality test, interest test, and honesty or integrity test. 7. A selection interview is a face–to–face conversation to collect information from a candidate to determine his suitability for a job. 8. The kinds of interviews are structured interview, unstructured interview, in-depth interview, stress interview, panel interview, and computerized interview. 9.

A reference check is a process of cross-checking the information provided by the candidates in the different stages of the selection process.

10.

A physical examination is a medical test to ensure that the selected candidates meet the physical requirements of the job.

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Review Questions Essay-type questions 1. Evaluate critically the steps in the selection process. 2. Discuss the characteristics and types of psychological tests. 3.

Analyse the merits and limitations of psychological tests as a tool of measurement.

4.

How will you develop a test programme? Describe the precautions that should be taken in the case of psychological tests.

5. Explain briefly important interview techniques used for selecting supervisory and managerial staff. 6. What are the various hurdles in a selection procedure? 7. Enunciate the meaning and kinds of selection interview with examples.

8. Discuss the role of psychological tests in the selection process. Work out a classification of psychological tests and describe each category, keeping their utility in view. 9.

“An interview is the least valid and reliable method of selection, yet it is most widely used.” Comment.

10. State the strategies for an effective interview process. 11. “Selection is indeed an elimination process.” Elaborate. 12.

Evaluate critically the strengths and weaknesses of interview as a selection tool.

13. What organizational consequences might result if recruitment and selection are not done well? Illustrate with suitable examples.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop a set of selection tests and interview techniques that can minimize attrition rate and the resultant high cost of replacement. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) a marketing manager (in whose department the attrition rate is unusually high), and (4) two observers of the meetings. The role of the observer is to observe and report on the various aspects of the role-playing sessions. Situation Ashley Synthetic Machinery Manufacturing Limited is a medium-sized company engaged in the production of small and medium-sized boilers. The company recently initiated an ambitious expansion plan and recruited people for production, purchase, finance and marketing departments. While the situation is almost normal in all the departments, the trend in the marketing department is quite disturbing. The department reported an abnormally high rate of attrition and absenteeism, especially among the sales executives. This was despite the fact that the company was offering a highly competitive compensation package for its employees. Performance evaluations

also reported consistent underperformance for many of the sales executives. Perturbed by the development, the management wanted the HR department to implement practices that could reduce the rate of employee turnover and improve the efficiency of the marketing department. It asked the HR department to explore the possibility of developing a tailor-made employee testing and screening technique. The HR manager called for a meeting to be attended by the two HR officials, the marketing manager and the two observers. Steps in the exercise There are three steps in the exercise: Step 1: The HR manager meets the marketing manager to gather all the relevant and up-to-date information on the job profile of the sales executives. Step 2: The HR manager conducts a departmental meeting to decide on the induction of new or revised selection tools. Step 3: The observers analyse and give feedback on the performance of the members in the role-playing session.

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Case Study Efficiency of Selection Process vis-à-vis Labour Turnover Relyon is an insurance company with branches all over India. All the HR activities of the company are carried out by the HR professionals based at the headquarters of the company located in New Delhi. The hiring practice of the company is that the HR staff at the central office recruits the personnel for the managerial cadre for all its branches and leaves the recruitment of other cadres to the managers in charge of their respective branches. The company recently opened a branch at Rameswaram in Tamil Nadu. Amitabh, General Manager (HR), posted Arvind as the manager for the recently opened branch. In conformity with the company’s hiring practice, Arvind recruited other personnel for his branch. But within one year of its operation, this branch witnessed a high labour turnover. The turnover rate was much higher than the company’s overall average of 10 per cent. Posts like accounts officer turned over four times while computer operators worked only for a few months and this was the case with the salespeople, who, on an average, lasted only for a few months. The head office took a serious view of these developments. The branch manager was called to the HR department of the head office to explain the reason for such a high labour turnover in his office. Amitabh, the HR General Manager, asked Arvind about the hiring practices adopted by the latter for choosing employees for his branch. Arvind explained that he made an initial assessment of

the candidates on the basis of the information provided by them in their application forms. Those who met the minimum criteria set for the job were then called for an unstructured interview. During the interview, the candidates were asked questions relevant to their field to measure their knowledge, skill and proficiency in the job. Arvind mentioned that he critically observed the candidate’s sitting posture, how he presented himself, his initial remarks, his mannerisms and also his attire. These factors had a decisive influence on his final assessment of the candidate. The candidate was also quizzed about his real intention for joining this company and also his career plans. Finally, a ranked list on the basis of the interview performance was prepared and the job offer given to the selected candidates. Amitabh, who listened attentively to Arvind, was neither satisfied nor dissatisfied with Arvind’s explanation but began to think seriously about the possible role of the selection process in contributing to the high labour turnover. Discussion questions 1.

What is your opinion of the hiring policy followed in Relyon?

2. What is your assessment of the hiring practices adopted by Arvind? 3.

State the recommendations you would make to Arvind for improving his hiring practice.

Notes 1. Sunit Arora, “How to Hire for a Fit,” Business Today, 7–21 January 1996, pp. 68–70. 2. Dale Yoder, Personnel Management and Industrial Relations (New Delhi: Prentice Hall of India, 1972), p. 229. 3.

David A Decenzo, Personnel/Human Resource Management (New Delhi: Prentice Hall of India, 1996), p. 147.

4. H. Koontz and C. O’Donnell, Principles of Management (New York: McGraw–Hill, 1972), p. 418. 5. Thomas H. Stone, Understanding Personnel Management (New York: CBS College Publishing, 1989), p. 173. 6. Arun Monappa and Mirza S. Saiyadain, Personnel Management, 2nd ed. (New Delhi: Tata McGraw–Hill, 1996), p. 135.

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7.

Wayne F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 6th ed. (New Delhi: Tata McGraw–Hill 2003), p. 247.

8.

Milton M. Blum, Industrial Psychology and Its Social Foundations (New York: Harper and Row, 1956), p. 257.

13. Michael A. McDaniel, D. L. Whetzel, F. L. Schmidt and S. D. Maurer, “The Validity of Employment Interviews: A Comprehensive Review and MetaAnalysis,” Journal Of Applied Psychology, 79, no. 4 (1994): 599. 14.

Walter Dill Scott, Robert C. Clothier and William R. Spriegel, Personnel Management: Principles, Practices and Points Of View (New York: McGraw-Hill, 1977), p. 85.

15.

P. C. Pant, “Interviewing: A Tool for Selection and Placement,” Indian Management, 29, no. 7 (1990): 16–18.

9. Lee J. Cronbach, Essentials of Psychological Testing (New York: Harper and Row, 1960), p. 21. 10.

V. S. Shanthamani and A. Hafeez, “Study of the Use of Psychological and Other Tests in Industry,” Indian Administrative and Management Review, 7, no. 1 (1975):13–15.

11. Alec Rodger, The Seven-Point Plan (London: National Institute of Industrial Psychology, 1952) referred by Richard Proctor in “Recruitment: filling the gap,”; http://www.unesco.org/webworld/ramp/ html/r8722e/r8722e0w.htm. 12. G. Roberts, Recruitment and Selection: A Competency Approach (London: Institute of Personnel and Development, 1997).

16. M. Srimannarayana, “Human Resource Management in Small Business,” Indian Journal of Industrial Relations, 41, no. 3 (January 2006): 318–322. 17. N. R. Chatterjee, A Study of Some Problems in Indian Industry, Department of Business Management and Industrial Administration, University of Delhi, 1965. 18.

M. Srimannarayana, “Human Resource Management in Small Business,” Indian Journal of Industrial Relations, 41, no. 3 (January 2006): 318–322.

CHAPTER

8

Orientation, Socialization and Placement

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 List the objectives of an orientation programme 2 Enumerate the requisites of an effective orientation programme 3 Understand the process of an orientation programme 4 Differentiate between the different types of orientation 5 List the problems faced by employee orientation 6 Enumerate the steps for an effective orientation programme 7 List the process of socialization 8 Differentiate between the various types of socialization strategies 9 Understand the problems faced by placement

Abbott India Limited, a subsidiary of Abbott Laboratories, has its head office in Mumbai. It is engaged in the production of healthcare products and is well known for its quality. The Abbott Group has employed nearly 65,000 people all over the world with Abbott India accounting for over 1,000 employees. The core values of this company are Pioneering, Achieving, Caring and Enduring (PACE). The HR philosophy of this company is “respect people” and it aims to achieve this through valuebased management. It emphasizes developing teams work and creating an affable and professional work environment for its employees. The uniqueness of its HR approach is that it accepts experiential learning by employees and views mistakes as part of the learning process.

The company appreciates cultural differences and permits its employees to bring their best value and cultures to the organizations and accepts alternative views on any matter. Every two years, the company conducts a performance-culture survey on a global scale to evaluate the cultural attitude of its employees. Based on the results of the survey, it establishes new and broad cultural benchmarks for all its employees. This process of reassessing the culture and realigning it with the corporate values is known as the cultural health metric. The company utilizes the culture survey to develop action plans in the form of culture and diversity management programmes, and training and orientation programmes in order to achieve the core business objectives. As part of its Abbott “Promise for Life” programme, the Abbott group conducts a series of

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values’ workshops to align the employees’ behaviour with the corporate core values and culture. Given this example about the importance of

orientation and socialization for an organization, this chapter looks at the various aspects of orientation and socialization programmes.

Introduction Employee orientation or induction is a crucial stage in the hiring process of an organization. The newly joining employees get the first impression of the organization through the orientation programmes. It is thus necessary for any organization to have a meticulously planned and well-executed orientation programme to educate the employees about the various aspects of the organization. Orientation programmes are useful in making the new employees feel assured, happy and at ease with the new environment. They can also ensure a smooth transition and integration for the employees without any initial shock and unpleasant surprises. The duration of employee orientation may vary from a few hours to several months, depending upon the job requirements and the policy and philosophy of the organization. In orientation programmes, employees are usually briefed about the history of the organization, its culture, values and attitude, the expectations of the management, the job and department details, and the product or service information. While orienting employees to their job and organization, the organizations normally provide details of all their HR practices that concern them. For instance, the employees are given information about pay scales and incentive schemes, probationary period, the nature and duration of training, working hours, overtime rules, safety rules and procedures, promotion policies and opportunities, and leave facilities. In many organizations, new employees are usually taken around the office or factory premises and shown the different facilities available within the campus. A well-planned orientation usually reduces the likelihood of committing initial mistakes and achieves better understanding between the employer and the employees. As a result, it helps the organization in gaining substantial improvement in productivity, quality, cooperation, and industrial relations.1 In contrast, the lack of orientation programmes might lead to employee alienation and dissatisfaction, a higher rate of attrition, and an increased cost of recruitment and selection. Informing new employees about what they should do, how they should do it, and who they should report to are some of the issues that constitute the essence of orientation. Box 8.1 lists some of the definitions of orientations. Box 8.1

Definitions

“Orientation is the process of receiving and welcoming employees when they first join a company and giving them the basic information they need to settle down quickly and happily and start work.”2 —Michael Armstrong “Orientation is the process of planned introduction of employees to their jobs, their co-workers, and the organization.”3 —Robert L. Mathis

“Orientation is a procedure for providing new employees with basic background information about the firm.”4 —Gary Dessler

ORIENTATION, SOCIALIZATION AND PLACEMENT

We may define employee orientation as the systematic process of offering the essential information to new employees to make them feel comfortable in the organization and also in the job.

Purpose of Employee Orientation Earlier, organizations depended merely on the printed materials and other impersonal methods to orient their employees. In fact, organizations were not too concerned about orienting the employees. However, the changing characteristics of the labour market, the increasing demand for skilled labour, the availability of simple and appropriate technology for storing and presenting information, and the employees’ explicit demand for information about the organization have all forced organizations to pay serious attention to employee orientation. There is also a growing realization among the organizations that the process of orientation can sustain and improve the new employees’ initial enthusiasm. We shall now see the important purposes served by employee orientation.

Formally Welcoming Employees Many organizations view orientation programmes as an occasion for the management to welcome new employees formally and procedurally.

Overcoming Initial Uneasiness and Hesitation The new employees normally suffer from initial anxiety about the organization. When this anxiety is not properly handled, it might lead to the formation of negative perception and eventually cause dissatisfaction and alienation. Orientation could help in quickly overcoming the initial nervousness and hesitation.

Exchanging Information Orientation provides a platform for the organization to transfer knowledge about the job, department, organization and people to the new employees. For instance, the organization can provide information about the growth prospects available to the employees and also the training and development programmes undertaken by it for improving their career prospects. The organization, too, gets to know about the employees, their background and individual career plans.

Assessing Employees Although the selection process has already evaluated the training requirements of the employees, the orientation provides one more opportunity to do so.

Acclimatizing Employees Orientation programmes enable the organization to teach the employees the basics of the job and the safety measures to be adopted, and acquaint them with the other facilities available in the premises.

Controlling the HR Cost In the absence of orientation programmes, employees are normally left to learn everything on their own, and this might push up their learning cost to the organization in the form of

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resource wastage and work disturbances. Similarly, when the employees fail to match their expectation with the reality, they might leave the organization eventually. This could also increase the HR cost associated with recruitment and selection.

Developing the Team Spirit When the orientation programme is conducted for a group of new employees, it helps in promoting team spirit among the peers. Besides, the ability of each member to work in a group can also be assessed through mock teamworks in orientation programmes.

Socializing Employees Socialization refers to inculcating suitable values, standards and beliefs among the employees so that they integrate themselves not only with the formal organization but also with the informal groups. Orientation programmes help in developing the necessary beliefs, values and attitudes among the employees which should help the organization in achieving its core business objectives.

Types of Orientation Based on the number and nature of the new employees and its policy towards orientation, an organization may decide on a specific method of orientation. Some organizations may complete the orientation quickly by providing just a gist of the job and the organization to the new employees. Others may use it as an important occasion to create a positive perception about the organization. They may also utilize the orientation programmes to boost up the chances of retention of these employees not only in the short term but also in the long term. Thus, the perception about the organization regarding the relevance of the orientation programme can also count a lot in choosing its specific type. We shall now see the important types of orientation programme.

General-idea Orientation This may also be called overview or summary orientation. In this type, some general information about the organization is provided to the employees. For instance, information about the common policies and procedures, rules and regulations like the timings, attendance and discipline is provided. Similarly, details of safety provisions like emergency exits, fire extinguishers and first aid are also provided. The organization may also provide information about emoluments like pay particulars, incentive schemes and benefits to the new employees. Usually, specific information pertaining to the job and the department are avoided here. The organization may entrust the orientation programme to the HR department, which would conduct it for all new entrants, irrespective of their departments. Box 8.2 outlines the essence of the general-idea orientation programmes for Indian companies.

Job-specific Orientation The purpose of this orientation is to inform the employees about the various aspects of the job and other things related to it. For instance, the details of the duties, responsibilities and accountabilities associated with the job, and the specific safety and other measures required in the performance of the job are provided. Similarly, employees are also briefed about

ORIENTATION, SOCIALIZATION AND PLACEMENT

Box 8.2

Overview of the Orientation Programme at Dabur India Limited

Indian companies are employing several excellent HR practices to limit the employee turnover and control the hiring cost. They view employee orientation as an HR practice capable of stemming employee attrition, especially in the initial stages of employment. In fact, the employee turnover is usually quite high within the first few months of employee placement. During the initial stage, the new employees require special attention and close guidance. When these are not available to them, they may feel estranged and frustrated. These employees may eventually leave the organization, regretting their decision of having joined it. However, some organizations have developed the requisite efficiency in the art of conducting programmes in a professional manner to achieve the objective of stemming employee orientation. The example of Dabur India Limited deserves a mention in this regard.

Box 8.3

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Dabur has been making sustained efforts to align its HR policies and practices perfectly with corporate strategies to meet the growing needs of its business. Recently, the company introduced an identical, standardized and structured induction process for all its business units located in different parts of the country. The company also organizes intranet-based identical post-induction programmes for all its new employees. The company makes the orientation programmes available to all recruitment centres of the company. Besides the general induction programme, the company also conducts job-specific induction programmes for its management trainees under the Young Manager Development Programme (YMDP). Adapted from: www.dabur.com/en/Investors1/Annual_ reports/2006-07/finalannula2007.pdf.

Job-specific Orientation Programme at Bajaj Electricals Limited

Many companies depend crucially on the orientation programmes to present the positive aspects of the job and the organization to the new employees. They consider the orientation programme as a unique opportunity to help the employees understand their responsibilities in the job and the importance of the job to the organization. It is an occasion for the company to develop employee commitment and efficiency and also the desired work culture. The companies also use it as an occasion to understand the desires, expectations and values of the new employees. Normally, they develop their own style of orientation programmes based on their objectives. Bajaj Electricals Limited is an ideal case for discussion. Bajaj Electricals has a well-defined job-specific orientation programme for every new employee joining the organization. The purpose of its orientation programme is to help the employee familiarize himself with the internal environment of the organization. It facilitates his understanding of the duties, responsibilities and

accountabilities associated with the job. It also enlightens him about the need for and techniques of working well in the challenging environment. Of course, these programmes help in overcoming the initial nervousness of the new recruits and make them feel confident and comfortable. The HR policy of the company stipulates that the conduct of the orientation programmes is the joint responsibility of the HR head and the business unit for which the employee has been chosen. Besides the orientation programmes, the company has several internal and external training programmes to constantly upgrade the competencies of the employees. Besides the routine skill-enhancement programmes, it also has behavioural training programmes for enhancing interpersonal relationships, team-building, personal effectiveness and goal-setting. Adapted from: http://www.bajajelectricals. com/t-trd.aspx.

department-specific matters, relevant rules and regulations, organizational structure and plant layout details. The HR department normally organizes these orientations for the new employees by involving the supervisors or managers of the concerned department. Box 8.3 shows the relevance of job-specific orientation programmes for an organization.

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Traditional and Modern Orientation Based on its purposes and content, orientation may also be classified into traditional orientation and modern orientation. When the organizations employ the general and oft-repeated materials to orient employees, it may be called traditional orientation. In this method, orientation is viewed as a ritual and one-time exercise by the organization. It primarily aims at engaging the employees on the first day and helps them overcome the initial nervousness. In the case of modern orientation, the organization views it as the beginning of a continuous process to convert an employee into a precious asset. Besides attending to the first-day concerns of the employees, it takes care of their training and career needs on a sustained basis. The modern orientation programmes aim at increasing the team spirit, enhancing productivity and achieving better employee satisfaction and retention. Organizations are now including even mentoring and on-the-job training as part of the orientation process to enhance its effectiveness.5

Process of Orientation Programme Development With increasing globalization and the resultant labour mobility, organizations are determined to make the optimum use of the orientation programmes to get closer to the employees and establish a permanent bond with its workforce. This calls for systematic and scientific development of the orientation programmes. Though an organization can follow any process for designing its orientation programme, the one in Figure 8.1 is suitable for any kind of organization with necessary modifications. As illustrated in the figure, the steps involved in the orientation programme development process are (i) ascertaining the organization’s policy, mission, and expectations relating to the orientation programme; (ii) determining the objectives of the orientation programme; (iii) determining the type of orientation programme; (iv) deciding the mode of delivery; and (v) gathering the participants’ feedback. We shall now see these steps in detail.

Step 1

Ascertaining the firm’s policy and expectation

Step 2

Determining the orientation programme’s objectives

Step 3

Determining the type of orientation programme

Step 4

Deciding the mode of delivery

Step 5

Gathering the participants’ feedback

Figure 8.1 Steps in the Orientation Programme Development

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Step 1: Ascertaining the Organization’s Policy and Expectations Relating to the Orientation Programme In the first stage, the HR department should analyse the policy, mission and vision statements of the organization to determine what it expects from the employees and also what qualities and characteristics it wishes to emphasize among them. The HR department should also ascertain what information different departments like those of accounts, welfare, computer and security require about the new recruits. Similarly, if these departments want to provide information to the new employees, the HR department should find out this information from these departments.

Step 2: Determining the Objectives of the Orientation Programme Once the information requirements of different departments have been ascertained, the next step is the determination of objectives for the orientation programme. An organization can have multiple objectives for its orientation programme. For instance, removing employee fear and anxiety, conveying what the management expects about employee behaviour and performance, introducing the employees to their supervisors, peers and subordinates, providing them information about the duties, responsibilities and accountabilities involved in the job and orienting them with the rules, regulations and policies are a few objectives.

Step 3: Determining the Type of Orientation Programme On the basis of its policy or past practices, an organization may decide to conduct one general programme or several job-specific programmes. While deciding the type of programme, it is necessary for the organization to consider factors like the objectives of the programme, the nature of information required, and the financial support available for the programme. If the organization decides to conduct different orientations for different categories of employees, then a need to collect information will arise about the participants, including their positions and departments. In the case of job-specific programmes, the organization may conduct separate programmes for managerial and non-managerial personnel and also for technical and non-technical personnel. In such a scenario, the organization must get ready with the required number and variety of orientation programmes to cater to the needs of the assorted categories of participants.

Step 4: Deciding the Mode of Delivery At this stage, the organization should finalize its plan regarding the method to be adopted for information delivery. Usually, factors like the number of participants, the nature of information to be shared, infrastructure availability, and the category of participants are considered for deciding the manner of delivery of the requisite information. The method of delivery may include, among others, classroom-based orientation, multimedia-based orientation and onthe-job orientation. Besides determining the mode of delivery, an organization should also develop the necessary brochures and instruction manuals to be given to the participants.

Step 5: Collecting the Participants’ Feedback Since orientation programmes are conducted continuously in an organization, it is essential to review the relevance and efficacy of these programmes periodically. The organization

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should take the feedback from the participants about their level of satisfaction with the various aspects of the programmes. In the feedback process, an organization may find out from the participants whether they have received satisfactory responses for their questions. For instance, they may have questions like • What are my duties, responsibilities and accountabilities in the job? • Who should I contact for getting things like the stationery? • What are my office/factory hours, including breaks and overtime? • Who are my immediate authorities and subordinates? • How would my performance be evaluated in the organization? • When and how would I get my pay and other benefits? • Where are the facilities like canteen, parking lot, restrooms, first-aid room and toilets located in the premises? Depending on the participants’ level of satisfaction at the end of the orientation programme in obtaining the information needed, the efficacy of the programme may be determined. Based on the feedback, future orientation programmes should be adequately modified and improved to make them more appropriate for the time and situation and also for accomplishing the programme objectives.

An Effective Orientation Programme Since the orientation programme is crucial to the management from the employee motivation and retention perspective, every effort must be made to make it effective and successful. The following measures might help the organization achieve the desired effectiveness:

Framing Clear-cut Objectives The organization should frame the objectives of its orientation in unambiguous terms. It should decide clearly whether the orientation has a single objective or multiple ones. Similarly, it should make proper need assessments of the different departments to ensure that all their information expectations would be fulfilled through the identified objectives. The participants’ status and information requirements should also be considered for determining the objectives. In any case, the objectives are capable of providing a clear direction to the whole orientation programme.

Determining the Roles of Departments and Personnel The organization should determine clearly the department and persons responsible for conducting the orientation programme. It must have strong reasons for choosing a specific department for organizing the programme. The responsibility for orientation is assigned to the HR department normally. In some organizations, however, the training departments are assigned the task of conducting orientation programmes. This is because they are continuously involved in the training of the new employees at various stages of their employment. The services of the training department can also be used for educating the supervisors and managers about the methods of and need for the orientation programmes.6

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Assessing the New Employees’ Information Requirements Accurately An effective orientation programme must be able to fully address the first-day concerns and general information requirements of the new employees. Its success lies in making the new employees feel assured and positive about their new organization and the job. Normally, the new employees would be saddled with questions like “Have I joined the right organization?”, “Could I do this work?” and “Would I be accepted by my boss, colleagues and subordinates?”. It thus becomes imperative for the orientation programme to identify and clarify all the likely doubts and questions of the participants, whether they have been expressed or not. Certainly, the greater the new employees’ satisfaction with the outcome of the orientation process, the faster his integration into the job and the organization.

Selecting Appropriate Methodology, Techniques and Programme Content The organization should also be judicious in designing the content (curriculum) of the orientation programme. It should not attempt to include everything in the programme content. It should decide exactly what the employee should know initially and what information can wait for future presentations. It should never overburden the new employees with information. Thus, it is essential to ensure that the programme content flows from the objectives and also works towards their attainment. Having decided the content, the organization should choose the most appropriate delivery technique for information presentation. The nature and size of the content, the length of the programme, and the number and nature of the participants normally influence the selection of the delivery tools. The delivery techniques may include instructor-led teaching, learning by doing the job, one-to-one conversation with the supervisor, and allowing participants to raise questions. The technique that matches the learning and perceptual abilities of the participants should be selected. For instance, some categories of employees may be good in quickly grasping the information presented while others may be slow in understanding such information. An organization may use one or more of delivery techniques like visual (video), print (written form), aural (classroom teaching), interactive (group discussion), tactile (demonstrative form like model-building) and kinesthetic (role plays, games),7 depending upon the situation and the participants. Thus, the delivery system should be developed properly to meet the requirements of each participant. In any case, it is important to ensure that the interest and enthusiasm of the employees are sustained by these programmes and not destroyed.

Creating a Positive Environment for New Employees The organization should strive to create a positive environment for its new employees. Even before the beginning of the orientation sessions, arrangements must be made to receive these employees and guide them to their predetermined places. They should never suffer from the feelings of haplessness and alienation. The organization should make every possible effort to make their first day the most memorable in their career. The whole orientation programme should be designed in such a way that the participants completely enjoy their participation in it.

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Providing Continuous Review and Effective Feedback As employee orientation is a continuous process in an organization, it is necessary to develop appropriate instruments to evaluate the effectiveness of such programmes. Evaluation techniques should measure the extent of learning achieved though orientation programmes. They should specifically measure the different learning aspects like cognitive learning (knowledge development), affective learning (attitude development) and behavioural learning (skill development).8 On the basis of the results of the feedback, the organization should carry out necessary improvements in the objectives, content, delivery techniques and evaluation process.

Problems in Orientation Normally, organizations entrust the development of the orientation programme to the HR department and its execution to the supervisors and managers. When the organizations fail to plan and execute the orientation properly, it may not fulfil the desired objectives. Consequently, the time and resource spent on programme development and execution might go waste. We shall now see the problems affecting the efficiency of the orientation programmes.

Data Overload The purpose of an orientation programme is to orient the employees with the basic information sufficient for initial survival in the organization. New employees should not be overloaded with a large amount of information as they may not be able to absorb it all at once. It is, therefore, necessary to spread out the information so that the employees have time to receive, analyse and assimilate it. Unfortunately, overenthusiastic organizations and HR people in particular dump a huge chunk of information on the very first day of an employee’s arrival. This may frighten the panic-gripped employees further.

Problems of Boredom and Rigidity When an organization conducts the orientation programme in a formal and rigid manner, just like a ritual, it may not achieve the purpose of making the employees feel at ease. It is necessary to conduct the programme in as lively and interactive a manner as possible. The employees should be encouraged to participate in the orientation programme voluntarily and actively. This may call for good interpersonal skills among the facilitators who conduct the programme. Many organizations lack facilitators with the requisite interpersonal skills and expertise. Moreover, the orientation programmes should be interspersed with games and stories to kindle the participants’ interest. In a nutshell, organizations should make the orientation an enjoyable exercise and not a punishment for the employees who have just arrived.

Lack of Adequate Time and Training for Facilitators When an organization entrusts the role of facilitators of an orientation programme to the supervisors and line managers, they may not have adequate experience and training to handle the orientation programmes effectively. Besides, they may also be too busy to prepare for the programme in advance and this may eventually affect its efficacy. They might also attempt to undermine the importance of the participants’ position in the organization and overemphasize their own authority on the participants’ job. As a result, the participants may feel threatened by the attitude and behaviour of the existing employees.

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Risk of Failure and Counter-effects A well-planned orientation programme is capable of enhancing the retention rate of the employees and, thus, reducing the attrition, especially in the initial years. However, a poorly planned and hastily executed orientation programme could be counterproductive for the organization. It may unintentionally force the new employees to develop negative perception about the efficiency of the organization and also about its attitude towards them. This may eventually force employees to leave the job abruptly out of fear and anxiety about the future.

Lack of Diversity in the Orientation Programmes People have different levels of learning abilities and perceptual skills. Some people may have better grasping abilities than others. Similarly, merely listening to the presenter may be sufficient for some people to comprehend the subject matter, while others may require video presentation and demos for a clearer comprehension of information. However, many organizations often adopt a common method and identical delivery system in orientation programmes for all new employees, irrespective of their skill levels and educational backgrounds. This may impact the efficacy of the orientation process.

Absence of Evaluation and Follow-up Orientation programmes are definitely an important HR function and a recurring activity for any organization. It is thus essential for the organizations to evaluate the efficiency of the orientation programmes by collecting their feedback from the participants. They should also promptly follow up the feedback process by incorporating the necessary improvements in the programme to make it up to date. However, many organizations hardly undertake a serious evaluation of their orientation process and even when they do this, they do not follow up the evaluation with necessary actions.

Socialization Socialization is the process of introducing or integrating the new employees into the organizational culture. In simpler terms, it is the process by which the new employees learn the organizational culture. While orientation and placement are concerned with the smooth integration of the employees into the job, socialization aims at inculcating suitable values, culture and behavioural standards in them. Generally, employees who attend socialization programmes are found to be performing better in their jobs than those who don’t; they also record low attrition rate.9 However, socialization is a much longer process than orientation. In spite of the comparatively long period of socialization required for achieving the results desired, some organizations have developed an excellent socialization process for improving the performance and loyalty of the employees. For instance, firms like Procter & Gamble and IBM have achieved excellence in the socialization process.10 Facilitating the employees to share the organizational values and culture is the core of socialization programmes. The definitions in Box 8.4 highlight the different interpretations of socialization. We may define socialization as the process of exposing the new employees to the organizational culture systematically and integrating them into it eventually.

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Definitions of Socialization

“Socialization means the process used by the companies to expose new employees to their culture and way of doing things.”11 —Randall S. Schuler and Ian C. Macmillan “Socialization is the ongoing process of instilling in all employees the prevailing attitudes, standards, values, and patterns of behaviour that are expected by the organization and its departments.”12 —Gary Dessler

“Socialization is the manner in which an individual learns (the) behaviour appropriate to his positions in a group through interaction with others who hold normative beliefs about what his role should be and who reward or punish him for correct or incorrect actions.”13 —Orville G. Brim

Differences Between Orientation and Socialization Though orientation and socialization are often seen as the two sides of the same coin and as interchangeable terms, there are a few definite differences existing between the two terms. These differences have been listed in Table 8.1.

The Socialization Process The process of socialization of employees takes place in two phases. These are socialization by organization and personalization by individuals.14 In the first phase, the organization makes efforts for the socialization of the new employees. This is done through orientation Table 8.1 Differences between Orientation and Socialization

Orientation

Socialization

Orientation is usually a formal and structured process of learning the organizational reality by the newcomer.

Socialization is typically an informal and spontaneous process of learning about the organizational culture by the newcomer.

The first way or occasion the newcomer experiences the organization is normally through orientation.

The socialization process normally begins during or after the orientation. However, the subsequent orientation for the newcomers is often influenced by the outcome of the socialization process.

Orientation is a short-term and time-bound activity.

Socialization is generally a long-term and gradual process.

The HR department generally takes the primary responsibility for the orientation process.

The line management normally takes the primary responsibility for the socialization process.

The aim of orientation is to introduce the newcomer to the The aim of socialization is to introduce the newcomer to organization itself. the organizational culture, attitudes, standards, values, and behavioural aspects. It also involves introducing the newcomer to the work environment. It is usually a one-time event organized at the beginning of an employee’s career in the organization.

It is an ongoing process in which the employees continuously learn about their organizational culture.

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and training programmes. In the second phase, new employees do their best to personalize their relationship with the organization. The employees assume responsibility for changing their attitudes, behaviour and values and conform to the prevailing organizational culture. The organizational socialization process usually comprises three stages (see Figure 8.2). These are (i) anticipatory socialization, (ii) organizational socialization and (iii) socialization outcomes. However, these stages are interdependent because the result of one stage acts as the input for next stage. We shall now see these three stages of the socialization process.

Anticipatory Socialization This is the first stage in the socialization process but is normally completed even before the actual entry of the employees into the organization. It refers to the values, attitudes and other behaviours already acquired by the new employees before their entry into the organization. They have acquired these behaviours through their experiences in earlier jobs and educational institutions. The organization attempts to find out these behaviours of the employees through the selection process. It normally selects those who exhibit appropriate behaviour.

Organizational Socialization In this stage, the organization undertakes the necessary efforts to gradually expose the new employees to the prevailing organizational culture. This is done by facilitating the employees to learn the relevant values, beliefs and attitudes. When the pre-acquired values of the employees and the organizational culture are similar, the socialization process becomes simple as it can easily help the employees assimilate the organizational culture and values. In contrast, the socialization programme becomes critical when there are divergences in the new employees’ values and the organizational culture. Organizations may employ a formal or an informal socialization process or both to educate the employees about the organizational culture. In the case of a formal socialization process, employees are taught about the new values and the required behaviour through orientation programmes, training and development programmes and work assignments.15 In an informal socialization process, the superiors, subordinates and peer group members are made responsible for the socialization of the new employees in an informal environment by adopting a casual approach. Organizations may combine both formal and informal socialization methods for achieving effective and faster results.

Socialization Outcomes The final stage of the socialization process is the achieving of the objectives of the socialization efforts. Since it is difficult to measure attitude, behaviour, commitment, motivation and values, as these are abstract terms, the organization may keep its objectives in terms of productivity, performance and other measurable terms. When the outcomes are positive, the socialization process is normally viewed as effective. Anticipatory socialization Figure 8.2 The Socialization Process

Organizational socialization

Socialization outcomes

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Dimensions of Organizational Socialization Strategies The socialization plans of organizations can be classified into seven categories. These are formal or informal, individual or collective, fixed or variable, sequential or non sequential, serial or disjunctive; tournament- or contest-oriented, investiture or divestiture.16 We shall discuss these strategies briefly.

Formal or Informal Strategy When the organizations use formal training programmes for the socialization of the new employees, it is a formal strategy in socialization practice. Normally, the infrastructure available for training programmes is used for organizing formal socialization programmes. In case of informal socialization programmes, the new employees are left to learn everything by themselves and that too in an informal environment. For instance, the colleagues and other employees would help the new employees learn the culture of the organization.

Individual or Collective Strategy When socialization programmes are conducted collectively for a group of new employees, it is a collective strategy. In contrast, socialization programmes are conducted on a oneto-one basis in an individual strategy. For instance, a supervisor may be assigned the task of educating a new subordinate about the values and culture of the organization.

Fixed or Variable Strategy In the case of a fixed strategy, organizations predetermine the time and duration for each activity to be undertaken as part of the socialization programmes. A clear-cut schedule is developed for carrying out socialization programmes. On the contrary, no such precise time-table is prepared for socialization in a variable strategy. The convenience of the facilitator and the participators is more important.

Sequential or Non-sequential Strategy If the organization requires its employees to complete a specific stage in the socialization programme before moving on to the next position in the organization, it is called a sequential strategy. When the organization does not insist on the completion of such sequential stages in the socialization programme while allowing its employees to move to a position, it is called a non-sequential strategy.

Serial or Disjunctive Strategy When the experienced superiors conduct the socialization programme for the new employees before they are placed in the organization, it is called a serial socialization strategy. In contrast, the employee can join the designated position without even attending the socialization programme in a disjunctive strategy.

Tournament- or Contest-oriented Strategy In a tournament-oriented strategy, the new employees are grouped on the basis of their skill levels and educational backgrounds for the purpose of socialization. Separate socialization

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programmes are then conducted for each of these groups. In contrast, no such groups would be made for the new employees of the same cadre on any basis in the case of a contestoriented strategy.

Investiture or Divestiture Strategy When the socialization programme aims at reinforcing the values and beliefs brought in by the new employees, it is called an investiture strategy. This strategy is usually adopted when there is compatibility between the individual culture and the organizational culture. In contrast, the socialization programme attempts to modify or even annul the values and beliefs of the new employees in the case of a divestiture strategy. This strategy is employed when there is an incompatibility between the organizational culture and the individual’s values and beliefs. Organizations can choose any combination of strategies for accomplishing the objectives associated with their socialization programmes.

Placement Placement is the process of finding an appropriate fit between the people and the positions in an organization. It is actually the determination of the job which an accepted candidate is to be assigned to, and his assignment to that job.17 When the organization chooses an exact number of candidates for the specific vacancies available in the organization, placement is simple and easy. In contrast, placement becomes crucial when the organization selects the candidates in a general manner and then places them in the jobs at a later stage. This kind of situation arises when the organization recruits management trainees, graduate trainees and engineer trainees. Organizations have to devote a lot of time and energy in choosing the right jobs for the selected employees. Once the employee completes the stipulated orientation and/or training successfully, the next step is his placement in the job. Based on the employees’ work performance and behaviour in the orientation programme, organizations choose not only the appropriate jobs but also the appropriate supervisors for placing the employees. In fact, the growing attitudinal problems and the high level of attrition arising out of incompatibility between the new employees and their supervisors compelled the organizations to adopt a careful approach in deciding the superior–subordinate pairs.18 On many occasions, organizations utilise the orientation programmes for identifying the behaviour, knowledge and attitude of the new employees. This information is then used to choose the appropriate placement for the employees. Similarly, organizations also use long and extensive training programmes for identifying the aptitude of the employees before placing them in suitable positions, especially in the case of managerial placements. Placement is usually the last stage in the recruitment and selection process of an organization. The organization should find a proper balance between the job requirements and the employee’s qualifications. Understandably, job description and job specification greatly assist the organizations in successfully completing the process of placement. The process of job placement also involves reassigning the jobs among the existing employees.

Challenges in Placement Though placement appears to be a simple function for an organization, it is not so in reality. Quite a few issues can cause the placement efforts to fail in the organization. The

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failed placement may lead to increased attrition, thus pushing up the cost of recruitment and selection. It is therefore essential for the organizations to identify and overcome these challenges to improve the efficiency of the placement process. A few of these challenges are: Cultural and Behavioural Incompatibility In the case of placement, organizations generally consider the job requirements and the employee’s qualifications. They often overlook the behavioural requirements in the placement process. However, the organizations should consider the behavioural compatibility between the superiors and the freshly joining subordinates. They should ensure the fitness of the whole man for the job and not his skill alone. If they attempt to ensure an alignment between only a few aspects of the new employee and the job, it may become a piecemeal approach towards placement with significant chances of failure. Finally, cultural compatibility should also be considered in placement. This is because the culture differs within the organization and also from department to department. Nature of Job The nature of job can also cause problems in placement. Jobs can be classified into independent and interdependent ones. Independent jobs are the ones that are performed by the employees with little help from others. Obviously, placement for these jobs is simple and straightforward.19 In the case of interdependent jobs like assembly-line jobs in the production department and pooled jobs involving teamwork, job placement is a difficult exercise. This is because the organization should consider many factors before placing an employee in these jobs. For instance, the skills of socialization and leadership should also be taken into consideration to determine the match between the job and the employees. Level of Adaptability When the employees exhibit a high degree of flexibility and openness, it can facilitate the process of placement. In contrast, placements become difficult when the employees exhibit stiffness. In such cases, the organizations should be more careful in finding the placements for these employees.

Summary 1.

Employee orientation is the systematic process of offering essential information to new employees to make them feel comfortable in the organization and also in the job.

2.

The purposes of orientation are formally welcoming employees, overcoming initial uneasiness and hesitation, exchanging information, assessing the employees, acclimatizing the employees, controlling the HR cost, developing team spirit, and socialization.

3.

The types of orientation are general-idea orientation and job-specific orientation. It can also be classified into traditional and modern orientation.

4.

The steps in the process of orientation programme development are (i) ascertaining the organization’s

policy, mission, and expectations relating to the orientation programmes; (ii) determining the objectives of the orientation programmes; (iii) determining the type of orientation programme; (iv) deciding the mode of delivery; and (v) gathering the participants’ feedback. 5.

The strategies for making an effective orientation are framing clear-cut objectives for the orientation programme, determining exactly the role of different departments and personnel in the orientation programme, assessing accurately the new employees’ information requirements, selecting the appropriate methodology, techniques and programme content, creating a positive environment for the new employees, and continuous review and effective feedback.

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6. The problems in orientation are data overload, boredom and rigidity, lack of adequate time and training for facilitators, the risk of failure and counter-effects, lack of diversity in orientation programmes and the absence of evaluation and follow-up. 7.

The challenges in placement are cultural and behavioural incompatibility, the nature of job and the level of adaptability.

8.

Socialization means the process of exposing the new employees to the organizational

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culture systematically and integrating them into it eventually. 9.

The steps in the socialization process are (i) anticipatory socialization, (ii) organizational socialization and (iii) socialization outcomes.

10.

The dimensions of organizational socialization strategies are formal or informal, individual or collective, fixed or variable, sequential or nonsequential, serial or disjunctive, tournament- or contest-oriented, and investiture or divestiture.

Review Questions Essay-type questions

5. Explain the challenges facing the employee orientation process. Also state your suggestions for tackling such challenges.

1.

Discuss the purposes of employee orientation with relevant examples.

2.

Elaborate the various kinds of employee orientation programmes with suitable examples.

6. What do you mean by job placements? What are the challenges faced by organizations while placing employees in the organizations?

3.

Enumerate the steps involved in the orientation programme development process.

7.

Describe the stages involved in the socialization process with live examples.

4.

What strategies would be adopted by you in making the employee orientation effective?

8.

Illustrate the different dimensions of organizational socialization strategies using examples.

Skill-development Exercise Objective – The objective of this exercise is to let you know how to develop orientation and socialization programmes in an effective manner through role-playing.

employees available in the labour market. Its general labour turnover rate is well within control and is on par with the industry average.

Procedure note – For this exercise, the class will be divided into small groups with each group having (1) a general manager, (2) an HR manager, (3) a union leader, (4) two HR team members and (5) two observers to monitor the performance.

However, the company has a disturbing trend regarding the attrition rate among the new employees. Among the new recruits, it was well above the industry average. In fact, the largest attrition was reported among the employees within the first four months of their joining the job. Consequently, the company has incurred a high cost in recruitment and selection for frequent replacements. In this situation, the management decided to review its orientation and socialization programmes and carry out improvements, if necessary. It instructed the HR manager to redraft the objectives and procedures involved in the orientation and socialization programmes.

Situation Chintha Private Limited is one of the leading manufacturers of industrial processing machines. The company is engaged in the production of grinding and control panels, exhaust fans, conveyors and dust collectors. It has a sizeable share in the market for industrial processing products. The company has a 6800-strong workforce. It has well-designed HR policies for recruitment, selection, training, compensation, and performance evaluation. The company has been successful in attracting the best

Steps in the exercise There are three steps in the exercise:

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Step 1: The HR manager meets the general manager to get instructions about how to proceed in the preparation of the revised orientation and socialization programmes.

Step 3: The HR manager conducts the departmental meeting to decide on the strategy for developing and conducting orientation programmes.

Step 2: The HR manager meets the union leader to ascertain his views on the orientation programme.

Step 4: The observers analyse the performance of all the members in the role-playing session and give their feedback.

Case Study Mr Ravi Kumar was born and brought up in a tier-II city in Tamil Nadu. He completed all his studies from there. At the age of 21, he secured a placement as assistant administrative officer (AAO) in one of the leading general insurance companies of India. After selecting him through an exhaustive hiring process, the company sent him to Faridabad in Haryana for two years’ training at different organizational positions. His performance in the training was commendable and was appreciated by the competent authorities in the company. Once the training was over, the HR department graded the trainees on the basis of their overall performance during the training period and prepared a merit list accordingly. This list is normally used by the company to determine the posting for its trainees on an all-India basis. Since the recruitment and training are done at all-India levels, the AAO trainees must be prepared to be posted anywhere in the country. After successfully completing his training, Mr Ravi Kumar was posted to one of the divisional offices of this company located at a tier-III city of Orissa. The company, as per its rules, allowed a week’s time for the newly posted officers to report for duty. Subsequently, he reported at the designated office after a week. However, he found to his dismay that the divisional manager had already left the office to accompany the regional manager, who was on an inspection visit to the different offices located in that region. To add to his woes, the other staff in the office were neither aware of his joining that day nor interested in knowing about it. So he had to idle away his time all through the day till the divisional manager returned to the office. As soon as the divisional manager returned to the office in the evening, he immediately called Ravi Kumar to his

cabin. He spoke nicely to Ravi Kumar and apologized for making him wait for long on the first day of his office. He completed all the formalities and asked Ravi to join the duty on the following day. Ravi was assigned the claims department and provided with ten subordinates. As days passed, he slowly realized that his lack of familiarity with the regional language was hampering his work. He also found his style of functioning was grossly incompatible with the prevailing work culture. His subordinates were mostly nonchalant and rather slow in their responses to his orders and requests. The divisional manager could not do much in his case and simply maintained that all was well in his office. He also advised Ravi to change himself suitably. Ravi began to feel alienated as all his efforts to reach out to his subordinates failed. Even the day-to-day functioning became tough and miserable for him. Sadly, the rules of the company did not permit him to get an immediate transfer to some other place. Bereft, he resigned from a promising job at 23 and, in the process, the company lost an able officer with a remarkable performance record in the orientation and training programmes. Questions for Discussion 1. How do you assess the problems of Ravi Kumar? Do you agree with his decision? 2.

What do you think about the efficacy of the HR policies of the company, especially the orientation, placement and socialization policies?

3. How would you have handled the situation if you were in Ravi Kumar’s position?

Notes 1. Charles M. Cadwell and Michael G. Crisp (eds.), New Employee Orientation: A Practical Guide for Supervisors (Menlo Park, CA: Crisp Publications, 1988), p. 3.

2.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 443.

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3. Robert L. Mathis and John H. Jackson, Personnel: Contemporary Perspectives and Applications (New York: West Publishing, 1982), p. 525. 4.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), pp. 291–293.

5.

Doris M. Sims, Creative New Employee Orientation Programs: Best Practices, Creative Ideas, and Activities for Energizing Your Orientation Program (New York: McGraw–Hill Professional, 2001), p. 4.

6.

Karen Lawson, New Employee Orientation Training (Oxford: Elsevier, 2006), pp. 16–18.

7. W. B. James and M. W. Galbraith, “Perceptual Learning Styles: Implications and Techniques for the Practitioner,” Lifelong Learning, 8 (1985): 20–23. 8.

Karen Lawson, New Employee Orientation Training (Oxford: Elsevier, 2006), p. 19.

9. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ: Prentice Hall, 2007), p. 216. 10.

11.

Randall S. Schuler and Ian C. Macmillan, “Gaining Competitive Advantage Through Human Resource Practices,” Human Resource Management, 23, no. 3 (Fall 1984): 247–248. Randall S. Schuler and Ian C. Macmillan, “Gaining Competitive Advantage Through Human Resource Practices,” Human Resource Management, 23, no. 3 (Fall 1984): 247–248.

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12.

Gary Dessler, Human Resource Management (Upper Saddle River, NJ: Prentice Hall, 1999), p. 249.

13.

Orville G. Brim, “Socialization Through the Life Cycle” in Orville G. Brim and Stanton Wheeler (eds.), Socialization after Childhood (New York, NY: Wiley, 1966), p. 3.

14. John P. Wanous, Organizational Entry: Recruitment, Selection, and Socialization of Newcomers (Reading, MA: Addison-Wesley, 1980), p. 168. 15. Georgia T. Chao, “The Socialization Process: Building Newcomer Commitment” in Manuel London and Edward M. Mone (eds.), Career Growth and Human Resource Strategies: The Role of the Human Resource Professional in Employee Development (New York: Quorum Books, 1988), p. 37. 16.

John van Maanen, “People Processing: Strategies of Organizational Socialization,” Organizational Dynamics, 7 (1978): 23–36.

17. Paul Pigors and Charles A. Myers, Personnel Administration (New York: McGraw-Hill 1973), p. 285. 18. Arun Monappa and Mirza S. Saiyadain, Personnel Management, 2nd ed. (New Delhi: Tata McGraw–Hill, 1996), p. 157. 19. Wayne F. Cascio and Elios M. Awad, Human Resource Management (Virginia: Reston Publishing House, 1981), pp. 263–264.

PART III

CHAPTER

9

Human Resource Development

Career Planning and Guidance

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Define the objectives, features and process of career planning 2 List the steps needed to improve the effectiveness of career planning 3 Discuss the role of career guidance

TVS Motor Company of Chennai has an annual turnover of U.S. $1 billion. It is one of the top ten automobile companies in the world. This company is engaged in the production of a wide range of two-wheelers like mopeds, scooters and motorcycles. It has a strength of nearly 5,000 employees. It has adopted several HR practices to promote employee well-being. In fact, it has not lost even a single day to industrial disturbances for several consecutive years. TVS Motor believes in offering to its employees not just jobs but careers with long-standing companionship. The HR practices of the company are strongly oriented towards addressing each employee’s aspiration to grow professionally and personally through efficient career development programmes. The company employs continuous training and development programmes as an HR strategy for attracting and retaining the best

talents. For instance, it has institutionalized the leadership development programmes as part of the career development for senior executives. It also conducts career development workshops to recognize individuals with high-growth prospects periodically. Its organizational career planning activities are supported by healthy career progression options with due recognitions and rewards. As part of its long-term career development programmes, TVS Motor has developed tailormade master’s degree programmes in collaboration with the premier educational institutions in India. Similarly, it ensures periodic job rotation for its employees to help them develop varied perspectives. The systematic career development efforts of TVS Motor indicate the importance of career planning for the success of an organization in terms of employee performance and commitment, and we discuss it in detail in this chapter.

Introduction An individual’s career signifies the positions held by him throughout his work life. An evaluation of a career would show the extent to which one has accomplished the specific career goals in life. A career can be viewed from two perspectives: objective and subjective.1 An objective

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perspective of career deals with the past positions held by an individual. In contrast, a subjective perspective looks at the career of an individual from the perspective of the future positions he is likely to hold. However, the basic assumption in any career perspective is that individuals exercise some sort of control over their future and can ensure optimum utilization of the available opportunities.2 Organizations are expected to support employees in accomplishing their career and life goals through career planning activities. Career planning is the collective responsibility of the organization and the concerned individual. The process of evaluation of the different aspects of an employee like work performance and efficiency, self-worth, personality, lifestyle and career goals form the major part of career planning. The main aim of career planning is to help employees achieve career progression within the organization. In a changing labour market environment with increasing demand for skilled labour, organizations are increasingly viewing career planning as a viable option to attract and retain an efficient workforce. When the employees are aware of the future plan of their organization for them, they may be more interested in continuing in the same organization. Moreover, those firms that actively involve their employees in career planning usually enjoy better patronage from them. Thus, career planning is an important technique for achieving better employee retention and cooperation. However, career planning is not a one-time activity for an organization. Rather, it is a continuing process of assessing the employees’ performance and potential and throughout their career fulfilling their requirements on a regular basis. The essence of career planning is the attainment of the employee’s career and personal goals. The definitions in Box 9.1 encase these points. We may define career planning as the process of identifying and accomplishing the employees’ career objectives through a systematic way of skill identification, assessment and development.

Features of Career Planning Based on the interpretation of the definitions in Box 9.1, the following features of career planning have been developed: • Career planning normally follows a bottom-up approach in which the process begins with the individuals, works upwards, and ends with organizational interventions. • It is not a one-time affair but an ongoing process by which an employee identifies the needs and also the methods to fulfil those needs on a regular basis. • It aims at matching the individual’s career goals with the opportunities available.

Box 9.1

Definitions

“Career planning is the set of policies and practices an organization uses to provide for its human resources requirements.”3 —J. A. Sonnenfeld et al.

“Career planning is the deliberate process through which someone becomes aware of personal skills, interests, knowledge, motivations, and other characteristics; and establishes action plans to attain specific goals.”4 —Gary Dessler

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• It is a means of achieving employee progression and organizational efficiency and not an end in itself. • It is the collective responsibility of both the individual employee and the organization. • It is normally made in a dynamic environment where the changes in the demand for and supply of labour, the characteristics of labour, technology, competitive conditions and market strategies are rapid and often radical.

Objectives of Career Planning The primary purpose of career planning by the employees is to develop their career goals strategically and then achieve success by utilizing the available opportunities. The individual employees attempt to achieve career success by employing relevant skills and knowledge. In the case of organization, it is an opportunity to show its interest in and commitment to the well-being and growth of the employees. Of course, the organization also seeks to achieve optimum employee efficiency and loyalty. The primary responsibility for career planning lies with the employees but the supervisors, the line managers and the HR department have a collective responsibility in designing and developing realistic career plans. We shall now see the important objectives of career planning. • Career planning facilitates the employees to develop not only their career goals but also the ways to achieve these goals. • It helps individuals to remain competitive in the labour market by constantly upgrading competences as part of goal fulfilment efforts. • It acts as the basis or standard for tracing the career progression achieved by an employee throughout his work life. • It forms the basis for succession planning in the organization. It helps the organization in its preparation for the future by identifying and developing people for critical positions. • Through career planning, an organization can attract and retain its best people for a relatively longer period of time. • Career planning is viewed as an effective technique by the organization to limit the labour turnover and achieve better employee efficiency and commitment. • It provides an opportunity for the organization to assess the strengths and weaknesses and also the area of development of the employees for the purpose of career planning and development. • It forms the basis for determining the training and development requirements of each employee in the organization. Box 9.2 outlines the role of talent management in career planning.

Important Terminology Used in Career Planning Familiarization with the following terms is essential for a better understanding of the working of career planning and development process.

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Box 9.2

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Talent Grooming at the Aditya Birla Group: A Career Development Initiative

Career planning and development is a lifelong process for the employees. In fact, organizational career planning begins immediately after the placement of an employee. In many cases, even orientation programmes become the starting point of the career development of the employees. However, the important prerequisite in any career-planning programme is that each employee must have a personal career goal. Further, this personal career goal must be in agreement with the organizational career plans. It is also to be ensured that the organizational career planning efforts contribute to the fulfilment of the career objectives of the individuals. The organization should ascertain the career goals of the employees before placing them under any of the organizational careerdevelopment activities. In the absence of personal career objectives for the employees, the organization should help them in developing their own career objectives. The Aditya Birla Group is a case in point. The basic assumption of the career planning programme of the Aditya Birla Group is “talent is ubiquitous”.

Certainly, each employee is gifted with some talents and it is an obligation on the part of the organization to identify and develop them. Once the existing talents of the individual employees are recognized by the organization, career development efforts begin through a talent management process. Training and development programmes are organized to leverage their strengths and focus on the areas of development. As part of the career development initiative, the Aditya Birla Group conducts programmes like developmental assignments, classroom training, coaching and participation in special project teams to enable employees to learn and develop skills and achieve career goals. Its specific programmes for the development of managers are rotational training, role changes, assignment matches based on the corporate goals and the individual’s interests, strengths and development needs. Adapted from: http://www.adityabirla.com/careers/ talent-management.asp.

Career Career, in general, is a sequence of upward movements in the career ladder achieved by an employee. It is normally accompanied by enhanced earnings, power and social security. It may also be described as “a series of separate but interrelated job activities that offer stability, order and meaning to an individual’s life”.5

Career Path Career path refers to the systematic and deliberate advancement made by an individual in his career in the entire work life. It indicates the way in which one’s career has progressed. Of course, the career path is shaped by factors such as an individual’s knowledge, skills, ability and the opportunities actually available. Career path can be classified into a general career path and individual career path. In the case of a general career path, the organization prepares different career paths for each job in the organization structure. This is done by analysing the position of the job in the organizational structure. In the case of the individual career path, the organization carries out employee analysis to determine the career path of each individual in the organization. It prepares an individual career plan for each employee.

Career System The term system normally means a set of inter-dependent parts with the required interaction forming a whole. Career system refers to the creation of an integrated employee development

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system for supporting the career aspiration of the employees. Career information and assessment, career counselling, mentoring, and career guidance are the essential components of the career system. There are two types of career system, namely, a person-based career system and a position-based career system. Finally, when technology is used extensively in a career system for gathering, processing, storing, utilizing and disseminating information relating to career planning and management, it is called a career information system.

Career Management Career management is usually divided into personal career management and organizational career management. Personal career management means self-management of career by an individual. The individual becomes responsible for designing and executing his career goals. The organization takes limited or no responsibility for the career management of the individual. Obviously, personal career management is also called career selfmanagement. In the case of organizational career management, the organization adopts a paternalistic approach towards the career management of the employees. It plays a dominant role in the development and execution of the career plans of its employees.

Career Counselling Career counselling is the guidance given by experts to the individuals about the path to be adopted by them in accomplishing their career goals. The career counsellor assists the employees in discovering their potentials and weaknesses. He also answers their queries about their career prospects and plans.

Career Anchoring Career anchoring refers to the factors that influence the selection of the individuals’ career choices. It is normally based on an individual’s own perception of his competencies and abilities called drives. For instance, the drives that influence an individual to take up a specific career are technical and managerial competencies, security and stability, creativeness, autonomy and independence.6

Career Cluster Career cluster refers to the categorization of different occupations. Jobs of similar nature are usually brought together under a career cluster.

Career Success The term career success differs in meaning from one individual to another, depending upon their perception of success. However, career success can broadly be classified into three categories: (i) the ability to live a good life outside the work; (ii) a fine performance in the job; and (iii) growing continually in the profession and also performing a demanding work.7

Process of Career Planning The career planning process involves the assessment of the factors influencing the career options in order to make an informed choice about career goals and its execution strategy. The steps involved in a career planning process are (i) self-assessment by the individual;

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(ii) evaluation of the career opportunities available; (iii) undergoing career-oriented skill development exercises; (iv) matching and decision-making; and (v) implementation and review. These steps, shown in Figure 9.1, will now be discussed in detail.

Self-assessment by the Individual In the first step of the career planning process, the individual employee must make a realistic assessment of himself from the career planning perspective. This helps him know where he stands as of now and where he intends to move from here.8 This self-assessment normally involves the identification of one’s strengths, weaknesses, interests and desires. In specific terms, an employee must do a self-introspection to ascertain his skills levels, motivational levels, personality, values and beliefs, socialization skills, adaptabilities, personal and workrelated preferences, and short- and long-term needs. This list may not be exhaustive but the employee should not miss out on any factor that could influence his career decision. An accurate self-assessment helps in making the right choice of job or profession.9 The employee may also seek the assistance of his friends, colleagues, superiors and subordinates in assessing himself. Similarly, an organization can also assist the employees in the self-assessment process by conducting career planning workshops and individual career counselling, providing self-assessment material, establishing development centres and organizing mentoring programmes, besides outplacement programmes. 10 There are several techniques available for the self-assessment of individuals. These include the strength and weakness balance sheet, the likes and dislikes survey, the MyersBriggs Type Indicator (MBTI) assessment technique, and type focus assessment. A brief explanation about each of these techniques is provided as follows. The Strength and Weakness Balance Sheet A balance sheet is made up of two opposite sides, namely, liabilities and assets. Similarly, an employee can also prepare a balance

Self-assessment by individuals

Evaluation of the available career opportunities

Undergoing career-oriented skill-development exercise

Matching and decision-making

Implementation and review Figure 9.1 The Career Planning Process

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sheet with strengths and weaknesses as its two opposite sides. The list of the strong points of an employee assessed on a self-evaluation basis is shown on the strengths side. In contrast, the list of weak points is included on the weaknesses side. An evaluation of this balance sheet reveals the strengths that can help the employee in the career progression and the weaknesses that might restrict his career options and progression. The weaknesses would help him focus on the areas of development. The Likes and Dislikes Survey This is a technique that enables an employee to be aware of his likes and dislikes in his work life. This would enable the employee to choose a career goal that suits his preferences. It can also help the employee comprehend the extent of restriction placed on his career options by his own attitude and behaviour. For instance, some people may not like to leave their hometown due to personal commitments. Similarly, people may have a special liking or disliking for nations, regions, demography size, culture, language, and so on. When the employee is absolutely clear about what he likes and dislikes in life, the chances of making erroneous career decisions would be fewer. The Myers–Briggs Type Indicator (MBTI) Assessment Technique The purpose of this questionnaire is to identify the psychological preferences and personality of an employee. In fact, it helps employees in understanding his behaviour, attitude and preferences. This assessment technique would help an employee know whether he is an extrovert or introvert, whether he has a judging (decisive and logical) or a perceiving (open-ended and random) attitude, and whether he prefers an objective or a subjective analysis of information. This technique helps the employee assess his psychological characters in a highly systematic manner. The Type Focus Assessment This technique helps in understanding the nature and type of personality of an individual. It enables the individual to gain insight into his own personality and the knowledge of it would enable him to decide his profession and also bring improvement in his behaviour.

Evaluation of the Available Career Opportunities Based on the self-assessment, the employee now attempts to connect himself with the career opportunities existing within the organization. As a first step in this stage, the employee makes an attempt to identify the career options available to him. For this, the employee must look to both conventional and unconventional sources to identify suitable career choices. From now on, career planning becomes the collective responsibility of both the individual and the organization. The organization normally gets involved in the process of identifying the future positions for which an employee can be considered. It also involves the manager, supervisors and subordinates in the process of helping the employees identify their career opportunities. Some organizations may begin this process immediately after an employee joins the organization or completes his orientation. The organization may conduct performance evaluation periodically to identify the strengths, weaknesses, and the existing efficiency levels of the employees. This evaluation report may form a basis for identifying the appropriate future positions for the employees. However, in this stage, only a provisional selection of career opportunities is made with the limited aim of determining the training and development requirements of the employees. An elaborate and meticulous evaluation of job fitness and matching for employees would be done at a later stage.

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Undergoing Career-oriented Skill-development Exercises In this stage, the employees become aware of their competency requirements from the career growth perspective. When the employees clearly discover their training and education requirements for achieving career goals, they should promptly begin to search for the appropriate sources for learning. The organization should take up the responsibility of providing the necessary learning to the employees to help them achieve career progression. It may employ the most suitable technique for facilitating effective employee learning. It may use any of the methods like self-learning, on-the-job learning, distance learning, e-learning, work-based learning and action learning.11 The HR and training departments usually organize target-specific programmes for employees in skill enhancement exercises. However, some organizations may provide necessary training and education at the transition stage alone, i.e., at the time of promotion or transfers, while some others may provide training and education at periodic intervals.

Matching and Decision making Once the employees have worked on their problems, issues and concerns that could restrict their career progression, they would make the final comparison of the available career opportunities and their career goals. They develop a variety of possibilities that fit their career plans through brainstorming. An employee may finally settle for a strategy that best suits his career aspiration. Similarly, organizations may develop future opportunities for the employee through programmes like succession planning. In fact, career plans act as the basis for succession plans of a firm for filling the key positions in the future.

Implementation and Review Once the employees choose the career opportunity that suits their career goals best, they formulate specific strategies to accomplish the career goals. At this stage, the employees adopt a step-by-step procedure to successfully attain their career goals. Organizations usually develop career paths for employees and gradually move them on those predetermined career paths through promotions, transfers and, in some cases, demotions. There are many kinds of career paths available within an organization for the employees to move up the career ladder. These are conventional career paths, dual skill path, lateral career path, and network career path. We shall now see the different kinds of career path briefly. Conventional Career Path In a conventional career path, employees move up from one job to another ranked immediately higher than their present job in the organizational hierarchy. It is actually a vertical mobility achieved through promotion. It is based on the assumption that each preceding job is a training ground for the succeeding job. However, this career path is often disturbed by external recruitment and employee attrition. Dual-skill Path This refers to a situation in which the employee enjoys an option to decide between two career paths available in the firm. In case an employee is not willing to get promoted to a managerial position due to the additional responsibilities involved and the new skills required, he may opt for some other non-managerial position with increased duties and rewards. Often, people with sound technical knowledge and limited managerial skill make use of this type of career path. Other employees can, however, follow the normal career path existing in the firm.

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Lateral-career Path This is a horizontal movement in the career path of an employee. To overcome the problems of job boredom and provide variety, an organization may provide lateral movement to its employees. Normally, such a movement is not accompanied with any pay hike. The aim of a lateral career path is to provide intrinsic satisfaction to the employees. Network-career Path This is a combination of lateral and vertical movements. This method is adopted when the employee requires multi-skills and diverse experiences before being considered for any promotion in the future. In such a scenario, an organization may move the employee to different positions in the organization structure horizontally. A senior clerk in an insurance company may be posted to different sections—the accounts section, the claims section, the policy issuing section, the audit section and the business section, before being promoted to the post of the assistant administrative officer. Since career planning is a continuous process for an organization, it is essential to conduct a proper review of career plans in terms of career outcomes and career success. The review enables the organization to understand the efficacy of the existing career planning system. The defects in the existing system should be identified and eliminated to make the planning process effective and up to date.

Responsibility for Career Planning and Development Though career planning is primarily the responsibility of the individual, the organization also has a duty in developing the career of its employees. An organization normally nominates the manager or the supervisor to assist its employees in career planning activities. Sometimes, it may seek the help of external experts for providing career guidance to its employees. Figure 9.2 shows the people responsible for career planning and development in an organization. We shall now see the role of these people in the career planning and development of employees.

Individual employee

Organization

Career Planning and Development

Managers and supervisors

Mentors

Figure 9.2 Responsiblity for Career Planning and Development

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Individual Employee The ultimate beneficiary of any career planning programme is the individual employee for whom the career plans are actually made. It is therefore necessary to involve the employees in the programme. Self-assessment is the method adopted by the employees to identify their strengths and weaknesses as part of career planning. These employees are usually helped in self-assessment exercises by their organization through workshops, group exercises and other counselling sessions. Of late, computer-aided guidance systems are also being used to facilitate their self-assessment activities.

Managers and Supervisors The role of managers and supervisors in the career planning of their subordinates is crucial in an organization. Generally, managers are assigned to employees to help them in career planning. Employees have detailed discussions with these managers before finalizing their career plans. The managers offer guidance, counselling and other support to the employees with their expertise and efficiency. They also provide performance feedback to the employees.

Mentors In certain cases, an organization may appoint mentors to assist the employees in career guidance. Usually, people with relevant expertise are appointed as mentors to give helpful advice to the employees in their career planning. They may be from within or outside the organization. For instance, the managers, supervisors or any other knowledgeable member of the organization may act as a mentor for the employees. Alternatively, the organizations may also seek the services of external experts to act as mentors for its employees. The relationship between the mentor and the protégé (employee) may be formal or informal. A few prerequisites for good mentors are that (i) they should have a good self-image; (ii) they must have expertise in motivational and communication skills; and (iii) they must have the time and willingness to engage the employees adequately.

Organization An organization, through its HR department, may directly engage the employees in their career planning activities. It may establish training and development centres to educate them about the means and styles of career planning. It may also acquaint the employees with selfassessment procedures. These development centres can also provide feedback to the employees based on their performance in a simulated work performance.12 The organization can also share information with its employees about the managerial philosophy, mission and policies for helping them understand the career opportunities available there. It may also provide them specific career information and career path details. Employees may adopt one or more of the above mentioned methods for developing necessary career plans. Box 9.3 shows the career development initiatives of an organization.

Merits of Career Planning The merits of career planning are quite a few. Some of these have been listed as follows: • Career planning helps employees in developing career goals and also in accomplishing those goals in a time-bound manner.

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Career Development Initiative at Infosys: A Wide-Ranging Endeavour

Each organization develops its own technique for grooming the talents of its employees as part of the career development programme. For instance, a few organizations may endeavour to develop an enabling work environment for helping the employees achieve their full potential in work life. This environment should eventually help them in fulfilling their career aspirations. Some other organizations may leave the task of career-goal identification to the individual employees and facilitate the achievement of these career goals in a limited way. The degree of commitment towards the employees’ career progression usually depends on the size of the organization, its financial strength, and its mission, vision and HR philosophy. The case of Infosys is an interesting example of career development measures. Infosys believes in creating a favourable work environment that is committed to equipping the employees with skills and competencies necessary for their career and personal growth. It first establishes a best fit between an employee’s career aspiration and its requirements. Then it develops several career streams for its employees to achieve their career progression and career goal accomplishments. These career streams are project management, customer interface, technical, programme

management, consulting (enterprise solutions), and consulting (domain competency). As part of the career development process, Infosys’s education and research department (E&R) offers technical and project management training to the employees at the Global Education Center in Mysore. Similarly, the Project Management Center of Excellence (PMCoE) strives to improve the project management competencies of its employees through multiple interventions by constantly developing consultancy capability, mentoring structures, training modules, and best practices. Further, Infosys has the Infosys Leadership Institute (ILI) for bringing about the personality development of the employees by improving their leadership and behavioural skills. Finally, it has an ES academy for training managerial employees in domain technology, project management and quality processes, and leadership. Besides these internal development programmes, it also encourages its employees to pursue professional studies like MBA, MCA, and CFA as part of the external career development initiative. Adapted from: http://www.rediff.com/getahead/2007/ aug/03infy.htm and http://www.infosys.com/investors/ reports-filings/annual-report/annual/Infosys-AR-08.pdf.

• It facilitates employees in identifying the career opportunities available within the organization. • It helps the employees determine their training and development requirements based on self-assessment. • It helps the organization in finding a fit between the job requirements and the employee’s knowledge, skill and abilities to choose the right persons for the jobs. • It provides an occasion for the organization to identify the strengths and weaknesses of its workforce. • It assists the organization in HR policy formulation. For instance, it facilitates the HR manager in deciding between internal and external sources of recruitment. • It helps the organization in achieving enhanced job satisfaction, efficiency and commitment for its employees. • It aids the organization in controlling employee attrition and related hiring costs. • It assists the organization in developing succession plans for the critical positions in the organization. Thus, it enables the organization to make long-term investments on their employees through succession plans.

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• It provides an opportunity to the organization to express its interest in the well-being and future of its employees. • It enables the organization to achieve cordial industrial relations and thus ensure better cooperation from trade unions. • It helps the organization in building goodwill in the labour market and thereby attract the best talents with ease.

Limitations of Career Planning Though career planning helps an organization in numerous ways, it has a few limitations that undermine the importance and relevance of career planning. These are:

Time Factor Career planning is usually a long-term and time-consuming process. It is based on the logic of suffering short-term pain to get long-term gains. However, organizations may not be ready to spend a lot of time and resources on a process that would prove beneficial only in the long term.

Unsuitable for Large Workforce It may not be possible for organizations with a large workforce to develop individual career plans for each and every employee of the organization. This is because the career plan process requires an in-depth analysis of each employee’s strengths and weaknesses on a sustained basis.

Lack of Objectivity Only those organizations which believe in strict observance of objectivity in promotion and transfers can succeed in career planning. In contrast, favouritism and nepotism in promotions often make career planning an unsuccessful exercise.

External Interventions Government rules and regulations can also affect the career planning options of an organization. For example, the government may make it mandatory for the organization to adopt reservations in promotions, especially if it is a government organization or a public sector enterprise.

Lack of Knowledge and Awareness Career planning by an employee is essentially a self-management process. It requires the employees to be aware of the basics of career planning and management activities. However, the employees at the lower levels of the organizational hierarchy may not be familiar with the career planning process.

Lack of Flexibility Many organizations treat career planning as a ritualistic, rigid exercise. They often fail to consider the uncertainties caused to the career planning activities by the changes in the situation. In fact, the absence of dynamic career planning programmes may limit the applicability of the career plans in uncertain and changing situations.

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Difficulty in Measuring Career Success Since career success is an abstract concept, it is interpreted differently by different persons. Some may consider a good performance in the job as career success. Others may consider the quality of life as an indicator of career success. Still others may consider the vertical mobility in the organizational structure as career success. This divergence of opinions may cause confusion and vagueness in interpreting career success.

Measures to Improve the Effectiveness of Career Planning Since career planning is basically a self-development exercise, the prime responsibility for career planning lies with the employees. But the organization cannot shirk its responsibility in the career planning and development of its employees. In fact, an effective career programme can help both the employees and the organization immensely. An organization can adopt the following steps to enhance the effectiveness of career planning.

Developing Career-related Attitude An organization must encourage its employees to develop a career-related attitude. This would prompt them to explore their behaviour systematically by assessing their strengths and weaknesses.13 It should also help its employees in determining their career values and goals. In the absence of a career focus, the employees may not equip themselves adequately for utilizing the future career opportunities. Therefore, the organization should conduct workshops and other educational activities to orient the employees to the relevance of career planning.

Achieving Flexibility in Career Planning Career planning is an effective tool for an individual to accomplish his career goals. However, care should be taken to ensure that it does not become a rigid exercise. Too much rigidity can make the exercise ineffectual and unrealistic. This is because the environment affecting the career plans and prospects is built with uncertainty and changes. Thus, career planning should be sufficiently flexible to accommodate the changes in the environment.

Ensuring Cooperation of the Top Management The important prerequisite of career planning success is the complete support and involvement of the top management. The management should view career planning as a means of expressing its support and commitment to the future growth of the employees. It should also realize that the employees’ performance and loyalty can be enhanced through career development programmes. Hence, career planning and management should become a part of the management philosophy and vision.

Clarity in Career Goals Many of the future activities of an organization and the employees are based on career goals. For instance, career goals and plans play an important role in determining the extent of training and development programmes required for an employee. Lack of clarity in career goals can distort the career decisions. It should, therefore, be ensured that the employees have

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adequate clarity about their career goals and career opportunities, in addition to knowing their strengths and weaknesses, personality and work environment.

Proper Review and Feedback A career is influenced by a variety of factors and often requires timely modifications, depending on the nature and extent of changes in the environment. Career planning and goals should be reviewed periodically to determine the relevance of career goals in the current context. Feedback should be collected from the employees to know the general efficacy of the career planning process of the organization. Feedback-based reviews can also help the organization in determining the measures required for further improving the utility and relevance of organization career planning. Therefore, the organization should develop effective ways to get feedback from all those associated with the career planning process.

Objectivity in Promotions and Transfers When the employees are not sure about objectivity in managerial decisions concerning promotions and other HR decisions, they may not take the career planning activities seriously. This would also undermine the credibility of the organizational career plans for the individual employees seriously. The management should never be seen to be dithering in its promotional polices and their execution. Thus, the management should certainly avoid favouritism and nepotism in promotion and succession planning.

Establishing the Necessary Infrastructure Organizational career planning often requires the organization to undertake extensive training and development programmes for its employees to make them fit for future promotions. In the absence of adequate training facilities, the employee may not gain any substantial benefit out of career planning activities. Therefore, the organization should develop adequate infrastructure for effectively implementing the career plans meant for the employees.

Developing Measurable Career Outcomes and Success Since career satisfaction is an abstract psychological concept, it may be interpreted differently by different people. It is, therefore, desirable for each organization to develop a set of common metrics for measuring career success. This can also help the organization in reviewing the effectiveness of the career planning process.

Effective Mentoring as Part of Career Planning Organizations often undertake mentoring to develop the skills and abilities of their employees. Thus, mentoring is an important part of many career planning programmes. Building a successful and committed mentoring relationship is essential for effective career planning and guidance. Organizations should make every effort to involve managers and supervisors effectively in mentoring programmes to improve the skills of the employees and to provide them career guidance.

Simplicity and Transparency in Career Planning Programme An organization should ensure that its career plans for its employees are simple to understand and possess an easy-to-operate style. Every employee of the organization should be able to

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understand the career planning process and programmes without any difficulty. Similarly, it should ensure complete transparency in the functioning of its career plans so that the employees have no grievance against them. At this stage, a comparison of the three forms of career intervention programmes can facilitate better understanding of each of these—mentoring, coaching and counselling. Table 9.1 compares and contrasts the three important forms of career intervention.

Career Guidance Career guidance refers to a series of processes aimed at assisting the employees to make informed career decisions and achieving career and personal development. The activities that usually form part of the career guidance programme are informing, advising, counselling, evaluating, enabling, advocating and providing feedback.14 Any effective guidance or counselling provided as part of career guidance should fulfil a few basic conditions. These conditions have been listed as follows:15 • Career guidance must be in conformity with the purpose and general direction of an employee’s career and, as such, this purpose and direction should form the basis for future guidance and counselling programme. Table 9.1 Three Important Forms of Career Intervention

Basis

Mentoring

Coaching

Counselling

Type of intervention

Long term

Short term

Short term

Type of interaction

Informal

Structured

Informal

Outcome

Career and personal development of mentee

Understanding and resolving the developments and issues at work

Understanding and resolving long-standing performance problems/ issues at work

Focus

Broader focus

Narrow focus

Broader focus

Nature of experience for the instructor

The mentor has direct experience in the mentee’s job.

The coach need not have direct experience of the client’s formal job.

The counsellor need not have direct experience of the client’s formal job.

Type of goal

Achieving long-term future goals

Achieving specific and immediate goals

Achieving immediate goals but the effect of counselling can last longer

Type of issues

General issues

General issues

Psycho-social issues

Frequency of meetings

As and when required by the mentee

Conducted on a regular basis for a predetermined period

As and when required by the client

Adapted from: “Coaching and Mentoring – What’s the Difference”; available at http://www.brefigroup.co.uk/coaching/coaching_and_mentoring.html.

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• The fundamental aim of career guidance activities is to develop the skills and competencies of the employee through all possible ways. Certainly, skill development efforts would require a good understanding of the employee’s personality and the actual conditions. • Career guidance should be situation-oriented. It should be provided only in the context of the career opportunities available within the organization. Thus, it is purely context-based. • Career guidance must consider the interest not only of the individual but also of the organization. It should be insisted that the employees would get career advancement only when they are really fit for future positions. Employees must be advised to equip themselves adequately through proper learning before seeking promotions. On its part, the organization should recognize the skills and abilities acquired by the employees appropriately and reward them duly. Thus, career guidance is fundamentally interactive in approach. • Career guidance must consider both the past activities of the employees and their future potential for providing guidance and offering advice to them. Thus, career guidance considers the time perspective since the past forms the basis for the future. • Career guidance should consider not only the ability of the employee in negotiating a better career opportunity for himself but also his ability to face and withstand uncertainties and unexpected outcome in such negotiations. Thus, the degree of endurance and flexibility of the employee must also be considered.

Summary 1. Career planning refers to the process of identifying and accomplishing the employees’ career objectives through a systematic way of skill identification, assessment and development. 2.

The steps in the career planning process are: (i) self-assessment by the individual; (ii) evaluation of the career opportunities available; (iii) undergoing career-oriented skill-development exercises; (iv) matching and decision making; and (v) implementation and review.

3. The self-assessment techniques are the strength and weakness balance sheet, the likes and dislikes survey, the Myers–Briggs Type Indicator (MBTI) assessment technique and the type focus assessment. 4.

The types of career path are conventional career path, dual-skill path, lateral-skill path, and networkcareer path.

5.

The responsibility for career planning lies with the individual employee, the manager and supervisor, the mentor, and also with the organization.

6.

The limitations of career planning are: timeconsuming process, unsuitability for a large workforce, lack of objectivity, external interventions, lack of knowledge and awareness, mechanical nature of the process, and difficulty in measuring career success.

7.

The steps to improve the effectiveness of career planning are: developing a career-related attitude, achieving flexibility in career planning, ensuring top management’s cooperation, clarity in career goals, proper career review and feedback, objectivity in promotions and transfers, establishing the necessary infrastructure, developing measurable career outcomes and success, effective mentoring as part of the career planning, and simplicity and transparency in career planning programme.

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Review Questions Essay-type questions 1. 2.

Evaluate critically the career planning process with relevant examples. Enumerate the various techniques used for facilitating self-assessment by employees.

3. Discuss in detail the role of different persons in developing career plans and conducting career development programmes. 4.

Evaluate critically the merits and limitations of career planning process.

5.

Illustrate with examples the steps to be adopted for enhancing the effectiveness of career planning programmes.

6.

Enunciate the conditions to be fulfilled for achieving effectiveness in career guidance programmes.

7.

“Career planning is successful for the long-term survival of an organization.” Discuss.

8. “Career planning and development are suitable and effective only for large-scale businesses.” State your arguments. 9.

Identify the relevance of career planning and development programmes for Indian industrial organizations.

10.

How will you prepare a career plan for a new employee joining as the management trainee in finance department?

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop career plans for employees and identify the infrastructure requirements for effective implementation of career development programmes. Procedure Note – The class is divided into groups. Each group has (1) an HR manager; (2) two HR team members; (3) two union representatives; (4) an external expert; and (5) two observers of the meetings. The role of the observer is to observe and give his feedback on the different aspects of the role-playing sessions. Situation Jayprakash Industries Limited is engaged in the business of manufacturing coir-based products. It is a mediumsized company with an annual turnover of Rs. 28 million. It has a respectable market share in the coir industry. Its compensation packages are comparable with the best in the industry. Despite its excellent pay packages, the company has been having quite a few problems on the labour front. The company is experiencing difficulty in retaining the best employees. Obviously, this high attrition and poor employee commitment is affecting its future expansion strategies and also causes occasional production disturbances. Moreover, the company’s image in the labour market is dented by the high labour turnovers.

Meanwhile, an internal employee survey conducted by the management revealed the absence of career planning as one of the primary reasons for workforce depletion. Therefore, the management instructed the HR department to develop career plans for all its employees. It also asked the HR to identify the infrastructure requirements for implementing such career plans. Steps in the exercise There are three steps in the exercise: Step 1: The HR manager meets external experts to discuss the career planning process. Step 2: The HR manager conducts a meeting with the union representatives to ascertain their views on career planning and on the development activities to be undertaken in the firm. Step 3: The HR manager conducts the department meeting to finalize the career planning programmes for the employees. Step 4: The observers analyse and present their feedback on the performance of all the members in the role-playing session.

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Case Study Alectek Shoes is a manufacturer of popular shoes in the country. It is one of the oldest footwear manufacturers in India with a sizeable market share in the industry. It also exports considerable portions of its premium segment products to overseas markets. This company has a strong workforce of over 11,000 employees. It is engaged not only in manufacturing but also in marketing operations through its own retail outlets. Being an old company, most of its HR policies are conventional and empirical. Based on its bitter experiences in the past, the top management firmly believed that the candidates with a revolving-door approach towards a job (changing jobs frequently) are less committed employees and are prone to leave the organization early. The recruitment philosophy and policy of this company clearly reflected this and, understandably, discriminated against those candidates who changed their jobs frequently in the past. In fact, the HR people were instructed to eliminate the applicants with a poor track record of job stability, irrespective of their levels of skills and abilities. These candidates were eliminated by the HR department either by rejecting their application at the scrutiny stage or by eliminating them in the very early phase of the selection process. Since its compensation packages are the best in the industry, the company had so far never faced any problem in finding the required number of people to fill the job positions. Recently, the company developed a huge manufacturing facility in a metropolitan city located in southern India in order to double its production capacity. With this production expansion, the company was looking to emerge as India’s leading footwear player. As part of this expansion plan, it decided to strengthen the manufacturing, sales and marketing division with increased workforce. It decided to conduct a major recruitment drive for filling all the new vacancies in addition to the routine ones. Obviously, the number of positions to be filled up in the company just swelled. The company conducted an extensive advertisement campaign to attract the best candidates for filling the available job positions. The recruitment campaign evoked a good response in the sense that many prospective candidates applied for the advertised positions. However, the scrutiny of these applications revealed that a significant number of these candidates had poor job stability records as they

seemed to have worked in different companies for short tenures. But for this shortcoming, these candidates were found to be suitable for the offered positions. Due to this unprecedented situation, the company was now in a quandary. If these candidates were eliminated, the company might not get a sufficient number of candidates with the required skills for filling all the existing vacancies. In contrast, if they were selected, the firm might face problems of unanticipated and untimely employee desertions and the resultant work disturbances. However, the HR manager was clear about how this situation ought to be handled. He demanded drastic revisions in the HR policy to make it relevant for the existing labour market scenario. First of all, he wanted some major alterations in the recruitment policy to enable the organization to consider seriously and equitably the candidature of all the applicants, irrespective of their past track record about job stability. Next, he insisted that the company design and develop effective career development programmes for the employees immediately so that there were better career prospects available for them in the company itself. This should also obviate their need for leaving the company to seek better prospects elsewhere, he averred. Moreover, a good career plan would establish long-term relationships between the organization and the employee through better employee commitment and motivation. He also insisted on evolving plans for training these employees continuously as part of the skill enhancement exercise. These measures, he believed, would bring down the chances of employee desertion and associated problems. However, the management did not buy his arguments. It raised serious doubts about the efficacy of the HR manager’s proposal. It actually feared that a better trained and skilled employee would leave the organization early as there would be an increased demand for his skills in the labour market. It also felt that it was difficult to thwart a habitual job deserter from quitting the organization, however effective the career development programme may be. Thus, the management insisted on maintaining the status quo in recruitment policy and asked the HR manager to come up with more practical suggestions for solving the present problem. Evidently, the HR manager was now frustrated with the orthodox approach of the management.

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Questions for discussion 1. What is your assessment of the whole situation in Alectek Shoes? 2.

What is you opinion about the role of recruitment policy in the entire controversy?

3. If you are made the HR manager of Alectek Shoes, what would be your suggestion to solve the problem? 4. What more can the company do in terms of career planning and development activities of the firm vis-à-is the employee attritions, besides the HR manager’s suggestion?

Notes 1.

Wayne F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 6th ed. (New Delhi: Tata McGraw-Hill, 2002), p. 373.

2.

J. H. Greenhaus, Career Management (Chicago, IL: Dryden, 1987).

3. J. A. Sonnenfeld, M. A. Peiperl and J. P. Kotter, “Strategic Determinants of Managerial Labour Markets: A Career Systems View” in G. Salaman (ed.) Human Resource Strategies, (London: Sage, 1992). 4. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 350. 5.

Edwin B. Flippo, Personnel Management (New York: McGraw-Hill, 1984), p. 248.

6. E. H. Schein, Career Dynamics: Matching Individual and Organizational Needs (Reading, MA: Addison– Wesley, 1978). 7.

Mary Dean Lee, Pamela Lirio and Fahri Karakas, “Exploring Career and Personal Outcomes and the Meaning of Career Success Among Part-Time Professionals in Organizations,” http://www.polisci.msu.edu/kossek/careersuccess.pdf, pp. 14–15.

8. Barbara Wirtz, “How to Become the Chief Executive of Your Own Job,” Credit Union Journal, 9 (3 October, 2005): 4. 9. Michael A. Broscio, “It’s Time for Your Career Checkup,” Healthcare Executive, 20 (November/ December 2005): 42–45.

10. Anthony Gordon Watts, Tony Watts, Bill Law, John Killeen, Jennifer M. Kidd and Ruth Hawthorn (eds.), Rethinking Careers Education and Guidance: Theory, Policy and Practice (London: Routledge, 1996), pp. 91–92. 11. William J. Rothwell, Robert D. Jackson, Shaun C. Knight and John E. Lindholm with Wei Aleisha Wang and Tiffani D. Payne, Career Planning and Succession Management: Developing Your Organization’s Talent—for Today and Tomorrow (Westport, CT: Praeger Publishers, 2005), pp. 150–171. 12. Anthony Gordon Watts, Tony Watts, Bill Law, John Killeen, Jennifer M. Kidd and Ruth Hawthorn (eds.), Rethinking Careers Education and Guidance: Theory, Policy and Practice (London: Routledge, 1996), pp. 91–92. 13. R. A. Noe, “Trainees’ Attributes and Attitudes: Neglected Influences on Training Effectiveness,” Academy of Management Review, 11, no. 4 (1986): 736–749. 14.

Unit for the Development of Adult Continuing Education (UDACE), The Challenge of Change (Leicester: UDACE, 1986)

15. J. M. Kidd, “Career Planning Within Work Organizations” in Anthony Gordon Watts, Tony Watts, Bill Law, John Killeen, Jennifer M. Kidd and Ruth Hawthorn (eds.), Rethinking Careers Education and Guidance: Theory, Policy and Practice (London: Routledge, 1996).

CHAPTER

10

Employee Training

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand employee training 2 Assess training needs 3 Learn the steps in an employee training process 4 Evaluate employee training programmes 5 Discover the issues in employee training 6 Explain an effective training programme 7 Present an overview of e-learning

Reliance Industries Limited is one of the largest private sector companies in India with a 24,000strong workforce. This Fortune 500 company has won several awards for its training polices and programmes. For example, in 2007, it won the Golden Peacock National Training Award, the American Society for Training and Development (ASTD) Excellence in Practice Award and the CNBC–TV18-instituted Jobstreet.com’s Jobseekers’ Employer of Choice Award. The company believes in people empowerment through five scalable approaches—greater knowledge, opportunity, responsibility, accountability and reward. Reliance Industries has spent almost a total of 160,253 man-days over the years to train its employees. Its training objective is to groom people both in the personal as well as professional capabilities. The company believes in achieving competitive advantage through consistently efficient human capital. It has a wide range of varied customized training

programmes to cater to the specific needs of the assorted workforce and meet its strategic goals. For instance, it has several target-oriented training programmes for its employees like the ones for competency development and soft skills learning. It also conducts 360 other programmes to meet the diverse skills needs of its employees. One such unique training programme for new recruits is called the Dronacharya Scheme. Under this programme, senior personnel (Dronacharyas) take charge of two to three new employees (the Arjunas) and train them intensively for independent positions in three to six months. Through its different training programmes, the company seeks to develop competitive advantage through its human capital. The example of Reliance showcases the significance of training programmes in the accomplishment of corporate goals. We shall now discuss the relevant aspects of employee training in this chapter.

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Introduction Training is, essentially, a value-addition activity undertaken by an organization to enrich the value of its core assets, namely, its people. It plays a vital role in enhancing the efficiency, productivity and performance of the employees. It is a learning process that helps employees acquire new knowledge and the skills required to perform their present jobs efficiently. Rapid technological developments and the resultant changes in the production process have compelled the management of various companies to treat training as a continuous process of the organization. In fact, the strategic goals of an organization usually form the basis for its training programmes. Training typically comprises predetermined programmes to achieve the desired performance efficiency at various levels—individual, group and organizational. In simple terms, training is all about making a difference between where the worker stands at present and where he will be after some point of time. Training is usually a short-term skill-development exercise meant for non-managerial employees either to learn a job or to overcome their deficiency in the performance of the present job. The success of any training programme lies in recognizing the training needs within the organization and then designing and implementing training programmes based on those needs in order to carry out a continuous upgradation of knowledge, skills and employee attitudes. In fact, sustained training efforts by an organization usually lead to the creation of a highly competent and motivated workforce that is all set to take on the challenges of performance and productivity. Undeniably, organizations can think of achieving success in the globalized market only when they can ensure that their employees perform to their fullest potential. Although training is defined variously by experts, the core element of any training is the skills acquisition by workers at the non-managerial levels (see Box 10.1). To sum up, we can say that training is the process by which an employee acquires the necessary knowledge and skills to perform the job.

Significance of Employee Training Today, Indian organizations have realized the importance of training as a tool to achieve their strategic goals. It is not viewed by the organization as a cost any longer but as an investment on one of its most dynamic assets, namely, employees. Many organizations consider training Box 10.1

Definitions of Training

“Training is the creation of an environment where employees may acquire or learn specific, job-related behaviour, knowledge, skills, abilities and attitudes.”1 —Terry L. Leap “Training is the act of increasing the knowledge and skills of an employee for doing a particular job.”2 —Edwin Flippo “Training is the formal and systematic modification of behaviour through learning which occurs as a result

of education, instruction, development, and planned experience.”3 —Michael Armstrong “Training is any process by which the attitudes, skills and abilities of employees to perform specific jobs are improved.”4 —Michael J. Jucius “Training refers to the methods used to give new or present employees the skills they need to perform their job.”5 —Gary Dessler

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as a strategic employee retention tool. It helps the organization create a smarter force capable of meeting any situation and challenges. We shall now discuss the significance of training in detail.

Enlargement of Skills and Competency Training helps in enhancing the technical knowledge and skills of the employees at every level of the organization. It enables them to learn new skills and knowledge continuously so that they remain up to date. In fact, the improvement of skills is no longer optional for the organization but a matter of compulsion, due to the growth in technology and improved processes.

Effective Utilization of the Existing Human Resources Training results in improved performance, which, in turn, facilitates optimum utilization of the available human resources. It also enables the employees to accomplish the organizational goals as well as their personal goals effectively. In fact, improved performance, being a bottom-line purpose of training, is a strategic goal for organizations.6

Enhancement of Customer Satisfaction Almost everywhere, organizations are compelled to ensure superior quality, lower costs, and better services to their customers. To meet these challenges, they must enhance their overall performance continuously. The training of employees helps in improving upon the quality of work and in controlling costs.

Enhancing Competitive Advantage One of the important competitive advantages of an organization in a competitive environment is its workforce. It can retain its core workforce competency and skills through continuous and systematic training of its labour force.

Enrichment of Team Spirit Generally, training helps in the promotion of team spirit and inter-team cooperation among the employees. In fact, it enhances the spirit of a group and makes the members work harder to succeed as a group.

Ensuring Personal Growth Training is an investment in people. It is emerging as an important technique to retain people. The process of skills acquisition helps not only the organization in achieving its goal but also the employees in ensuring their personal growth. Obviously, employees prefer those organizations that expose them to modern technologies and help them upgrade their skills and knowledge.

Enabling a Learning Culture Training helps in creating a learning culture within the organization. Successful organizations recognize that well-structured and significant employee learning programmes connect well with their long-term strategic success.

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Establishing a Positive Organizational Climate Training enhances the interaction and understanding between the employers and the employees. It helps build a good labour–management relationship and ensures that the individual’s goals align well with the organizational goal. Thus, it aids in creating a positive perception and feeling about the organization. The collective feeling of the employees about their organization is called the organizational climate.

Encouraging Better Health and Safety Measures Training helps in improving the health and safety of the employees. Safety training teaches the employees about the safety measures to be followed and also the best and secure way of performing a job. It minimizes the problems of industrial accidents and sickness. Thus, it assists in the development of a healthy working environment.

Ensuring Organizational Growth and Development Training aids in organizational development since it helps in developing leadership skills, motivation, loyalty, communication and other aspects required for successful employees. It facilitates the establishment of effective decision-making and problem-solving processes. It also helps in understanding and carrying out organizational policies. Box 10.2 outlines the significance of training as a long-term investment.

Assessing Training Needs The assessment of training needs is an important job for the HR department. It is usually done at two levels. At the first level, the training needs of the individual employees are assessed. At the second, training needs are assessed for different groups in the organization. The training needs assessed at group levels are usually referred to as the organizational-need assessment. Normally, the employee skills inventory is prepared to identify the likely skills shortage in the organization. Skills inventory is an estimation of the kind of skills possessed by the employees while skills shortage is the situation where the required skills are more than the available skills. In fact, skills shortage is an indication of the need for training at the organizational level.

Box 10.2

Training for the Amplification of Skills: Tata Motors

Training is at the heart of the consistent efforts made by organizations to improve employee competency and organizational performance. Each organization adopts its own style and techniques for training its employees. However, the basic intention of any organization in conducting the training programmes is to create a cordial atmosphere for the employees to work, learn and grow. It is pertinent here to see the training programmes of Tata Motors. It conducts rigorous programmes

like in-house vocational training and apprenticeship to train its technicians. Further, it organizes structured training programmes, rotational assignments and cross-functional mobility programmes to help its employees gain expertise in multiple tasks. Tata Motors views its training programmes as long-term investments in its human resources. Adapted from: www.tata.com.

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The individual employee’s training needs can be assessed by comparing the actual performance of the employee with the standard performance. The deficit in performance will indicate the nature and extent of the need for his/her training programmes. The individual employee may also require training at the time of transfer and/or promotion in order to learn the new job. To determine the training needs of its employees, an organization should involve as many sources as possible and then decide on the best one that can provide reliable information. We shall now discuss each of these sources.

Performance Evaluation Performance evaluation reports help in assessing the training needs at the individual levels. The current performance of an employee is an important indicator of his training requirements. Normally, those employees who perform poorly in the performance evaluation are identified for training. In addition, an organization may review productivity reports, performance scores, absenteeism records and attrition reports to assess the actual performance of the employees. This information can provide vital inputs to determine the nature, type and extent of training for each of the employees. Box 10.3 shows the role of performance management in training needs assessment.

Job Analysis Job description report and job specification report can be examined to decide the skills, abilities and knowledge required to perform the job effectively. They may form the basis for determining the training requirements of the job holders.

Attitude Survey Attitude survey is a process of gathering information from the employees about the various aspects of the organization. The information about the attitude of workers towards their work environment, their level of awareness, and their views on the relevance of the existing Box 10.3

Performance Management: A Tool for Training-Needs Assessment at ACC

An assessment of training needs is a complex task for any organization simply because it has to be made for various categories of employees—new entrants, experienced employees—both at the managerial and non-managerial levels at different points of time and on a continuous basis. The objectives of training programmes can be accomplished only when the training addresses the real problems of the employees. However, the success of the assessment depends only on the accuracy of the information collected about the employees and the reliability of the utilized sources. Usually, organizations adopt multiple sources to gather such information.

The training-assessment technique of ACC Limited is a case in point. It keeps a specific provision in the performance management system called “Competency Assessment and Training and Developmental Needs” in which performance evaluators have to identify and assess the training needs of the employees. Based on the information generated, the company focuses on the functional and skills enhancement of the employees. The emphasis in the training is on skills and general performance enhancement, communication skills and the career development of the employees. Adapted from: www.acc.co.in

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training programmes and the future training requirements can be ascertained. The findings of these surveys can form the basis for assessing the training needs.

Advisory Panel An organization may constitute panels comprising the representatives of the management and those of the employees to decide on the training needs. The panel has to assess the existing skills requirement before deciding on the number and nature of the training programmes required for a specific period. Based on its reports, the organization may take appropriate measures.

Ability Test Score An organization can give ability tests to its employees to identify their existing levels of skills and abilities. The results can then be compared with the standard skills requirements to determine the need for and extent of the training programmes.

Feedback The feedback from the customers, the employees and all others who are important to the business can help in determining the training needs. For example, customers can provide feedback about the product flaws, the performance deficit, and the employees’ behavioural problems. Similarly, the employees who quit can provide vital clues to the weaknesses of the organization in general and its training programmes in particular at the time of exit interview.

Scope of Training The reach-out of training programmes is far and wide. Depending upon the nature, duration and purpose of the training programmes, the trainees may acquire attributes like skills, knowledge, analytical acumen, concepts, attitudes, and ethical values. Let us see these attributes briefly.

Knowledge The basic purpose of any training programme is to provide the participants with the requisite knowledge to achieve the goals of the job. Knowledge is generally developed through the processes of perception, learning and reasoning. The employees may require the knowledge of the machines to be operated, of the materials or equipment to be handled, of the procedures to be adopted, of the customers, the co-employees and their behavioural patterns. For instance, when the organization finds the existing skills and knowledge of the staff inadequate to achieve the strategic goals and objectives, training is considered.7 Training imparts job-related knowledge to the participants and enables them to understand what they must do in their job and how they should do it.

Skills Acquisition Skill is defined as an ability to produce solutions in some problem domain. It is developed progressively by persistent training and other practices. Employees may require one or more

EMPLOYEE TRAINING

skills like intellectual skills, management skills, social skills, motor skills, mental skills, technical skills and perceptual skills. In general training, employees learn those skills that are necessary to do the jobs on hand effectively and to apply their knowledge productively.

Attitude Formation Attitude is the mental state of an individual concerning his beliefs, feelings, values and tendencies that influence him to behave in one way or the other. In an organization, the employees may have a positive or negative attitude towards the job, organization and people. A negative attitude may cause suspicion and mistrust in the actions of the organization and make the employees resist changes with all their might. Employee training programmes can bring about the desired changes in their attitude and instil in them a sense of cooperation, motivation, commitment and satisfaction.

Ethical Values Ethics are the principles of right and wrong that are accepted by an individual or a social group. The management of human resources often calls for decisions involving ethics, fair treatment and justice. The presence of ethics policies and codes alone is not sufficient to ensure ethical behaviour among the employees. Organizations should supplement those policies with the necessary training on ethical practices. These trainings can help employees understand the presence of ethical dilemmas in situations requiring decision making, learn the techniques of using ethical codes to settle problems involving ethical dilemmas in a fair and just manner and, lastly, ensure the adoption of ethical values in every aspect of their dealing with the people.

Analytical Reasoning Analytical reasoning refers to the systematic way of thinking to comprehend the problems, develop alternative plans of action, choose the best course of action and implement the selected plan to successfully resolve the problems. Continuous training programmes provide the necessary impetus to sharpen the analytical reasoning and problem-solving skills of employees.

Steps in an Employee Training Process Changes in the internal and external situations are inevitable and, thus, training becomes a continuous process. The general purpose of any training process is to train employees to be able to look for and respond to changes in a successful way. As illustrated in Figure 10.1, the training process usually involves six steps. These steps have been explained briefly as follows:

Determination of the Training Needs The first step in a training process is to identify the specific operational skills to be developed for performing a job. A methodical approach to identify the real needs must be undertaken. In fact, there are several sources available to an organization to assess its training needs (discussed earlier under the Section, “Assessing Training Needs”). Generally, to recognize the training needs of the employees, an analysis at one or more of the following three levels is undertaken.

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Determine the needs

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Develop the objectives

Choose the techniques

Identify the trainer

Implement the programme

Evaluate the effectiveness

Feedback Figure 10.1 Steps in the Training Process

Organization Analysis This focuses on identifying areas in the organization where training is needed. The aim is to connect the training needs to the achievement of the organizational goals. At this level, the strategic mission and vision, corporate goals and plans of the organization are examined carefully and then compared with the existing manpower inventory to determine the training needs. Operation Analysis This involves the proper examination of the work to be performed after training. It focuses on the tasks that are required to be performed to accomplish the organizational goals. It also involves the collection of information about the competencies required for effective job performance. An examination of the operating problems like customer grievances, downtime reports and quality issues along with the performance evaluation and the interview of the employees can offer information for the determination of the training needs. Individual Analysis This focuses on deciding about the individual training needs. The difference between the actual performance and the standard performance of an individual indicates the training needs. Actually, individual analysis deals with questions like who should be trained and what should be taught. It involves asking pointed questions to find out exactly what job knowledge and skills the person must have in order to perform well.8

Development of the Training Objectives Once the training goals have been established, the next step is to determine the specific objectives of the training programmes. Each training programme can have its own objectives. However, these objectives must be directly related to the assessed training needs and should also focus on satisfying those needs. In essence, training programmes must have clear and concise objectives and must be developed to achieve organizational goals.9 It is absolutely essential to have concrete and measurable goals; otherwise it would be difficult to evaluate the effectiveness of the training programmes. For instance, abstract goals stated in emotional terms like improving satisfaction and reducing anger are usually difficult to measure and, thus, render it almost impossible to measure the effect of the training programmes accurately.

Selection of the Training Techniques The next step involves decisions regarding the training techniques to be used in the programme. Based on the training needs and goals, an appropriate training method should be chosen to achieve the desired results. Though there are several techniques available to train

EMPLOYEE TRAINING

the participants, each technique is unique and there are definite differences existing among these techniques about how well each one serves the various objectives. Broadly, these techniques are classified into two categories. These are: on- the-job training methods and offthe-job training methods. On-the-job training means imparting real-time training at the work spot, even while doing the actual job. Off-the-job training means training at a place away from the work spot and in formal classrooms. (The methods of training have been discussed later in the chapter in detail.)

Identifying the Trainer Once the training method has been decided, the next important step is selecting and training the trainers for the programme. This is a critical step because the success of the whole training effort relies greatly upon the competency and ability of the trainers. The tasks of designing, organizing, implementing and pre- and post-assessment of the training process are usually entrusted only to these trainers. They must be adequately competent, knowledgeable and mature people with effective communication skills. They must also be familiar with the company’s philosophy, objectives, structure, culture and the specific purposes of the training programme.

Implementing the Training Programme Once the training methods and trainers have been decided, the next step is the actual implementation of the training programme. For successful implementation, some of the prerequisites are the convenience of location, the comfortableness of the training facilities, the quality and adequacy of the provided materials, and the timing and duration of the programme. Similarly, frequent interaction between the trainers and the trainees can also be encouraged to ensure their involvement in the training process. However, the implementation stage is often fraught with a lot of practical difficulties. For instance, training is often viewed as a process to effect change and hence viewed with mistrust and suspicion by the employees. Besides, it frequently clashes with the full-time duties of the employees and this may pose problems in determining the training schedule along with the present work requirements. Obviously, the regular work schedule might be disturbed when the employees are away from work for training purpose. Another difficulty in the execution of the training programme is keeping appropriate records. Unless proper records of the performances of the employees are kept before and after the training programme respectively, it would be difficult to determine the net gains of the employees achieved through the programme.

Evaluation of the Training Programme This is the final step in an employee training process. For an effective evaluation, it is essential to pre-assess the attributes to be emphasized in the training like the knowledge, skills and attitude of the employees ahead of the training programme. Understandably, an evaluation of these attributes after the training will facilitate a meaningful comparison to determine the effectiveness of the training programme. The absence of such facilities for comparison will make it difficult to evaluate the utility of the training programme for the trainees. Hence, it is imperative that the training efforts be documented to demonstrate that training provides a valuable service. (See the section on training evaluation.)

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Methods of Training A broad range of training methods is available to an organization to deliver training to its employees. Based on the training goals and need assessments, an appropriate method may be chosen. There are two options available to an organization while deciding on a training programme. It can either design its own programme or get an externally available package and make modifications in it to suit the purpose and requirements of its training programmes. As listed in Figure 10.2, training methods are broadly divided into two categories namely, on-the-job training and off-the-job training. We shall now discuss these training methods in detail.

On-the-job Training Methods It is a method in which employees learn their job by actually doing it. This type of training is usually practised on a day-to-day basis along with or as part of the job. The basic idea behind the adoption of this kind of training is to transfer the skills and knowledge from a highly competent and experienced employee to a new one, while sustaining the productivity of both. Almost every new employee gets on-the-job training to become skilled at his job. In many organizations, on-the-job training may be the only one available.10 The various kinds of on-the-job training have been explained as follows. Apprenticeship Training Several organizations practise this method to impart skills to their employees. It is commonly used to train people for various crafts jobs like those of an electrician, a fitter, a turner, a plumber, a carpenter, a machinist and a printer. In this method, the superior, who is usually a highly skilled employee, becomes the instructor and imparts knowledge to the trainee (called an apprentice) at the work spot. Apprenticeship programmes can last for a few months to several years, depending on the nature and complexity of the jobs. The main motivating factor for the trainees here is the awareness that they are acquiring the exact knowledge needed to perform their jobs. This is a combination of classroom instruction and on-the-job training. Job Rotation The purpose of this method is to expose employees beyond the scope of their present knowledge. The employees are moved from one job to another just to widen their skill, knowledge and experience. Job rotation training programmes are frequently applied by organizations to promote effective teamwork.11 Job rotation aids the employees in comprehending a variety of jobs and in acquiring multi-skills to manage these jobs comfortably. It also presents the organization with wide options to effect personnel changes to achieve the desired productivity and strategic goals. Organizations practise rotational programmes primarily for entry-level jobs to impart skills to the new employees that will enable them to perform multiple jobs. Internship and Assistantship Internship is concerned with gaining supervised practical experience, especially by a medical graduate. Lately, it has been gaining acceptance in business organizations as well. As a training technique, it permits the participants to combine the theory learned in the classroom with the business practices. In fact, it is a unique kind of recruitment-cum-training that calls for positioning a student in a temporary job without any obligation for the company to hire him permanently after training. Similarly, there is no obligation for the student to agree to the job offers of the company after finishing his studies.

EMPLOYEE TRAINING

Training Methods

On-the-job training

Off-the job training

Apprenticeship training

Programmed learning

Job rotation

Simulation method

Internship and assistantship

Laboratory training

Job instruction training

Case study method

Lecture method

Role playing

Video-conferencing

Figure 10.2 Assessing Training Needs

Internship is usually beneficial to both the parties. For instance, the interns help the organization do the needed tasks and, in turn, gain hands-on experience with the job and first-hand knowledge about the prevailing business practices. If the participant accepts the job offer of the company that provided internship, the company actually gets a trained person to perform the offered job. The best feature of an internship is that it lets the employers try out future employees prior to making a job offer.12 Box 10.4 shows the relevance of internship as one of the training methods.

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Industry and University Cooperation: Internship Programmes at HUL

Internship is today viewed as a recruitment-cum-training process by many organizations. The organization allows students in higher education to work for it as part of their academic requirement even while pursuing their studies. The purpose of internship is to help the students apply their theoretical knowledge in real-time work situation. This concept has gained importance in Indian industrial organizations and many of them are offering opportunities to students to do their internship programmes with them.

Box 10.5

Hindustan Unilever Limited (HUL), a popular fastmoving consumer goods (FMCG) company, has been offering internship for several of its functions like marketing, finance, supply chain management, systems and HR for several years. In HUL’s professional internship programme, the interns normally work as part of a small cross-functional team, on a demanding live business project and in an actual business environment. Adapted from: http://www.hul.co.in/careers/campus_ recruits_ypip.asp.

Training at Bajaj Electricals

Many organizations consider their employees as an enduring competitive advantage in a highly competitive environment. This is because every other asset available to the organization can be replaced. For instance, products, brands, services, assets and even infrastructure can be replicated but not human resources. Thus, organizations endeavour to develop a capable and competent workforce. Through continued training activities, the competencies, skills, knowledge and capabilities of the employees can be sharpened and focused.

It is pertinent to see the case of Bajaj Electricals that has an effective HR policy. The company has a welldefined, job-specific induction programme for its new employees which is administered jointly by the HR head and the concerned department. It provides tailor-made training programmes for various functions like sales and customer relationship. In addition, it provides behavioural training programme to the existing employees on inter-personal relations, team building, personal effectiveness, and goal setting, to name a few. Adapted from: www.bajajelectricals.com/t-trd.aspx.

Job Instruction Training The step-wise process of imparting training to the employee is called job instruction training. In fact, the execution of any job involves a step-by-step performance of the various tasks of that job. Obviously, these jobs can be taught effectively in a step-by-step manner. Under this method, all the necessary steps in the job, together with brief write-ups about each step, are compiled sequentially. Each step would have a corresponding self-explanatory note. Each note would explain what needs to be done in that step, why it has to be done and how it has to be done. In this way, the job instruction training sheet for each job can be prepared and provided to the trainees. This method will enable the trainee to learn the job practically with the minimum guidance of the trainer. Box 10.5 outlines the essence of a job induction training programme.

Off-the-job Training Methods It is a method in which workers are imparted training at a place away from their usual workplace. This place could be a classroom or training centre. The purpose of off-the-job training methods is to minimize the distractions to the trainees. These methods are ideal for teaching the theoretical aspects of the jobs. Off-the-job training methods become critical when on-the-job training involves potential risk to the trainees and others. The following training methods are broadly regarded as instances of off-the-job training methods.

EMPLOYEE TRAINING

Programmed Learning This method is also known as scheduled learning or programmed instruction method. Under this method, the trainees are made to reply to the job-oriented questions, problems, concepts, cases and facts as part of learning job skills. As soon as this process is over, the trainees are provided with feedback that details the accuracy of their answers. The learning may be a conventional one, with textbooks, paper and pencil as tools of learning. It can also be a computer-enabled one, with the use of computer terminals, video discs, light pen, touch screens, mainframe, mini and micro computers.13 The basic purpose of this method is to give sufficient information to the learners and then test the trainees’ authority over the subject matter. The trainees’ progress towards the subsequent steps depends upon the quality of their response to the questions of the previous step. The essence of this method is that it emphasizes frequent questions, small steps, and specific, understandable, immediate and accurate feedback.14 The major benefits of this technique are: (i) It can shorten the training time. (ii) It allows the trainees to learn the subject matter at their own speed as they learn individually. (iii) The use of computers facilitates the storing and presentation of an extensive variety of learning situations to the trainees. The major argument against this method is that although this method reduces the duration of the training process, there is no conclusive evidence available to show that it enhances learning and retention rates among the trainees as compared to other methods. Simulation Method This method is employed when it is impossible or risky to provide the trainees on-the-job training. Simulation is a technique that creates a situation which, as nearly as possible, replicates the real one. In fact, it refers to any equipment that attempts to provide a realistic decision-making environment for the trainees.15 In this method, the trainee gets trained either on the actual or on the simulated equipment that are employed in the job but only in an off-the-job mode. The trainers review the performance, prepare the reports and make them available to the trainees. The examples of simulation training are flight simulators used to train the pilots, simulated sales counters and automobiles. Computers are used extensively in the simulation technique, especially in sophisticated business simulations. In recent times, Internet-based instruments like learning portals and computer-based training have emerged as popular modes of training. The merits of this method are: (i) The safety of the trainees is ensured as the dangers of on-the-job training are not there. (ii) The cost of training is reduced as only simulated environment and equipment are used. (iii) Learning effectiveness improves as repeat performances are possible without any disturbance to routine business activities. (iv) It is possible to create unusual or potentially dangerous and rare situations that are critical to the process of training and help prepare the trainees. Laboratory Training This method is also called sensitivity training or T-group training. This training is typically organized for a small group of trainees who are normally not familiar with one another. It is organized under the supervision of seasoned trainers, who may play the role of careful observers, in a neutral venue away from the place of work. Sessions are organized to let trainees meet personally to share their feelings, opinions, attitude, perceptions and values. The merits of this training are manifold. (i) It facilitates a better understanding among the members by breaking the rigidity in their relationships. (ii) It can improve the behaviour of the members by knowing more about themselves and others. (iii) It increases the trainees’ capability to resolve the conflicting situations by developing alternatives and problemsolving techniques instead of manipulation, intimidation and compromise.16 The limitation of

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this method is the absence of continuance of trained behaviour in the actual work conditions in many cases. This affects the endurance of the benefits of the training programme. Case Study Method In this method, trainees are provided the necessary information in a case study format and they are expected to come up with decisions based on their understanding of the given cases. In fact, each case study presents elaborate information about a specific series of real or imaginary incidents. The case studies may deal with the activities of an organization or with the specific problems faced by it during the course of its operation or during the interactions among its members. The trainees should evaluate the cases carefully, understand the problems objectively, identify the causes appropriately, develop possible solutions optimally, and choose and implement the best solution finally. The merits of this method are: (i) It can improve the analytical, lateral and judgemental skills of the trainees. (ii) Since case studies mostly deal with real-life events, it enables the trainees to face the challenges of real-life difficulties confidently. Lecture Method This method is also called the chalk-and-talk method. It is a traditional method of imparting knowledge to a large number of trainees at the same time. It is a verbal form of delivering information in a classroom environment. This method is appropriate when a large amount of information is to be provided within a limited span of time. A knowledgeable trainer can make the whole process effective by planning and preparing meticulously and delivering the lectures in a systematic and exciting manner. When the trainer is competent enough to capture the imagination of the class, he can excite the trainees who desire to learn. The merits of this method are: (i) It is an easy, simple and quick method to share information with a large chunk of trainees. (ii) It is usually an economical method as the cost of training is distributed among several trainees, thereby reducing the cost per trainee. However, this method also suffers from a few limitations: (i) It is predominantly a one-way mode of communication with little scope for interactions. (ii) Personalized and individualspecific flexible training is missing. (iii) It may not be ideal for highly technical and skill-oriented jobs. (iv) Problems like the trainers’ fatigue, the non-availability of experienced trainers, and the dissimilarity in the performances of the trainers can impact the quality and continuity of the programmes. In spite of all these criticisms, the lecture method remains the most commonly used technique in many organizations.17 Although there is no conclusive evidence to decide about the effectiveness of the lecture method, studies have shown that lectures can really be effective, even though some perceive them as boring and ineffective.18 Role-playing Role-playing refers to acting out a particular role. This method is simply the learning-by-doing technique. The trainee, instead of merely listening to the trainer’s instructions regarding the ways and means of solving a problematic situation or discussing them, responds to that particular problem by acting out real-life situations. Typically, a trainee assumes the role of a specific personality relevant to the given situation and responds to the problems of that situation in that role. The role may be that of a superior or a subordinate or any other. The merit of this method is that (i) it is often used to impart the skills necessary for conducting interviews, handling grievances, performance evaluation and disciplinary proceedings. (ii) It helps enhance the interpersonal relations, problem-solving ability, motivational skills and leadership techniques of the trainees. (iii) It can vastly improve the empathetic quality of the employees. Along with films and case studies, role-playing is among the more commonly used techniques for both technical and management development.19

EMPLOYEE TRAINING

Video-conferencing This is one of the distance learning methods for training. It is best suited when the trainer and the trainees are separated geographically. It allows people in one location to communicate live via audio-visual aids with people in another city, country, or with groups in several cities.20 It is mostly interactive in nature and offers enough flexibility. The merits of this method are: (i) It can bring down the cost of delivering training programmes as it cuts the cost of travelling of the trainers, especially from distant locations, and also as simultaneous training of many employees can be conducted. (ii) It facilitates the standardization of training materials and methods and improves accessibility to quality training. The limitation of this method is the high initial cost of installing the necessary equipment.

Audio-visual Aids in Training Audio-visual aids such as television, audiotapes, videotapes, films, video-conferencing and presentations are effectively and extensively used in training to enhance the efficacy of the training process. These techniques make a wide variety of realistic illustrations of job conditions and situations available to the trainees within a short span of time. For instance, the Ford Company extensively uses audio-visual techniques while conducting dealer training sessions to simulate problems like customer complaints and sample reactions to such problems.21 The merits of technology-based training are: (i) It is more interesting and appealing to the trainees than the conventional training methods because of its multimedia effects. (ii) The quality and substance of the presentation will remain the same for all training groups. (iii) Such training is free from the problems of trainer fatigue or availability. (iv) The preparation of the subject matter and materials is usually a one-time affair. The limitations of this method are: (i) Audio-visuals are usually more costly than the traditional training methods. (ii) It may cause problems of one-way communication, monologue and listener boredom. (iii) It lacks the flexibility and personal relationship normally found in the training process.

Evaluation of a Training Programme Evaluation is the last stage in the process of a training programme. It is an integrated part of training. Evaluation implies the comparison of training objectives with the learning outcomes of the trainees to determine the extent of the accomplishment of goals. It is necessary for any organization to assess the learning outcome of the training programme systematically. A provision must exist in the training process to evaluate its efficacy systematically. This is because the training process involves significant cost commitment on the part of the organization and requires financial evaluation in cost–benefit terms. Besides, training, being a continuous process, requires regular interventions for improvements and changes in order to achieve better efficiency. Finally, evaluation ensures better control over the whole process since it enables the organization to decide whether to continue the training programme in the future. The main purposes of the evaluation of training are listed as: (i) deciding if a programme should be continued, (ii) deciding if a programme should be modified, and (iii) determining the value of training.22 The evaluation process is explained as “any attempt to obtain information (feedback) on the effects of a training programme and to assess the value of the training in the light of that information”.23 A proper evaluation requires sufficient information to assess the trainees’ performance and progress in the course of training accurately. In the first stage, an organization should decide how it should gather the necessary information. It is also called designing of the evaluation process. Box 10.6 illustrates an example of training evaluation techniques in a company.

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Evaluating Training: The Tata Business Support Services Model

The major concern of the HR managers today is to evolve tools to measure the human resource functions, including training. Of course, it is essential for managers to evaluate the effectiveness of training to justify the cost and utility of the training programmes. However, the basic questions that arise at the time of training evaluation are: What is to be measured? How is it to be measured? And when is it to be measured? Each company may address these questions in its own way.

As far as Tata Business Support Services is concerned, it adopts Jim Kirkpatrick’s framework for the evaluation of its training programmes. It evaluates training efficiency by analysing trainee feedback, and evaluating performance scores, productivity levels, quality scores and actual knowledge and skills gained at the time of mock calls or through on-the-job training. Adapted from: www.tata-bss.com/people2.htm.

Design of Evaluation Studies As far as the designing of evaluation study is concerned, an organization has two alternative designs. These are time series design and pre-test–post-test design. Both methods are explained briefly.

Time Series Design In this design, the process of evaluation starts even before the beginning of the actual training programme. It involves a series of measures before and after the training programme. This process necessitates the conduct of pre-test and post-test of the skill and behaviour of the trainees to collect comparable information. Under this design, predetermined criteria of training like the skills and knowledge of the trainees are assessed before the training programme. After the training, the same criteria are assessed once again to evaluate the trainees’ skills acquisition during the training. This comparison can provide an initial reading of the effectiveness of the training programme.24 The limitation of this design is that the influence of other events or changes occurring during the same time as that of training, on the performance of the trainees can not be ruled out.

Pre-test–post-test Control Group Design This method is an extension of the previous one. In this method, the inter-period (before and after training) and the inter-group (between the experimental group and the control group not subjected to any training programme during the same period) comparisons of performance are done to assess the effectiveness of the training programme. The purpose of the inter-group comparison is to eliminate the possibility of the influence of some other events that occur at the same time as the training. This method assesses the pre- and post-training performance of not only the experimental group (that receives the training) but also the control group (that does not) for the same period, that is, exactly after the corresponding work periods. This design makes it possible to determine the extent to which any change in the performance of the experimental group resulted from the training rather than from some organization-wide change like a pay hike that would have affected employees in both groups equally.25 An organization has to choose between any one of the designs to gather information about the performance of the trainees. However, the time series design is a more practical one to evaluate effect of the training programme.

EMPLOYEE TRAINING

Effects to be Measured in Evaluation In evaluating training programmes, an acclaimed model for evaluation has been suggested by Jim Kirkpatrick. There are four levels in this model and these levels have been explained as follows.

Participants’ Impressions At the first level, the training programme is evaluated by seeking the participants’ opinion about it. The opinion may be in the form of the trainee’s response to the various aspects of the training or of suggestion for improvements. This is the easiest and quickest way to evaluate the training efficacy with the least expense. However, there is a possibility of bias in the response of the trainees as they may be influenced by some other factors like the extent of freedom, the location and the timing.

Learning Level At this level, tests are conducted for trainees to decide what they learned from the programme. The tests should measure the extent of knowledge, skills and concepts acquired by the trainees during the programme. Organizations may use time series design or the pre-test–post-test control group design as an evaluation procedure.

Behavioural Improvements In the next level, training is assessed by finding out whether the training has made any impact on the trainees’ on-the-job behaviour. It evaluates the extent of transfer of the newly acquired skills and knowledge to the job. The best expression of value of training occurs when the learning translates into lasting behavioural change.26 For example, a manager attending a training programme may appreciate the concept of participatory decision making, but after returning to the job, he may continue with unilateral decision-making practice. Performance appraisal techniques like the 360-degree feedback method are appropriate for measuring behavioural changes after training.

Accomplishment of Training and Development Objectives In the final phase, training programmes are evaluated to determine the extent to which they have accomplished the specific training objectives and also to know the cost-related behavioural outcomes and their final impact on the performance. This phase also involves ascertaining the final results achieved in terms of training goals. For example, when the industrial safety of the employees becomes the objective of a training programme, the number of industrial accidents before and after training would indicate the extent of accomplishment of the training objectives.

Issues in Training Although training is an effective tool to create a superior workforce, there are several challenges which impair the quality and outcome of the training programmes. These challenges have been listed as follows: • The absence of corporate commitment towards training is a major problem. Many organizations do not spend anything at all on training. Even if they do, it is mostly for the managerial personnel only and there is hardly any concern for the training requirements of the workers.

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• Many organizations, especially smaller business concerns, avoid training to upgrade the skills of the employees out of the fear that these trained employees will be lured by the competitors with promises of better pay jobs and scales. • The cost and infrastructure requirements of training make it unaffordable for the small and medium-sized organizations to offer training programmes to their employees. • Accounting rules generally treat training as expenses only and not as an investment. This also acts as a disincentive to the training efforts of the organizations. • At the macro level, lack of adequate financial support from the government for undertaking the training and retraining of those workers who are ousted by downsizing, restructuring and other economic necessities also prevents the optimum utilization of training benefits. • The low availability of employable graduates with adequate skills also strains the training efforts of the organizations as they have to undertake training even to teach basic skills. • Lack of university and industry cooperation on a sustained basis creates a gap in the communication and exchange of mutual requirements. While the educational institutions remain indifferent to the needs of industry, the organizations do not communicate their labour and skill requirements properly to the academic institutions.

Conditions Necessary for an Effective Training Programme There are several critical factors which positively influence the success of the outcome of the training programmes. These factors are explained briefly in this section.

Top-management Support The training efforts require the support and understanding of the highest level of the management. Indeed, the top management must be committed to training and development.27 It should treat training as an important segment of the corporate culture. It must commit itself to investing the necessary resources and time for the training programmes.

Receptive Mindset of Trainees It is necessary for the organization to nurture a positive mindset among its trainees for its training programmes. Without an open and receptive mindset, it would be difficult for the trainees to learn the new ideas, skills and knowledge quickly and efficiently. To achieve the training goals completely, the organization must develop a confident and self-motivated mindset, an analytical mindset, an open, proactive and flexible mindset, and also a mindset for continual improvement among its employees.

Adoption of a Continuous Process Organizations should adopt a comprehensive, continuous and systematic approach to meet the training needs of their employees. It is essential to develop training strategies that support

EMPLOYEE TRAINING

the accomplishment of corporate strategies and goals on a sustained basis. Organizations should evolve a system to analyse and identify organizational and occupational training needs. An ad hoc approach to the training process may not enhance training effectiveness. Thus, in every organization, training and retraining must be done at all levels on a continuous, ongoing basis.28

Technological Advances Technology has a decisive influence on the planning, execution and delivery of training programmes. The mass entry of computer and the Internet has dramatically changed the way business functions are conducted today. These developments have necessitated changes in the training process too. Obviously, the advent of e-training and e-learning has re-shaped the way knowledge is delivered to trainees today.

Form and Timing of Training An ideal time to learn is the time when the training is helpful to the employees. Increased global competition and technological advancements have forced the organizations to carry out the training programmes on a timely basis. The type of training is normally based on the assessment of training needs and the identification of training objectives. Organizations should constantly scan the external environment to look for opportunities and threats in order to decide the type and timing of training.

E-learning—An Overview E-learning is generally related to the planned use of networked information and communications technology in learning. It is known by several names such as online learning, virtual learning, network Web-based learning and distributed learning. It is also called just-in-time training as training is provided anytime, anywhere in the world when it is needed.29 E-learning is commonly referred to the intentional use of networked information and communications technology in teaching and learning.30 It means the using of electronic applications and processes to learn. Its applications and processes include Web-based learning, computer-based learning, virtual classrooms and digital collaboration. E-learning content is delivered via the Internet, intranet/extranet, audio or video tape, satellite TV, and CD-ROM.31 A high-speed internet connection is an essential prerequisite for widespread e-learning. E-learning is one of the successful training programme delivery systems. Since it is an Internet-based learning programme with online instruction, trainees in the e-learning mode are not constrained by the problems of space and distance. The features of animation and multimedia can make the demonstrations vibrant and attractive. Virtual reality is a distinct feature of e-learning that allows the trainees to see the objects from a perspective otherwise impossible or impracticable. Most of the e-learning is self-paced. It is the fastest growing medium of training as the workforce becomes more educated and versatile. In fact, the global market for e-learning must have reached U.S. $21 billion by 2008, according to a survey by International Data Group Inc.32 Although e-learning is not only inexpensive but also convenient, it remains only as a supplement for classroom lectures and demonstration in training programmes in India. Box 10.7 depicts the role of e-learning as a training delivery technique.

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E-learning: A Training Technique at the Aditya Birla Group

Though the adoption of e-learning as a training tool is less in India as compared to the international trend, many organizations have begun to realize the versatility of e-learning as an important training technique to impart knowledge and skills to their employees. In fact, it enables the trainees to choose the most convenient time and place to learn the relevant skills. The effectiveness of e-learning can also be increased substantially by making use of graphics, animation and interactive videos. E-learning, as an online instruction method, is a handy tool to train the educated and

empowered employees of today. A growing number of companies in India are extensively using Web-based learning kits to help their employees get trained in a self-paced and individualized fashion. The well-known Aditya Birla Group is a case in point. It has been employing the e-learning techniques effectively to prepare its employees for better performance and higher assignments. In addition to e-learning, it has adopted on-the-job training and structured classroom training to train its employees. Adapted from: http://www.adityabirla.com.

Types of E-learning E-learning is not a stand-alone term. There are several related terms which are broadly referred to as e-learning. A brief description of these terms is given here.33 Online Learning Online learning refers to the learning and other supportive resources that are available through a computer. Web-based Training Web-based training is a training based on the learning resources available on the intranet, extranet or Internet. Technology-based Training Technology-based training refers to any form of training based on technologies like computer, television, audio tape and print, i.e., training other than that given in conventional classrooms. Computer-based Training Computer-based training means presenting courses on a computer. In this case, the computer is not linked to any network or to learning resources outside the course. Further, depending upon the requirements and goals of the training programme, an organization can choose a style of e-learning appropriate for the situation. Som Naidu has identified four styles of e-learning.34 These are as follows: • Individualized self-paced e-learning online, where the learner gets access to the learning resources online via an intranet or the Internet. • Individualized self-paced e-learning offline, where the learner is not connected to intranet or Internet but depends on a computer-assisted learning package like CD or DVD, while working offline. • Group-based synchronous e-learning, where a team of learners works online in real time, using an intranet or the Internet through video-conferencing or real-time chat. • Group-based asynchronous e-learning, where a team of learners works through an intranet or the Internet but not in real time, as information exchanges happen with a time delay like in the case of e-mailing or text-based conferencing.

EMPLOYEE TRAINING

Merits of E-learning Although the organizations realize very well the need for continuous training to keep the employees well-informed and multi-skilled, they are often constrained by the nonavailability of trainers, the absence of infrastructure, production schedule disturbances, the distance barriers between the trainer and the trainees, the cost of training, the inability to mobilize the adequate number of employees at the time for training, and so on. In this regard, e-learning comes in handy. It enables the employees to widen their knowledge and skills and also ensures learning on demand. The main advantages of e-learning are as follows: Substitute for Instructor-based Learning E-learning, as a learner-based training, effectively replaces instructor-based learning as it can be changed according to the learner’s job requirements, career goals, existing knowledge and individual preferences. Flexibility of Time and Place It ensures the flexibility of time and place of study as access to information and resources are as per the suitability and convenience of the individual learners instead of those of the instructor and the organization. Storage of Information With the help of information technology, it ensures storage of information in the form of print-outs, recordings in CD/DVD, and so on. This enables the learner to choose the learning environment and time. Application of Multimedia Tools E-learning systems can make use of multimedia to improve learning with audio, animation, graphics, and interactive video. Simulated Real-Time Experience E-learning is based mostly on the concept of learning by doing and, as such, provides a simulated real-time experience. It introduces a creative style of simulating the learning experience with content and ideas provided in the e-learning material. Personalized Learning Practices E-learning ensures personalized learning practices. It becomes the responsibility of the employees to plan and implement their career goals. E-learning also leads to enhanced employee empowerment and confidence. It is a costeffective method as the organization will save the cost on the trainer’s travelling and on expensive arrangements for trainings. In fact, creating an e-learning module is three times less expensive than to create an instructor-led class.35 Absence of Notional Cost Organizations can also save on the “opportunity cost” of the time spent on training since the training can happen after office hours or on holidays. In other words, the notional cost of production disturbance due to workers’ participation in the training programmes during working hours will be almost zero. Better Measurement of Effectiveness Compared with the traditional training methods, it is easy to measure the results of Web-based e-learning effectively in terms of knowledge gain and behavioural changes and performance improvement. Learning on Demand E-learning stresses sustained learning and supports “justin-time training” and “just enough” learning, an advantage for active managers and professionals.

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Limitations of E-learning Even though e-learning has several strengths, it has a few significant limitations. These are: • The complexities of technology make e-learning difficult for unskilled workers. • E-learning is used more as a supplement for conventional instructor-led training than as its substitute. • The application of training is somewhat limited as it may not be suitable for regionspecific efforts like implementing cultural changes and attitudinal changes. • There are no adequate research findings available on the learning effectiveness of e-learning as compared to that of traditional training methods. • The introduction of e-learning entails an initial investment and an upfront cost, which may be high.

Summary 1.

Training may be termed as the process by which an employee acquires the necessary knowledge and skills to perform the job.

2.

Training is significant as it helps the organization in the form of enlargement of skills and competency, effective utilization of existing human resources, enhancement of customer satisfaction, enhancement of competitive advantage, enrichment of team spirit, ensuring personal growth, enabling a learning culture, establishing a positive organizational climate, encouraging better health and safety measures, and enduring organizational growth and development.

3.

The sources of assessing the training needs are performance evaluation, job analysis, attitude survey, advisory panel, ability test score, and feedback.

4. The steps in a training process are the determination of training needs, the determination of training objectives, the selection of training techniques, identifying the trainer, implementing training programmes, and evaluation of the training programme. 5. The methods of training are broadly classified into on-the-job training and off-the-job training. On-the-job training methods include apprenticeship training, job rotation, internship and assistantship, and job instruction training.

6. Off-the-job training methods include programmed learning, simulation method, laboratory training, case study method, lecture method, role-playing and video-conferencing. 7.

The challenges in training at the micro level are: the absence of corporate commitment, the risk of poaching, the unaffordable cost of training, and the treatment of training as expenses by the accounting rules; those at the macro level are: lack of adequate support from the government, the absence of candidates with adequate skills, and lack of cooperation between the university and the industry in research programmes.

8. The conditions necessary for an effective training programme are: top-management support, a continuous process, technological advances, and the form and timing of training. 9.

E-learning means the using of electronic applications and processes to learn the relevant skills. The elements of e-learning are online learning, Webbased training, technology-based training and computer-based training.

10. The merits of e-learning are: a substitute for instructorbased learning, the flexibility of time and place, storage of information, application of multimedia tools, a simulated real-time experience, personalized learning practices, the absence of notional cost, a better measurement of effectiveness, and learning on demand.

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Review Questions Essay-type questions 1.

Evaluate critically the different steps involved in an employee training process.

8. “Training programmes are effective means to prevent workforce obsolescence.” Discuss. 9.

2. Discuss in detail the on-the-job training methods with relevant examples.

If you were to be engaged as a consultant to advise an organization dealing in the production and marketing of durable goods, what steps would you adopt to prepare a training package and why?

3.

Enumerate the off-the-job training methods with suitable illustrations.

10. Examine the importance and methods of training in a multinational corporation.

4.

Identify and explain the training methods suitable for

11. “Training is not an expense but a long-term investment on people.” Discuss.

(a) IT companies

12. Why is training important for improving employee motivation and organizational efficiency?

(b) pharmaceutical companies 5.

Explain the meaning, designs and levels of evaluation of training in an organization.

6.

What are the challenges that affect the quality and outcome of training? How will you improve the effectiveness of training programmes?

7.

Explain critically the merits and limitations of e-learning as a training programme.

13. Develop a broad framework of a training package for the sales personnel of an FMCG company. 14.

Explain the various metrics for evaluating a training programme.

15.

Illustrate with examples how you would go about identifying training needs.

16. Describe how you will use any five training methods.

Skill-development Exercise Objective – The objective of this exercise is to give you practice in developing a training package for a specific situation like the prevalence of high accident rates, and high reject rates. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager (overall in charge for the training), (2) a trainer (responsible for conducting the training programme), (3) a line manager (reporting about the problem), (4) two officers in the training department, and (5) an observer. The last role is important for the analysis and feedback aspects of the role-playing session. Situation A large cement company has its corporate office in a metro and plants in several parts of the country. The company has an aggregate workforce of 8,250 workers. In recent times, it has been experiencing problems in quality aspects as one of its plants reported unusually higher reject rates in the production process due to the poor quality of the products. The report from the line manager of the concerned plant made no reference to faulty machines

or a flawed process. However, it made a mention about the deficit in the technical skills and knowledge of the workers involved in the production process. It also cited this as the most probable cause of the poor quality of the products and the resultant high reject rates. Steps in the exercise Step 1: The HR manager and the training department officials review the report of the line mangers along with the performance evaluation report of the workers concerned and plan to conduct an interview with the line manager. Step 2: The HR manager along with the trainer conducts an interview with the line manager to determine the nature and type of training. Step 3: The HR manager, the trainer and the training department officials go through the various reports and develop a requisite training package for the workers. Step 4: The observer analyses the whole process involving the training package development and gives his feedback.

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Case Study Effectiveness of Well-timed Training in Fostering Employee Competency

employees’ handling this machine and the reject rates situation started to improve.

Modern Textiles is in the business of producing garments and has an average annual turnover of Rs 3 billion. Since a large volume of its products is exported, the company has been very conscious of its quality commitment. It provides induction training to every new employee for two weeks and then on-the-job training by a supervisor for four months. This had been proving sufficient for the workers in meeting the clients’ quality expectations even while maintaining the high volume of production.

Meanwhile, the production manager found the HR department at fault for the crisis and blamed it for not undertaking training-needs assessment among the production department employees. However, the HR department retorted by saying that barely three months before the arrival of the new machine, a routine trainingneeds assessment had been made among those employees but it had revealed no pressing training requirements. On their part, the HR personnel held the production manager responsible for failing to inform them about the imminent arrival of the new machine at the time of the assessment of the training necessities. The blame game continued.

As part of its ambitious expansion programme, the company recently imported ultramodern machinery to double its production capacity. After the machinery was installed, the production volumes increased as expected, but the reject rates too rose dramatically. Consequently, the cost of production increased and the export deadlines too became very tight. The management discussed the issue at the different levels of the organization and held the machine operators’ inadequate knowledge and improper handling of the new machines as the primary reason for the unusual rejects. To remedy the situation, the HR department hurriedly organized the necessary training programmes for the

Questions for discussion 1. From your perception, who is responsible for the whole incident resulting in high reject rates and the other associated problems? 2. If you were the HR manager, what would you do to avert this crisis? 3.

What should be the long-term strategy of this company in terms of the training policy and process?

7.

Christine Ellis and Sarah Gale, “A Seat at the Table”, Training, March 2001, pp. 90–96.

Notes 1.

Terry L. Leap and Michael D. Crino, Personnel/ Human Resource Management (New York: Macmillan, 1990), p. 277.

2.

Edwin B. Flippo, Personnel Management (New York: McGraw–Hill, 1984), p. 200.

3.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 543.

8. Holly Ann Suzik, “Built from Scratch,” Quality, 38 (October 1999): 32–34. 9. “Why a Business Approach to Training Is Best,” HR Focus, 82 (July 2005): 5. 10.

Kenneth N. Wexley and Gary P. Latham, Developing and Training Human Resources in Organizations (Upper Saddle River, NJ: Prentice Hall, 2002), pp. 78–79.

11.

Julia Vowler, “Away Days Promote Team Working,” Computer Weekly (5 May 2005): 28.

4. Michael J. Jucius, Personnel Management (Homewood, IL: Richard D. Irwin, 1980), p. 250. 5.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 270.

6. “What to Do Now That Training Is Becoming a Major Force,” HR Focus, 82 (February 2005): 5–6.

12. “Plan for the Most Effective Internship Programs,” HR Focus, 82 (September 2005): 7–11.

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13. David Hon, “The Videodisc Microcomputer and the Satellite,” Training and Development Journal (December 1980): 28–34.

24. Kenneth N. Wexley and Gary P. Latham, Developing and Training Human Resources in Organizations (Upper Saddle River, NJ: Prentice Hall, 2002), p. 153.

14. James Hassett and Sheree Dukes Conrad, “The New Employee Trainer: A Floppy Disk,” Psychology Today (September 1986): 33.

25.

Charles C. Morrow, M. Quintin Jarrett and Melvin T. Rupinski, “An Investigation of the Effect and Economic Utility of Corporate-wide Training,” Personnel Psychology, 50 (1997), pp. 91–119.

26.

Jim Kirkpatrick, “Transferring Learning to Behavior,” Fundamentals T+D, 59 (April 2005): 19–20.

15.

Terry L. Leap and Michael D. Crino, Personnel/ Human Resource Management (New York: Macmillan, 1990), p. 298.

16. E. H. Schein and W. G. Bennis, Personal and Organizational Changes Through Group Methods: The Laboratory Approach (New York: Wiley, 1965) referred by Edgar F. Huse, Organization Development and Change, 2nd ed. (New York: West Publishing, 1980), p. 367. 17.

Terry L. Leap and Michael D. Crino, Personnel/ Human Resource Management (New York: Macmillan, 1990), p. 300.

18. Winfred Arthur Jr, Winston Bennett Jr, Pamela Edens and Suzanne Bell, “Effectiveness of Training in Organizations: A Meta-Analysis of Design and Evaluation Features,” Journal of Applied Psychology, 88, no. 2 (2003): 234–245. 19.

20.

21. 22.

Terry L. Leap and Michael D. Crino, Personnel/ Human Resource Management (New York: Macmillan, 1990), p. 300. Craig Marion, “What Is the EPSS Movement and What Does It Mean to Information Designers?”, http:/www.chesco.com/emarion/ped/epssimliation.html. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 280. Jim Kirkpatrick, “Transferring Learning to Behavior,” Fundamentals T+D, 59 (April 2005): 19–20.

23. A. C. Hamblin, Evaluation and Control of Training (Maidenhead: McGraw–Hill, 1974) referred by Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), pp. 570.

27. R. Rodgers, J. E. Hunter and D. L. Rogers, “Influence of Top Management Commitment on Management Programme Success,” Journal of Applied Psychology, 78 (1993): 151–155. 28. Report to Respondents: Survey of Views Toward Corporate Education and Training Practices (New York: Sirota, Alper and Pfau, 1989). 29. David James Clarke IV, “The Nexus of Learning: The Intersection of Formal and Informal Education,” Chief Learning Officer, 5 (February 2006): 22–25. 30. Som Naidu, E-Learning: A Guidebook of Principles, Procedures and Practices, 2nd rev. ed. (New Delhi: Commonwealth Educational Media Center for Asia (CEMCA), 2006), pp. 1–3. 31. “Learnframe: e-Learning Management System,” http://www. learnframe.com. 32. Michael A. Tucker, “E-Learning Evolves,” HR Magazine, 50 (October 2005): 74–78. 33.

E-Learning: A Research Note; www.namahn.com/ resources/documents/note-e-learning.pdf.

34. Som Naidu, E-Learning: A Guidebook of Principles, Procedures and Practices, 2nd rev. ed. (New Delhi: Commonwealth Educational Media Center for Asia (CEMCA), 2006), pp. 2–5. 35.

Doug Bartholomew, “Taking the E-Train,” Industry Week, 254 (June 2005): 34–37.

CHAPTER

11

Management Development

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the significance of management development 2 List the steps in a management development process 3 Explain the methods of management development 4 Evaluate the needs and benefits of management development 5 Discuss the role of management succession planning

Wipro Technologies is an India-based IT multinational company that provides IT solutions and services to several renowned global clients. It has the rare distinction of being the first levelfive-PCMM (People Capability Maturity Model) and SEI CMM (Software Engineering Institute’s Capability Maturity Model) level-five–certified IT services organization in the world. Wipro’s HR philosophy revolves around three core doctrines, namely, “intensity to win”, “act with sensitivity”, and “unyielding integrity”. In fact, this company has won several awards for its HR practices. For instance, it has won the prestigious The Midday and DAKS Awards for HR Excellence for its HR practices in technological recruitment and staffing practices. Similarly, it became the first Indian company to win the prestigious Dale Carnegie Global Leadership Award for 2007. Wipro has several unique leadership development practices. It has a unique leadership lifecycle programme for developing the competencies of different categories of managers. It offers the

entry-level programme (ELP) for junior managers, the new leaders’ programme (NLP) for employees in the HR field with managerial potential, the Wipro leaders’ programme (WLP) meant primarily for middle-level managers, the business leaders’ programme (BLP) meant for senior managers with overall business responsibility, and the strategic leaders’ programme (SLP) for top-level managers. As a first step in the leadership development process, Wipro undertakes a 360-degree survey for recognizing and enhancing the leadership competencies of its managers. Based on this survey, a personal development plan (PDP) is prepared for each manager. Then, these managers are brought under the appropriate development programme in the leadership life cycle. The Wipro leadership initiative vividly illustrates the relevance of the innovative management development programmes for the success of an organization. In this context, we shall now discuss the different dimensions of management development programmes in organizations.

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Introduction The future of an organization rests firmly on the competencies and dynamism of its managerial people. The managerial job often involves decision making that calls for knowledge of the latest developments in the related fields and excellent analytical skills. Managers cannot afford to adopt a trial-and-error approach while making their choices in decision-making. This is because their decisions may have a profound influence on the survival and growth of the organization. Thus, the sustained development of the capabilities of the managers is essential for implementing the present and future strategies of the business. In this regard, management development programmes can help organizations develop the knowledge, skills and abilities (KSA) of their managers so that they become better equipped for the existing and future managerial positions. As such, management development is a process of upgrading the competencies of the managers through relevant learning experiences. However, management development is a long-term development process as compared to workers’ training. It focuses more on developing the general capabilities of the existing and future managers than on solving their small but recurring skill deficits in performance. An organization can undertake a management development programme for various purposes like enhancing the managers’ job performance, executing management succession plans, and offering opportunities for the individuals’ career planning and progress. Management development programmes may take the forms of university courses and degrees and job rotations, especially for the lower managerial ranks.1 They may also involve attending workshops or seminars by managers on domains like strategic management, motivation, time management, stress reduction strategies, problem-solving abilities, management theories, leadership styles and human relations.2 The end result of any management development programme is the enrichment of the competencies of the managers for successfully accomplishing the objectives of the organization and the individual. The definitions in Box 11.1 highlight these facts. We may define management development as a long-term process by which the managers’ conceptual knowledge and competencies are developed to make them more suitable for the present and future responsibilities.

Box 11.1

Definitions

“Management development is all those activities and programmes which, when recognized and controlled, have substantial influence in changing the capacity of the individual to perform his assignment better and in doing so are likely to increase his potential for future management assignments.”3 —National Industrial Conference Board “Management development is any attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills.”4 —Gary Dessler

“Management development simply means training reserved for those who currently are, or who are about to become, managers.”5 —Terry L. Leap et al. “Management development is the process by which managers acquire not only skills and competency in their present jobs but also capabilities for future managerial tasks of increasing difficulty and scope.”6 —Edwin B. Flippo

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Significance of Management Development Managers often operate in an uncertain environment as managerial positions involve taking decisions for an uncertain future. When the decisions fail, the manager has to bear the responsibility for such a failure and it may even result in losing one’s position. Globalization of business operations, technological developments, and intensified competition have further increased the risk factors for the managers. Thus, there is a growing need for all-round development of the managerial personnel. In fact, an organization requires management development programmes for the following purposes: • to make certain that every level of management is aware of the latest and best managerial practices, measurement methods and work techniques • to ensure better leadership behaviour by improving the managers’ leadership styles, communication skills, motivational skills and commitment • to help the managers in prioritizing and optimizing the resources of the organization so as to achieve its goals effectively • to make sure that the attitudes, values and beliefs of the managers match the core values and strategy of the organization • to assess and develop the skills of the managers systematically so that they can, in turn, attract, develop and retain the talented employees of the organization • to assist the managers to build on their strengths and work on their weaknesses so that they achieve their individual career aspirations successfully • to help the managers cope with the rapidly changing and complex business environment • to keep in place a proper management succession plan in order to ensure that the organization has a sufficient number of managerial personnel to fulfil the future business requirements • to help the managers understand and share the corporate philosophy, mission and values of the business

Goals of Management Development The primary goal of management development from the organizational perspective is to accomplish the short-term and long-term goals of the organization. However, when seen from the individual’s perspective, the goal is to help the managers achieve their own career aspirations. The goals of the development process may also be classified as anticipatory, reactive and motivational.7 An anticipatory goal refers to undertaking development programmes in anticipation so that managers can effectively contribute to the accomplishment of long-term objectives. A reactive goal refers to those development programmes that aim at resolving the present performance difficulties or at averting the likely performance problems. Finally, a motivational goal refers to those development efforts that focus on the self-development of the individual managers. An organization can conduct management development programmes to fulfil the following goals:8 • accomplishing the corporate goals of the organization • ensuring internal consistency in the organizational philosophy

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• helping the process of better integration of various human resources activities • promoting transparent, dynamic and democratic management practices

Steps in a Management Development Process Once the organization decides to make changes in the job of an employee, it begins the preparation for the planning and execution of some management development programmes. For instance, it may choose to promote employees to higher positions, consider them for additional responsibilities, entrust challenging assignments to them or develop their existing performance. In most of these cases, a need-based and target-oriented management development programme becomes essential. As shown in Figure 11.1, a management development process involves three steps. These are (1) assessing the company’s strategic needs, (2) evaluating the skills and competencies of the managers, and (3) evolving strategies for the development of managers.

Assessing the Company’s Strategic Needs The first step in a management development process is the evaluation of the future managerial requirements of an organization on the basis of its business strategies. For instance, business strategies like new product introduction, market expansion, merger and acquisition (M&A), a strategic response to the competitors’ actions and the introduction of new technology usually necessitate the development of new skills and knowledge among the managers. However, it is difficult for an organization to determine precisely the quantity and quality of the skills needed by the managers for the future. This is because the business strategies are developed mostly as immediate, incremental and intuitive responses of an organization to the developments in external environment rather than as a planned and deliberate reaction.

Evaluating the Skills and Competencies of the Managers In the next phase, the existing skills and abilities of the managers are assessed in line with the future strategies of the organization. At this stage, key competencies like what the manager can do at present and the behaviour and competency necessary to complete the job effectively are assessed.9 The competency levels and skill gaps of managers are usually assessed with the help of performance evaluation techniques. The skill gaps found in managers normally forms the basis for framing the management development programmes. While assessing the skills and competencies, it should be ensured that the assessment process discovers the specific development requirements of the managers not only for the present situation but also for the future.

Assessing the company′s strategic needs

Evaluating the skills and competencies of managers

Figure 11.1 Steps in a Management Development Process

Evolving strategies for the development of managers

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Evolving Strategies for the Development of Managers In this final phase, the organization decides about how it should proceed with the process of developing the managers to meet its future management requirements. It decides about the key aspects of the development programmes like their objectives, mode of delivery, place and duration, cost and benefits, and assessment techniques. Often, the management development activities are influenced by the size and nature of the organization, the prevailing environment, the level of technology and the management philosophy. The nature, requirements and process of management development are usually individual employee-centred. They may also be unique and different for each organization. For instance, some organizations may prefer to follow a premeditated routine development programme with result-oriented assessment systems. In contrast, some others may just ensure that their managers get ample opportunities and support to develop themselves in their profession with the least concern for the formalities and rituals. In the same way, there may also be a difference in the learning skills of the managers and the opportunities available to them. For instance, some managers may be endowed with better managerial abilities and motivation to learn quickly as compared to others. Similarly, some managers may have effective superiors who may be good at developing others. But, others may not be as fortunate in their job and get adequate opportunities and favourable environment to learn on their job. Thus, it becomes imperative for an organization to assess the development requirements of the managers from the individual and situational perspectives.

Methods of Management Development The management development programmes can also be classified into “on the job” and “off the job” management development techniques. As illustrated in Figure 11.2, the development programmes for managers include, among others, job rotation, internships, programmed learning, simulation method, laboratory training, case study, lecture method, audio-visual methods, role-playing, mentoring, business games, coaching, behaviour modelling, in-basket training, action learning, university-based programmes, executive coaches, in-house development centres and executive orientation (refer to the chapter on training for discussion on Job rotation Internship Behaviour modelling

Programmed learning

In-basket training

Simulation method

Action learning University programmes

Executive coaches In-house development centre Executive orientation Figure 11.2 Management Development Methods

Management development programmes

Laboratory training Case study Lecture Role playing Business games Mentoring Coaching

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methods common to workers’ training and managers’ development. Other methods are being discussed in this chapter.) We shall now see these development methods in detail.

Mentoring Mentoring refers to the teaching by an intelligent and trusted guide and advisor. In recent times, it has emerged as an important technique to develop future managers. It is a one-to-one teaching–learning process. Mentors are usually the role model for trainee managers. Mentoring, as a concept, aims at enhancing the personal and professional competencies of trainees through the process of advising and coaching. It concentrates on those skills that help the recipients to work to their highest potential and achieve career advancement.10 Mentors may or may not be from the same organization but should be experienced, competent and mature. In the course of mentoring, mentors provide coaching, counselling, and challenging assignments, besides offering personal support and encouragement. They also safeguard the rights and interests of trainee managers. Mentoring has the following merits for managers: (i) it improves and extends their career skills, (ii) gets them career advancements, (iii) obtains higher pays and other benefits, and (iv) enables them to find more interest and motivation in the job. However, it suffers from a few limitations: (i) Ego and personality clash between the manager and his mentor may affect the effectiveness of mentoring. (ii) Senior managers are usually hard pressed for time and may find it very difficult to spare time to coach trainees. (iii) The conservative attitude of the senior managers may discourage them from accepting the task of mentoring. As a recent phenomenon, a few organizations have introduced reverse mentoring in their organizations. Reverse mentoring refers to a process where senior managers tend to learn from younger ones. When the new employees are knowledgeable and the seniors require such knowledge for prolonging their career, the latter may choose reverse mentoring. Box 11.2 outlines the leadership initiative of a software company.

Box 11.2

Leadership Development: An IBM Endeavour

Each organization develops its own style and approach in attracting and retaining the best talents. Some organizations showcase their creative management development practices as one of their distinct HR practices to draw the best candidates from the labour market and also from the rival organizations. They also realize that the leaders provided with up-to-date skills and competencies through comprehensive management development programmes alone can deliver more value to the customer and also develop resilience to tackle changes in the external environment. Many Indian companies are now offering several challenging leadership assignments and international career as part of management development programmes to strengthen the quality and depth of their managerial workforce. In this regard, the IBM leadership initiative is worth mentioning.

IBM considers its 3C (capability, climate and culture) approach towards employees as the key to its success in attracting talented people. Capability refers to developing global leaders and fostering employee talents, climate stands for flexibility at work and employee wellness programmes, and culture stands for workforce diversity. As a leading international company, IBM has several specific programmes for developing the professional capability and career prospects of its managers across technological and functional domains. In tune with its management development strategy, it helps its employees develop their competencies through mentoring, study assistance plan, leadership development and individual development plan, and certifications like IBM Certified Professionals. Adapted from: http://www-07.ibm.com/ in/careers/choice.html.

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Business Games People have a natural desire and involvement in games. This method makes use of business games to create an interesting environment for the trainees to learn their business lessons. The primary goal of business games is to ensure the involvement of the trainees in the learning process. In the business games technique, the trainees form teams and assume managerial roles in two or more imaginary but rival companies. These teams operate in a realistic but simulated situation and compete against one another by manipulating the controllable variables like price, product volumes, advertising cost and so on. Computer programs are extensively used to generate and manipulate different decisions and results normally replicating the real business situation. The advantage of this method is that the trainees learn to take decisions without the fear of the consequences of a wrong decision. Similarly, they are able to evaluate the impact of their decisions on others and others’ response to their decisions. Besides, this method can improve the problem-solving abilities and leadership skills, and promote cooperation and teamwork.

Coaching Coaching refers to teaching and supervising someone. In the coaching method, senior managers are made responsible for coaching and developing the trainees who work directly under them. Coaching can take place in the organization formally or informally. The trainees would learn immensely out of the experience or expertise of the coach. One of the purposes of coaching is to make the trainees fit to eventually replace the senior managers in those positions. The process of development may be formal or informal. Nevertheless, coaching is a comprehensive technique to develop managers and executives.11

Behaviour Modelling Under this method, the managers learn by imitating the behaviour (called a model) of others. The behaviour model lets the trainees learn the right way of approaching and behaving in different situations. It is considered to be an ideal method for acquiring relevant skills and knowledge from others. Behaviour modelling can be used to improve the skills of managers in performance management, grievance handling, conflict resolution, overcoming the employees’ resistance to changes, tackling health and safety issues. Here, the trainees are first introduced to the correct way of performing a task. Then they are encouraged to do the work in the same manner. Finally, a review is carried out and feedback is provided to them. This management development technique, today, is an extensively used, well-researched, and very much appreciated psychologically based training intervention.12

In-basket Training In-basket refers to a wood or metal container placed on the managers’ desk to hold their incoming material. In-basket training is a development technique which educates the trainees about the need for and techniques of prioritizing the situations that await their responses. It helps the managers in prioritizing the numerous business papers, reports, emails and telephone messages before acting on them. Though not presented in any specific order, some of these messages may be urgent while others may be routine. In this training, the trainees are first asked to establish priorities for each given situation before making any decisions regarding the handling of these messages. This form of development technique is found to be very accurate in predicting performance success in management jobs.13

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Action Learning It is a development technique that allows trainee managers to work on the problems of some other departments and not on those of their own department. On a full-time basis, a group of trainees analyse the real-world problems of a department and make recommendations. The basic idea behind this technique is to help the managers widen their spheres of knowledge and get expertise in different fields. The usual steps involved in this training are: (i) picking up a team of trainees, (ii) allotment of ambitious business problems which exceed the normal areas of the trainees’ capability and knowledge, (iii) providing an intense planning time during which the teamworks on the business problems, (iv) assigning adequate time to discuss the problems and make recommendations, and (v) finally, the senior managers or experts reviewing those recommendations and sharing their opinions with the trainees. Several global organizations like Samsung and GE are using action learning to develop their managers.14 This method helps the organizations to improve their in-house transfers and promotions of the managers.

University-based Programmes In this method, managers seek to develop knowledge by joining the programmes offered by the universities, colleges and centres of excellence like the IIMs and the IITs. Certainly, educational institutions play an important role in training management executives in India. For instance, the IIMs offer the managers of industry an opportunity to pursue numerous practical-oriented management development programmes. Management development programmes offered by the universities and colleges are becoming increasingly popular among the managers. Moreover, the Open University and distance learning programmes are also available to managers to upgrade their knowledge and skills in their relevant fields. These institutions use case studies, lectures and growth stories to provide up-to-date management skills and practices to the managers. As a result of globalization, many foreign universities are now setting up bases in India to launch programmes that can help the managers strengthen their managerial skills. Box 11.3 indicates the role of universities in the management development programmes of the corporate sector.

Executive Coaches Executive coaching is gaining acceptance as an important management development technique necessary for training managers, who will be the future organizational leaders. It is a programme of one-to-one collaboration between a certified external coach and a manager. Through executive coaching, the manager improves his leadership skills, gains new perspectives and reaches maximum potential. Executive coaching is acknowledged as an important element of standard leadership development programme for top-ranking executives. Usually, executive coaching focuses on three features, namely, strategy, organizational change, and behavioural coaching. Executive coaching develops leaders in the context of their current jobs without removing them from their day-to-day responsibilities.15 The main benefit of executive coaching is that coaches can help executives develop new ways to tackle recurring problems. It is also very useful, especially in times of change, for managers in the form of promotions, additional assignments, and other new challenges. Many companies have realized the stimulating role that this method can play and are employing executive coaches to develop the performance and capacities of their middle and top management. For instance, The Centre for Executive

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Industry–University Cooperation in the Management Development Programme at Reliance Industries Limited

Indian organizations have now fully realized the importance of continuously building on their managers’ knowledge and managerial competencies to enhance job performance and help these managers climb up the career ladder. Many organizations are making use of the facilities offered by the universities and premier institutions to train their workforce in various domains of knowledge and skills. This industry–university collaboration in management development often works to the mutual advantage of both. Institutions offer excellent development programmes to companies for fees. Universities offer their educational services in two forms: one, enrolments for regular programmes at their campuses in specific fields such as human resources, marketing, IT, finance and logistics management, and, two, providing programmes at the company premises itself. In the latter form, institutions normally offer tailor-made programmes to meet the specific organizational requirements. Reliance Industries strongly believes in providing the right environment that constantly nurtures the talents of its people. Its human resource philosophy is predominantly based on the belief that ordinary people can usher

in extraordinary performance if provided with proper environment and necessary support. As regards its management development programmes, it has judiciously combined the “in-house home-grown programmes” and university-based educational programmes. For instance, it employs in-house competency and soft skill development programmes for its accountants and engineers. On the other hand, it ties up with management and engineering institutions to develop the specific competencies of its employees. It has developed management development programme (MDP) level 1 and level 2 with IIM Bangalore for its high-growth managers. Similarly, it conducts MPRE (Management Programme for Reliance Engineers) in association with IIM Bangalore and a Reliance Certified Engineering Course with IIT Mumbai for its science graduates. In association with Sardar Vallabhbhai National Institute of Technology (SVNIT), Surat, it also conducts Reliance Instrumentation Engineering Programme for its Science Graduates. Source: http://www.ril.com/aboutus/ humanresource.html.

Education (CEE) at the Indian School of Business (ISB) recently hosted an executive coach training programme which was attended by participants from companies such as Raymond, Aditya Birla Management Corporation Ltd, Godrej India and HDFC Bank.16

In-house Development Centres In-house development centres are also known as corporate universities. It is an emerging management development technique. Large companies are establishing their own in-house development centres to develop the required skills and knowledge among its employees. It is a technique for exposing future managers to practical training courses so that they can enhance their managerial competencies. In-house development centres usually makes available those courses and programmes that exactly support the management development requirements of the organization. Many companies are often working jointly with academic institutions, training and development programme providers, and Web-based educational portals to construct packages of programmes and materials suitable to their employees’ requirements.17 Box 11.4 shows the relevance of in-house development centre in management development.

Executive Orientation This method is also called the on-board development method. In fact, orientation is an initial training effort to inform the new managers about the company, the job and the work group.

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Box 11.4

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In-house Development Centre for Competency Enhancement at Infosys

A few organizations in India have developed their own unique in-house development centres and conduct fullfledged management development programmes for their employees belonging to different categories. The chief advantage of the internal development centres is that these centres can meet the specific requirements of the organization by offering tailor-made programmes to its employees. Further, in-house development programmes enjoy better flexibility, adaptiveness and convenience. However, organizations normally get external expertise for developing the course content, instruction material and teaching methodology for these centres. The success story of Infosys needs to be mentioned here.

To ensure the availability of adequate skills to meet the talent needs at all levels, Infosys has established a comprehensive training and development centre called the “global education centre” (GEC) at Mysore in Karnataka. The competencies required for the employees are identified and developed along multiple dimensions like technology, domain, leadership and management. Infosys has also launched a “competency certification programme” aimed at certifying its employees in various industry domains, technologies and project management processes. These certifications are now compulsory for the future promotions of employees, especially to managerial cadres. Adapted from: http://ia.rediff.com/ money/2006/jun/22infy.htm

Executive orientation is the technique adopted by an organization to assist its new managers in learning the firm’s structure, culture, and practices quickly so that they can begin to contribute to the organization as soon as possible.18 The major purpose of this method is to keep a close focus on the new executives, especially during the initial phase of their employment. The primary purpose of executive orientation is to educate the new managers about the intricacies of administration, clarify their roles and responsibilities, and familiarize them with cultural norms and practices. If necessary, follow-up meetings can be conducted to check their growth, experiences and challenges.

Evaluation of the Development Programme Development programmes cost an organization in term of resources and time. Naturally, every organization would tend to know the worth of its development programmes. In this regard, it should develop a clear-cut criterion for measuring the efficiency of management development programmes. It may evaluate the development programmes in the form of its (i) contribution to the accomplishment of the organizational goals such as the efficient use of resource and verifiable improvement in quality, (ii) contribution to the increased performance of managers, and (iii) other traceable returns on development investment. Though the returns on a development programme differ from person to person, it is worth ensuring that the value of the output from development is greater than the value of the input in every case. In management development programmes, behavioural competencies are mostly considered as the learning outcome of the development process. As regards evaluation, an organization can develop its own purpose and procedure for evaluating the performance of the trainee managers. However, there are four general purposes available for undertaking the evaluation of a management development programme. These are proving, controlling, improving, and learning.19 A brief description of these purposes is provided as follows.

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Proving An evaluation can be undertaken to prove conclusively that something has happened as a result of the development programme. In other words, the aim of the evaluation is to prove the worth and impact of the development exercise. It would enable the organization to know whether the development programme created the desired impact. Similarly, it would help them decide whether it is worth continuing the programme in the future.

Controlling It refers to ensuring that the development programmes are conducted according to the predetermined specifications. Quantitative rating scores are used for measuring the comparative performance of the trainees.

Improving It refers to the continuous enhancement of the tools and techniques used in the development programmes. For instance, the course content, the infrastructure arrangements and the training process are to be evaluated with the help of the participants. Their opinions may be used for making further improvements in programme structure and design.

Learning It means measuring the actual quantity and quality of learning taking place among the participants. A formal assessment of participants may be done in the form of examination and project works to measure the efficiency of the development programmes. There are several issues involved in evaluation, especially with regard to a development programme. For instance, measuring the long-term effect of a development programme is a difficult task for an organization. Of course, an organization usually adopts some techniques to evaluate the immediate effect of these programmes. However, studies on evaluations of training and development have found worryingly low levels of correlation between training and results.20

Management Succession Planning A change in executive leadership at some point of time is unavoidable for an organization. It is also a critical and tough exercise for an organization to find the right replacement for those in the top echelons of the management at the right time. An effective succession plan can facilitate the organization in being prepared for planned or unplanned absences of its top managers and also in guaranteeing stability in its business operations. The purpose of a management succession plan is to ensure that, to the extent possible, the firm has a sufficient number of competent managers to meet the future business needs. Succession planning is actually a process through which an organization plans for and appoints top-level executives. It usually requires suitable managers to fill the vacancies caused by retirement, promotion, death, resignation and transfer of the existing managers. By implementing a succession management programme that is transparent and equitable, an organization forms an environment for the employees to expand their skills in anticipation of future possibilities. This also enables a workplace to position itself to adequately face any situation that might arise in the organization on account of management changes. Further, succession planning is also capable of reducing performance variations in key roles, reducing

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attrition among top performers, encouraging high internal recruitment and enhancing motivation levels of managers. The concept of succession planning has gathered momentum in Indian companies. Many top companies have chalked out systematic plans for identifying and grooming talents which would eventually take over the top positions in the company. For instance, a few years back, L&T, one of India’s leading engineering companies, declared the top 10 per cent of its executives as stars and developed fast-track career paths for them. In course of time, these executives replaced the senior managers when they retired.21

Need for Succession Planning In a globalized economy, the scarcity of people qualified for important leadership positions has become one of the foremost challenges facing the management today. Companies are having an acute shortage of talent, especially at the top levels of the management. This is because the demand for able and experienced managers often exceeds their supply. There are several factors that have contributed to this situation. These have been explained in the following paragraphs. Growth of Organizations A typically growing organization will require additional leaders to fulfil its ambitious organizational goals and objectives. The expansion schemes of the companies and the tight labour market conditions may combine to create an acute shortfall in executive talent. This would in turn influence the organizations to undertake succession programmes more seriously and on a priority basis. Early Retirements Even though employees can remain in their jobs for a longer duration, especially in private firms, top managers are of late quitting the firms early to take up lucrative consultancy services. As a recent phenomenon, even those employees who are in their early- or mid-50s quit their job to take up career in other fields where they can make more money. These developments have further enhanced the importance of succession planning for an organization. Coping with Multiple Competency Requirements The present-day organizations with a complex network and global presence are seeking to fulfil their higher levels of management with executives having multiple competencies. For instance, companies are now looking for managers who can excel at collaboration and partnering, understand and handle vast ambiguities, and deal with global business issues. They should also be familiar with matters like business start-ups, mergers and acquisitions, management of change, the ability to manage new technology, and foreign assignments. Of course, these managers should possess these skills in addition to the conventional skills and knowledge such as leadership skills, communication, behavioural skills and motivational skills. But, it is difficult for the organizations to get a sufficient number of good managers with these qualities. Thus, the organizations depend critically on succession planning to develop managers with complex skills and abilities. Poaching To deal with leadership scarcity, some organizations try to attract the managers of their rivals with attractive job offers. When the efforts of these organizations succeed, the organization losing the employee might face a tight situation, especially in the short run. To avoid such a predicament, it is necessary for organizations to develop and implement management succession plans.

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Requisites for Successful Succession Management Organizations should understand clearly that succession planning cannot function in isolation and, in order to achieve success, it should be properly integrated with the corporate goals and plans. Similarly, it should get the full-fledged cooperation of all the stakeholders, namely, the trainer, the trainee manager, the management and the HR people. The following are the basic requirements in succession planning for developing the leadership that delivers business results and assures stability: • The succession planning programme should have the complete support and patronage of the top management. • The management should forecast with maximum possible precision the skill requirements for the immediate and distant future. • The organization should revise the list of jobs critical to it periodically and bring them under the succession planning programme. • The organization should systematically identify the employees with potential managerial competence for developing their skills and knowledge. • There should be a proper alignment between the HR strategy and the succession plans. While determining HR activities like training and development, and performance evaluation, the succession plan requirements should also be considered. • The knowledge, skills and abilities of the prospective employees must be developed on a sustained basis. • A proper mechanism should be put in place to provide constant feedback to the potential successors about their performance and progress. There must also be a system for evaluating the efficiency of the trainers in succession planning. • The organization should adopt a strategic and holistic approach towards succession planning and leadership development.

Impediments to Effective Succession Management Organizations often fail to identify the factors undermining the success of their succession plans, and these factors eventually affect the efficiency of these programmes. It is thus essential for the organizations to concentrate on the identification and elimination of those factors that impede the effectiveness of the succession planning. We shall now see the major impediments to succession planning process. Lack of Criteria for the Identification of the Successor Many organizations care little for developing unambiguous and objective criteria for selecting the potential successor for filling the future positions. Moreover, many senior managers identify their successor through chance observation of people and their skills. An inaccurate identification can keep out the talented and deserving but less visible employees from the succession programme. Presence of Traditional Replacement Systems In many organizations, the replacement planning process targets specific persons instead of identifying specific positions for succession planning. This people-oriented succession planning often ends up with the identification of a few subordinates by the senior managers for inclusion in the succession planning. Instead, the organization should first identify the critical positions to be included

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in the succession planning. Then, it should develop a pool of high-potential candidates for inclusion in the planning process. Thus, a position-based replacement system is required for the success of the succession programme. Improper Diagnosis of Development Requirements Often, organizations make a wrong assessment of the skills requirements of the potential successors. When the skills requirements are misjudged, it often leads to inaccurate selection of training and development techniques and performance evaluation methods. It is, therefore, essential for an organization to evolve scientific methods to identify the skills and knowledge requirements for its future positions and also the skill gaps of the trainee managers. Inadequate Focus on Interpersonal Skill Requirements On many occasions, organizations emphasize more on developing the technical skills and competencies of the future leaders and simply overlook their interpersonal and team-building skills. Consequently, these succession programmes pay no attention to leadership, motivational, communication and socialization skills of the participants. An organization should, therefore, develop a comprehensive succession programme by including both hard and soft skills components in the development programmes for its prospective future leaders. Too Little Importance to Lateral Mobility Quite often, organizations consider the vertical mobility of the immediate subordinates to higher positions as the only option available in succession management. They simply ignore the prospects of lateral mobility, which considers other employees also for higher positions as an alternative in the succession planning. Any narrow approach towards succession management would reduce the scope of succession planning in the organization. Thus, the management should include lateral mobility also as a part of succession management strategy. Lack of Sufficient and Timely Sharing of Feedback The absence of the availability of the feedback about the current performance and future assignments may drive the potential successor out of the organization. When the prospective employees remain ignorant about what their management plans for their future, they may tend to quit the organization in search of better prospects elsewhere. Thus, it becomes important for the organization to ensure that the information about the career plans concerning the employees is shared with them without any delay. Lack of Follow-up Action In many organizations, succession plans often remain in the plan stage and in paper form. These organizations lack the sustained enthusiasm and motivation required to follow up the plans with necessary actions. In some organizations, the management simply fails to take succession management to its logical end, which is posting the identified and trained successors to the vacant positions. This occurs when the management changes its preference for the identified position and dumps the person groomed for that position through the succession planning process. Absence of Managerial Initiative and Support The critical prerequisite for the success of any succession management programme is the active support and constant encouragement from the top management. Many organizations never provide the importance that it deserves in the strategic planning. This is because the management is concerned more with its immediate future and short-term goals. It is important for the management to realize the benefits of succession management and it should strive to support this concept on a sustained basis.

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Insecurity of the Boss Managers often feel threatened when succession issues are discussed with them. They view the move as the beginning of the end of their career with the organization. In such a situation, an insecure boss may display disinterest and even apathy in sharing his skills and knowledge with his potential successor. Obviously, the top management should enlighten the managers about the purpose and intentions of succession planning and dispel the apprehensions they may have about the whole programme.

Summary 1.

Management development is a long-term process by which the managers’ conceptual knowledge and competencies are developed to make them more suitable for the present and future responsibilities.

2.

The goals of management development are: (i) accomplishing the corporate goals of the organization, (ii) ensuring internal consistency in the organizational philosophy, (iii) helping the process of better integration of various human resources activities, and (iv) promoting transparent, dynamic and democratic management practices.

3. The steps in a management development process are: (1) assessing the company’s strategic needs, (2) evaluating the skills and competencies of managers, and (3) evolving strategies for the development of managers. 4. The methods of management development are job rotation, internships, programmed learning,

simulation method, laboratory training, case study, lecture method, audio-visual methods, roleplaying, business games, coaching, behaviour modelling, in-basket training, action learning, university-based programmes, executive coaches, inhouse development centres and executive orientation. 5. The reasons for the growing importance of succession planning are: growth of the organizations, early retirements, coping with multiple competency requirements, and poaching. 6. The hurdles to succession management are lack of criteria for successor identification, presence of a traditional replacement system, presence of traditional replacement system, improper diagnosis of development requirements, inadequate focus on interpersonal skill requirements, too little importance given to lateral mobility, lack of sufficient and timely sharing of feedback, lack of follow-up action, absence of managerial initiative and support, and insecurity of the boss.

Review Questions Essay-type questions 1. Discuss the strategic role of management development programmes in the growth of an organization in detail. 2.

Evaluate critically the steps in a management development process.

3.

Illustrate on-the-job training and development methods with relevant examples.

4.

Describe any five modern development programmes adopted by Indian industrial organizations.

5.

Examine the purposes and process of evaluation of a management development programme.

6.

“Succession planning greatly enhances the stability of business operations.” In the light of this statement, discuss the need for a succession management process.

7. “Management development is nothing but guided self-development.” Discuss. 8. Compare and contrast any four management development programmes widely practised in industrial organizations in India.

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9.

Identify the nature and kind of management development programmes implemented by Indian organizations.

10.

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“Management development programmes are the privilege of a few large and elite organizations.” Present arguments for and against this.

Skill-development Exercise Objective – The objective of this exercise is to let you know how to identify the critical positions in an organization for succession management and develop a succession management plan for these jobs. Procedure Note – The class is divided into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two external experts in succession planning, and (4) two observers of the meetings. The role of the observer is to observe and report about the various aspects of the role-playing sessions. Situation Meenakshi Steel Rolling Mills is a medium-scale company engaged in the production of heavy-alloy steels. The company enjoys a remarkable market share in the industry. It has been following the practice of having a few experienced people as the heads of different departments like production, marketing and finance. In accordance with its organizational culture, all major decisions were unilaterally taken by them and these decisions were timely and productive for the organization. In fact, these people can take a rightful credit for the present stature and success of the company. Apparently, the middle- and low-level managers were not included in the decision-making process. Unfortunately, the production head suffered a major health crisis and had to be hospitalized. It became an unprecedented situation for the company as it could not find any immediate substitute for the ailing production head. The

stability of the company was affected as production planning and decision-making aspects simply collapsed. The management was rudely shocked by the reality and realized that the absence of succession planning was the root cause of the problem. It failed miserably to keep in place any plan for grooming the future leaders of the company. The company clearly understood the importance of succession planning and instructed the HR manager to identify the critical positions of the company and develop a succession plan for each of these positions at once. The HR manager commenced his activities towards this mission earnestly. Steps in the exercise There are four steps to this exercise: Step 1: The HR manager convenes a meeting with his HR team to identify the crucial positions, which require succession plans immediately. Step 2: He meets external succession plan experts to discuss the ways and means of developing succession plans for the crucial positions. Step 3: He meets the HR team again to develop the criteria for identifying the potential successors for the future vacancies and also for finalizing the exact programmes to develop the competencies of the potential successors. Step 4: The observers analyse the role-playing session and give their feedback on the performance of the members.

Case Study Kepler Boilers Limited is a private sector manufacturing unit engaged in the production of boilers of medium size. Mr Ravi Prasad founded this company with two other field experts, namely, Rakesh and Rathore. All the three persons took up important responsibilities in the business with Ravi becoming the chairman-cum-managing director of the business. The company made a humble beginning in the business of producing and marketing

of boilers nearly three decades ago. Today, it has secured a solid place in a highly volatile market. In spite of stiff competition from the established players in the market, it gradually expanded its business operations to reach this position. Recently, Ravi mooted an idea of diversifying the operations of the business and entering entirely new business

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fields such as hotel and cement industry. The purpose behind this proposal was to diversify the investment, thereby reducing the industry-specific risks associated with the boiler industry. The proposal found immediate support from Rathore, the finance head. As the head of the finance department, he viewed Ravi’s proposal as a viable option for risk diversification and reduction. However, this strategy was strongly opposed by Rakesh, the production head. He gave a detailed response to the chairman’s suggestion. He argued that the company was well-entrenched in the existing industry and any future investment ought to be in the known field only. Further, he cited the advanced age of the three founders, the complexity of the present-day businesses, the lack of continuous learning among members and the indifferent attitude of the company towards the management development programmes as the factors capable of affecting diversification proposal. He also questioned the ability of the top management in understanding the intricacies of the other business fields at present and also the organizational preparedness in ensuring a smooth transition in the existing business at the top levels in the event of top people moving to other businesses. Rakesh stated emphatically that the organization should first facilitate all its managers at different levels of the management to attend external learning programmes in order to gain up-to-date knowledge about the developments in the external environments and the nuances of different businesses. He also suggested that the company should

work with the leading business schools in the region to allow the managers to do long-term courses with these institutions. Finally, he stressed the need to develop succession plans for the top management, especially for the jobs critical to the stability of the business. Obviously, he sought the immediate attention of the management to these issues even while advising it to go slow on its diversification proposal. The chairman appeared to be convinced by the arguments of the production chief and he decided to put his proposal on hold for some time. Instead, he instructed the HR department to develop a comprehensive plan of action for introducing management development programmes and also an effective succession management scheme. However, the finance head, Rathore, was unconvinced and repeatedly urged the management to go ahead with its diversification plans. Questions for discussion 1.

What is your opinion about the chairman’s proposal for diversification?

2. How would you deal with the situation if you were the chairman? 3. Between Rakesh and Rathore, whose stand is more convincing for you and why? 4.

Do you have any alternative proposal for the situation?

Notes 1.

John M. Moore, “The Role Relocation Plays in Management Development,” Personnel Administration (December 1982): 31–34.

2.

Terry L. Leap and Michael D. Crino, Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 309.

3. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), pp. 285–286. 4.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), pp. 285–286.

5.

Terry L. Leap and Michael D. Crino, Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 309.

6. Edwin B. Flippo, Principles of Personnel Management (New York: McGraw-Hill, 1984), p. 51. 7. Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), pp. 579–581. 8.

Julia R. Galosy, “Curriculum Design for Managerial Training”, Training And Development Journal (January 1983): 48–51.

9. Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 477. 10. Jacqueline Durett, “Mentors in Short Supply,” Training, 43, no. 7 (July 2006): 14.

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251

“For Success with Corporate Coaching, Begin with Assessment,” HR Focus, 83, no. 7 (July 2006): 8.

17.

Martha Peak, “Go Corporate U!” Management Review, 86, no. 2 (February 1997): 33–37.

12. Paul Taylor, Darlene F. Russ–Eft and Daniel W. L. Chan “A Meta-Analytic Review of Behavior Modeling Training,” Journal of Applied Psychology, 90, no. 4 (2005): 692–719.

18.

Terence F. Shea, “‘Sink-or-Swim’ Is Not an Option,” HR Magazine 50 (March 2005): 14.

19.

Mark Easterby–Smith, “Training Evaluation and Follow-up” (1994) in Joseph Prokopenko (ed.) Management Development: A Guide for the Profession, International Labour Organization, 1998, pp. 158–162.

20.

Gary P. Latham and Lise M. Saari, “The Application of Social Learning Theory to Training Supervisors Through Behavioral Modeling,” Journal of Applied Psychology, 64, no. 3 (1979): 239–246.

11.

13.

Kenneth M. York, David S. Strubler and Elaine M. Smith, “A Comparison of Two Methods for Scoring an In-Basket Exercise,” Public Personnel Management, 34, no. 3 (Fall 2005): 271–280.

14. Michael Marquardt, “Harnessing the Power of Action Learning,” Training and Development, (June 2004): 26–32. 15. Paul Michelman, “Methodology: Do You Need an Executive Coach?” Harvard Management Update, 9, no. 12 (December 2004). 16. “Getting There with Executive Coach Marshall Goldsmith,” Indian School of Business.

21. A. V. Vedpuriswar, “Strategic Issues in Succession Planning,” Effective Executive, (November 2001), ICFAI, p. 26; available at http://www.vedpuriswar. org/book_review/Strategic%20Issues%20in%20 succession%20planning.pdf.

CHAPTER

12

Organizational Development

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand organizational development 2 Understand the process of organizational development 3 List the various approaches to organizational development 4 Explain organizational development interventions 5 Explain the benefits of organizational development interventions

Mahindra and Mahindra (M&M) is a leading automobile company in India. It is one of the topten industrial houses in the country. Its product line includes passenger cars, tractors and multi-utility vehicles. This company believes in co-creating a performance-driven work culture that provides employees the freedom to work without fear. M&M has won several awards for its HR policies and practices. This company pursues an inimitable HR practice described as a “shadow board”. The primary purpose of a shadow board is to help anticipate changes in the environment and to get the organization ready to exploit such changes productively and profitably. This board facilitates the process of discarding the outmoded styles of thinking and working in a planned manner. The mandate of the shadow board is to forecast and discuss the operational and strategic issues affecting the organization and offer suggestions for tackling them in an effective way. The board also helps the organization in identifying the critical success factors

necessary for accomplishing the corporate goals. A few specific activities performed by the shadow board are (i) providing out-of-the-box views of the Generation Next employees, (ii) challenging old and settled forms of thinking, (iii) offering new perspectives and insights, (iv) catalyzing implementation, and (v) facilitating the process of developing the future leaders of the business. The training and development programmes of Mahindra and Mahindra include a few organizational development programmes. These are leadership and leading change programme, people management programmes including conflict management, teamwork, technology orientation, coaching and mentoring. Some other distinct types of training programmes are marketing for nonmarketing functions and finance for non-finance functions. The HR policies and programmes of Mahindra and Mahindra clearly highlight the relevance of organizational development in the success of an organization and we shall discuss the different aspects of these programmes in this chapter.

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Introduction Organizational development (OD) is a process of improving organizational efficiency and health. It is a deliberate and systematic process of forming an environment that enables the members of an organization to understand and deliver on its strategic goals. The OD process aims at creating flexibility and adaptability in the organizational structure. A dynamic organizational structure can facilitate faster and better response to technological and market developments. Being a top-to-bottom approach, OD involves active interventions by the top management and intends to achieve the desired changes in the attitude, values and beliefs of the employees. It is primarily based on behavioural sciences such as psychology, sociology, communication, cultural anthropology, administrative theory, organizational behaviour, economics, and political science.1 It essentially focuses on continuous improvement, culture change and an effective development of the workforce of the organization. It acts as a means to usher in a culture of uncompromising quality, performance excellence and high workforce commitment. OD as a concept is typically integrated with the culture of an organization. It is viewed as a means to achieve optimum organizational and individual effectiveness. An effective OD can help the organization in several ways. For instance, it can help in achieving improved employee training and executive development programmes, career planning and management, performance management, conflict management, change management, compensation management, strategic planning, team-building and total quality management. Similarly, it can also help the individual employees by leading to progress in their problem-solving capacity, career goal-setting, communication and socialization skills, leadership development, and time management. Nevertheless, an effective OD requires effective leadership, clear sense of direction, focus on people development, continuous feedback, and strong communication network. Introducing planned changes to achieve the required effectiveness is the essence of many of the definitions of OD. Some of these definitions have been listed in Box 12.1. We may define organizational development as a deliberate and systematic process adopted to enhance the ability of an organization to identify, understand and accept changes and to benefit from such changes.

Box 12.1

Definitions

“Organization development is concerned with the planning and implementation of programmes designed to enhance the effectiveness with which an organization functions and responds to change.”2 —Michael Armstrong

“Organizational development is a planned process of change in an organization’s culture through the utilization of behavioural science technology, research and theory.”4 —W. Warner Burke

“Organizational development is a planned and systematic process in which behavioural science principles and practices are introduced into an organization with the goals of effecting organizational improvement, greater organizational competence and greater organizational effectiveness.”3 —Wendell F. French and Cecil H. Bell

“Organizational development is a systematic, integrated and planned approach to improve the effectiveness of the enterprise. It is designed to solve problems that adversely affect the operational efficiency at all levels.”5 —Harold Koontz et al.

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Characteristics of Organizational Development For an organization to achieve success in OD efforts, the OD should have certain basic characteristics. These are as follows: • OD deals with a total system. It considers the organization as one total system and the plants, departments or work groups as sub-systems in the context of the total system. Individuals and products are the parts of the total system and the sub-systems.6 Thus, OD is a planned programme dealing with the total system. • It is concerned with the process and not the structure or system. In other words, it deals with the way things are done rather than what is done.7 • It is specifically concerned with the management and development of organizational culture, which includes norms, values and structure. • It includes a wide application of knowledge gained from behavioural science researches to develop the effectiveness of the organization. • It is based on the helping relationship principle, where change agents, who may be an external expert or an internal staff, help the organization define and solve its own problems.8 • It is based on the action research method.9 The action research process involves a preliminary diagnosis, collection of data, data exploration, action planning and execution. • OD is usually a long-term effort to improve the problem-solving and renewal processes of the organization. • It provides the organization with a new direction for moving forward. It also facilitates dynamism and efficiency in the functioning of the organization. • It is usually a group-based activity. It primarily aims at effecting changes in the groups or teams rather than in individuals.

Key Concepts in Organizational Development Since OD draws heavily from social and psychological fields, it is necessary to familiarize ourselves with the key concepts frequently used in it.

Change Agent A change agent is responsible for successfully implementing change assignments of an organization. His primary work is to assist the firm in defining and resolving its own problems. A change agent can be an internal staff of the organization. For instance, line managers may be trained in OD techniques and made responsible for supervising the changes. A change agent may also be an external expert. Usually, external experts are behavioural scientists with a comprehensive knowledge of the theoretical and practical aspects of applied behavioural science.

Contractual Relationship An organization with some persisting problems that require a solution may enter into a contractual relationship with external change agents. The purpose of employing change

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agents is to enhance the performance of the organization and its capacity to change itself. Nevertheless, the initiative for OD programmes usually comes from the top management. It may enter into necessary agreements with the change agents regarding the duration of the contract, which often depends upon the nature and intensity of the problem and also upon the kind of solution required.

Systems Approach OD strategies view the organization as a total system and the groups within it as sub-systems in the context of the overall system. Systems are understood by their connections with the internal and external environmental processes. Since systems are characterized by wholeness, OD strategies view group behaviour as the relevant behaviour of the individuals and also of the groups. Thus, the OD strategists concentrate more on understanding and changing group behaviour.

Action Research Action research provides the basis for and approach to OD. The primary focus of action research is, as the name suggests, on research in action. Action research adopts a scientific approach to studying and then solving the organizational problems experienced by a client. It specifies the strategies for information gathering, defines the direction of an organization and executes changes. In action research, the members of the group or organization under study take an active part in the OD process.

Stakeholders Stakeholders are those who have an inherent interest in the outcome of an OD intervention. These include the employers, employees, customers, suppliers, distributors and government agencies.

Objectives of Organizational Development OD is basically a problem-solving approach. It is a planned change effort carried out at the organizational level. It is a continuous process of organization as changes occur continuously in the external environment. Though the primary purpose of OD is to improve the organizational health and efficiency through planned interventions, it aims to accomplish multiple objectives. The important objectives of OD are: • to improve the ability of the organization to plan and manage changes through a transparent, effective and honest process • to identify and allocate the precious resources of the organization in the most productive manner • to improve the organizational and individual efficiency for effective accomplishment of organizational goals through planned interventions • to achieve improved efficiency in the team-building process through better communication and group dynamics • to develop efficient leadership styles and better decision-making processes that best suit the organization in the changing environment

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• to obtain the employees’ trust, cooperation and commitment by helping them effectively in skill acquisition and career development activities through training and development process • to restructure the organizational missions, objectives and tasks in a judicious and well-timed manner by continuously observing the developments in the external environment • to identify and resolve the potential conflicts among individuals through effective conflict management process • to ensure the long-term growth and health of the organization by ensuring a better alignment between the organizational objectives and requirements on the one hand, and the employees’ career goals and aspirations and the societal requirements on the other. • to achieve increased collaboration among the different units and divisions in the organization by reducing competition among these inter-dependent units.

The Organizational Development Process The OD process is primarily concerned with the successful introduction, management and completion of the planned changes within the organization. It also aims at helping the management deal with the unforeseen consequences of the change process. As far as the OD process is concerned, the organization is viewed as a system with several inter-related and interactive components. These components are input, throughput (transformation) and output.10 The information received (like changes in consumer tastes and preferences and technological developments) from the external environment is referred to as the input, activities like information processing, response determination, and decision execution (such as new product introduction and new market entry) constitute the throughput, and the eventual product performance and market response (like customer patronage or rejection) is known as the output. Though each organization can have its own OD process, the steps mentioned in Figure 12.1 may be adopted by any organization with due modifications. The OD process is usually undertaken when the organization either faces fresh challenges due to changes in the external environment or finds its existing structure and system inept to tackle any challenge. This process begins with problem identification and ends with performance reviews in the post-OD situation. Generally, the steps involved in an OD process are (i) need identification, (ii) environment evaluation, (iii) action plans based on evaluation, (iv) actual intervention, (v) performance analysis, and (vi) stabilization and disengagement. We shall now discuss these steps in detail.

Need Identification The first step in the OD process is the identification of the relevant problems caused by changes in the external environment. When the problem is recognized as one with a possible implication for the survival and future of the organization, its size and intensity is usually measured. At this stage, organizations usually nominate internal or external change agents to carry out the OD process. These change agents assess the situation and then design and conduct necessary OD intervention programmes. Though the presence

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Step 1: Need Identification

Step 2: Environment Evaluation

Step 3: Action Plan

Step 4: Actual Intervention

Step 5: Performance Analysis

Step 6: Stabilization and Disengagement Figure 12.1 The Organizational Development Process

of a problem is an important trigger for undertaking OD, this may not be true on all occasions. Sometimes, OD may be initiated by the management to improve the general functioning and overall health of the organization without any immediate challenge from the external environment. Thus, the OD process is undertaken when the top management feels a need for it.

Environment Evaluation At this stage, all the necessary information required by the change agents regarding the problem and the existing situation is collected and provided to them. They may require this information to ensure proper planning and smooth execution of changes in the organization. The information required about the problem and the environment is usually collected through necessary interviews, observation, investigation, task groups or any other committee constituted specifically for this purpose. The information gathered through these techniques is normally validated for accuracy and reliability before being used for developing the action plans.

Action Plans Based on Evaluation In this stage, the change agents carefully analyse the information available and also consult all the stakeholders like the management, employees and trade unions, before framing the actual intervention programme known as action plan. The purpose of involving all the stakeholders is to make use of their knowledge and skills and commit them in the change process.

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The major factor that shapes the type of intervention programme is the characteristics and intensity of the problem and the desired end result. The intervention programme may include, among others, orientation programmes, team-building, career planning, change management, training and development, e-learning, coaching, leadership development, and talent management. Depending upon the type and nature of response required, the change agents may decide on individual, group or structural intervention programmes.

Actual Intervention In this stage, the intervention programmes are implemented carefully, usually in a phased manner. The change agents closely monitor each phase of the intervention programme and carry out immediate alterations wherever required. All through the implementation process, the change agents continually gather all the relevant information about the different aspects of the intervention programme. The purpose of such data gathering is to determine the progress of the intervention programmes and also to carry out mid-course corrections in them.

Performance Analysis A full-fledged performance review may be done by the change agents at the end of the intervention programmes to assess their effectiveness in accomplishing the predetermined goals. For instance, the information about labour turnover rate and absenteeism rate may help the change agents decide the extent of cooperation or the opposition for the change process from the employees. Similarly, the extent of knowledge gaining and skills acquisition reported among the programme participants can also help in determining the efficiency of the intervention programmes. Performance reviews are essential for an organization since OD and learning is basically a continuous and repetitive process.

Stabilization and Disengagement Once the changes have been integrated into the work system fully and the employees accustomed to the new environment, all under the careful supervision of the change agents, the process of disengagement begins. At this stage, the change agents gradually disengage themselves from the process and permit the organization and the system to continue with the rest of the activities. However, the disengagement begins only after the change agents gain confidence that their presence or absence would make no difference to the existing situation and the change process is either completed or systematized. Box 12.2 outlines the importance of innovation as part of change management.

Approaches to the Study of Organizational Development Traditionally, OD is considered as an approach for effecting changes in the organization. In fact, OD offers ways and means for ensuring smooth transition in the organization from the old to the new environment. However, OD offers an extensive range of approaches from which an organization can choose the appropriate one. Normally, the characteristics of the organizational setting and the nature of the challenge in the external environment influence the selection of a specific approach for achieving the desired changes. We shall now see some of the important kinds of OD approaches.

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Box 12.2

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OD is a powerful technique adopted by organizations to get better organizational effectiveness and improved flexibility in the organizational structure. It also keeps them flexible in accepting changes as part of the growth strategy. It enables the organizations to introduce the changes in the organization skilfully and to manage these changes successfully. Though each organization may have its own style of designing and implementing OD intervention programmes, the role of the top leadership is invariably essential in all such programmes. It is always important for the management to be ready to embrace changes in whichever form they come. A continuously innovative organization may find it relatively easier to identify and act on changes in its environment. The example of Reliance Industries is a noteworthy one. At Reliance, “think, anticipate and be prepared” is a core OD philosophy that manages organizational change

and development. The company believes that a successful change management process requires an ability to anticipate problems and adopt appropriate measures for the eventual success in the change management initiatives. Reliance ensures that all its managers know that every change initiative will meet with some form of resistance. It is, therefore, their responsibility to anticipate and tackle the likely resistance and take the responsibility to get the cooperation of all the stakeholders to create a win-win business model. The other outstanding themes of Reliance’s innovation endeavour include “Impossible is an inspiring word”, “Hands-on thinking, hands-off execution”, “First time it is learning, second time it is a mistake”. Adapted from: http://www.ril.com/html/aboutus/ innovation.html.

The Data-driven Approach In this method, the data collected about the environment drive the OD process by and large. In fact, OD is primarily a data-driven approach as the environment assessment and intervention strategies are formulated mostly on the basis of the results of the analysis of the collected data. Similarly, the effectiveness of OD can also be assessed accurately through an effective data gathering and analysis process. The four general forms of data used in this approach are interview data, focus group data, organizational-survey data, and multiple-survey feedback.11 In addition to these, a few other forms like personality assessment, appreciative inquiry, action learning, and system intervention are also available. Although an organization can adopt different types of data-gathering techniques in the data-driven approach, feedback survey is normally viewed as the preferred method for its reliability and accuracy. The main merit of this method is its objectivity and reliability. However, some organizations are adopting another method called a value-driven approach as a replacement or at least a supplement for the data-driven approach. In this approach, the entire OD process is driven by a value-based action research method. The important prerequisites for a value-driven approach are the presence of value-based leadership, value-based decisionmaking approach and value management.

The System-design Approach In this approach, the entire organization is viewed as a complex system composed of interrelated and interdependent sub-systems. These sub-systems are unified by appropriate designs to achieve the organizational goals or objectives. These sub-systems may be the leadership system, communication system, motivational system, compensation system, development system, information management system, and performance evaluation system. Deficiencies in these systems usually cause several problems to the organization and also

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affect its adaptability. Further, the changes brought about in one element usually affect the other elements of the system. The success of this system hinges on the ability of the top management to understand and accept the necessity of designing a system that contributes to the accomplishment of the mission, vision and objectives of the organization effectively. This approach is based on the assumption that the designing of an appropriate and tailor-made organizational system greatly enhances the ability of the organizational structure in adopting itself to the fresh external environmental challenges.12

The Contingency Approach This approach is normally adopted when there is a high level of uncertainty in the external environment and the changes occurring in such an environment is highly unpredictable. In an uncertain situation, the contingency approach attempts to study the different possible scenarios in the environment and assess its implications for the organization. Thus, it identifies the “if–then” relationship and proposes changes in the goals, strategies and direction of the organization, if necessary. Developments like globalization, intensified competition, government’s policy intervention, changes in consumers’ tastes and preferences, and technological changes often make the external conditions volatile for the organization. Consequently, organizations are compelled to develop plans and counter-plans continually on the basis of their understanding of the emerging situation. The contingency approach matches such requirements of the organization.

Types of OD Intervention Programmes Plans and actions developed and implemented as part of the OD process are called intervention programmes. The purpose of such intervention programmes is to achieve the planned changes in the process, people, structure and culture of the organization. According to Wendell L. French and Cecil H. Bell, the term organization development intervention stands for, “a set of structured activities in which selected organizational units (groups or individuals) engage in a task or sequence of tasks with the goals of organizational improvement and individual development.”13 Though organizations have numerous choices in the selection of OD intervention, the important guiding factors are the nature of the organization and its business, the characteristics and intensity of the challenges, the outcome desired by the organization at the end of the intervention programme and its management philosophy. Important OD intervention techniques are team-building, survey feedback, training and development programmes, leadershipdevelopment programmes, process-consultation interventions, force-field analysis, thirdparty peacemaking interventions, human resource management interventions and total quality management. Figure 12.2 shows the types of intervention programmes. We shall now see these OD intervention techniques in detail.

Team Building Team building is an effective intervention technique used in OD for achieving the desired goals. It is a process of bringing people together, improving the intra-group cohesion and achieving predetermined team goals through collective performance. The team-building process certainly assists a group in working as a cohesive unit. A successful team-building process enhances the levels of performance, motivation, morale, trust, communication and cohesiveness among

ORGANIZATIONAL DEVELOPMENT

Process-consultation intervention

Team building

Force-field analysis Survey feedback Training and development Leadershipdevelopment programme

Types of Organizational Development Interventions

Third-party peacemaking HRM interventions Total quality management

Figure 12.2 Types of Intervention Programmes

the team members. Similarly, an effective team-building process helps the members in efficiently integrating their individual interests with that of the organization. It also improves free and frank conversations among the members, and better communication with the management. A team may take the form of a committee, task force, project team or quality circle. In any organization, building a cohesive team is a challenging job for the management. The process of team building is usually facilitated by the leaders from within or outside the group. They have to continuously engage the members in the process of consultation and collaboration for achieving the desired behaviour. Team leaders should identify the hurdles to the team-building efforts and eliminate them gradually. Simultaneously, they should employ goal enablers like information sharing, skill integration and resource sharing for effective accomplishment of team goals. The steps in a team-building process are forming (knowing each other in the group), storming (asserting their personal views and opinions within the group), norming (developing norms for guiding the members’ behaviour), performing (accomplishing the goals for which the group is formed), and adjourning (dissolution of the teams for any reason).

Survey Feedback Survey feedback is a conventional questionnaire form of survey used in organizations for assessing the employee morale and attitudes.14 The survey feedback actually serves the twin purposes of employee survey and employee feedback. In the first step, a survey is conducted to assess the employees’ perception of the characteristics of the organizational structure such as acceptable employee behaviour, authority, responsibility and accountability of individuals and group and firm’s relationship with external environment. In the second and last phase, a feedback is provided to the employees and their superiors about the outcome of the employees’ survey. On the basis of the feedback report, necessary actions are initiated by the organization as part of the OD process. Survey and feedback are usually carried out through interviews, questionnaires or some form of group activities.15 As an intervention technique, the survey feedback enables the organization to evaluate the complexities and uncertainties in the organization environment and also helps in determining its strategic response to the changes that caused such uncertainties. The usefulness of this method as an intervention strategy depends on the ability of the supervisors and managers in developing action programmes, based on such feedback, for improving the skills of their subordinates.

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Training and Development Organizing training sessions is an important intervention strategy in the OD process. The purpose of training is to provide opportunity to the employees to develop the necessary knowledge, skills and abilities in order to make them fit for future responsibilities. It would also assist them in fulfilling their career aspirations. In most cases, sensitivity training— also called T-group training—is conducted by the organizations to facilitate discussions among the members about the various issues affecting them. A T-group is usually a small unstructured group formed to discuss the matters concerning them without a formal leader, agenda, and goals. Usually, the trainers or intervention experts set a broad framework for discussion and permit the members to have a free and frank sharing of ideas, opinions, and even fears about the matters concerning their future. Normally, a T-group provides a personalized learning experience for the members of the group. It is also found to be more effective in spheres of conflict management, confidence-building and authority determinations. Of late, organizations have coined a new nomenclature for training and organization development programmes as human resource talent programmes.

Leadership Development The presence of effective leaders is an important prerequisite for the success of any OD programme. The top leaders must be well versed with the various aspects of OD and the change processes. They cannot take chances in the implementation of OD programmes. They must be physically, mentally and psychologically well-equipped to tackle unforeseen developments during and after the implementation of intervention programmes. An organization can employ management development programmes like mentoring and external coaches for enhancing the leadership skills of the top managers. Leadership development programmes aim at providing knowledge, awareness and better insight into one’s own abilities, attitudes and self-belief.16 In an OD process, the manager becomes the leader and ensures that his leadership makes available necessary support and warmth to the subordinates, especially during the transition phases. In fact, an effective leader inspires his subordinates to accept challenges and act with smartness and courage in responding to them.

Process Consultation Interventions Process consultation is fast emerging as an important intervention programme in the OD process. In process consultation interventions, external consultants facilitate the employees understanding their organizational problems better and help in the development of a process that enables the members of the organization to develop workable solutions.17 They work in a planned way to enhance the readiness of the organization in implementing the OD process. They establish contact with the individuals and/or groups, develop mutually helpful relationship, and finally decide on the settings and techniques for data collection, data analysis and feedback. Ideally, they help the employees understand the human and social processes involved in change management. In the words of Edgar Schein, process consultation is “the set of activities on the part of the consultant which help the client to perceive, understand, and act upon the process events which occur in the client’s environment”.18 In process consultation, the consultants focus on developing a process that would facilitate the accomplishment of the goals of the organization. They do not bring any ready-made package for solving the organizational problems. Rather, they develop a tailor-made process

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that suits the organizational environment. In the case of process consultation, the following steps are usually adopted: 1. The consultants first ascertain the nature and intensity of the issues affecting the organization and also gain knowledge of the nature of the organization and its business. 2. Once all the relevant information is gathered about the organization and its issues, the consultants determine the techniques, practices and approach required for solving the problems. 3. In the next stage, the consultants share information about the selected techniques and practices with the client organization and supervise the implementation of these practices. The uniqueness of process consultation is that the organization eventually develops the required ability to solve its problems through process modification. In process consultation, the consultants help the organization in establishing a learning culture, improving employee participation and involvement, and fine-tuning the control process.

Force-field Analysis The force-field analysis model is an analytical tool used effectively in the OD process. This model, developed by Kurt Lewin, is based on the assumption that an organization is affected by two contrasting forces, namely, the driving force and the restraining force. Driving forces normally facilitate the process of change while restraining forces obstruct them. In normal circumstances, equilibrium is maintained between these two opposing forces in the organization. When the OD process is to be introduced, the first step is the deliberate process of disturbing the equilibrium between these forces. This process is normally known as “unfreezing” in OD parlance. Unfreezing makes the organization fit for introducing planned changes. The unfreezing of an organization is done by changing the equation between the driving force and the restraining force. In this process, one of the forces is deliberately weakened against another. After the necessary changes are carried out in the unfrozen organization as part of OD intervention, the equilibrium between the competing forces is gradually restored. This process is known as “refreezing” in force-field analysis. The main merit of this method is the simplicity in understanding the basic format. In fact, this method is viewed by many as a value-neutral and non-threatening technique for intervention.19

Third-party Peacemaking Interventions Third-party peacemaking is basically a group-based intervention technique. Its aim is to enhance the inter-group relations in the organization. As the name suggests, a third-party expert called an OD consultant assists the employees in managing their interpersonal conflicts through intervention programmes. In the case of third-party intervention, the consultant conducts confrontation meetings in which the parties with conflicting interests air their views and opinions and ensures that the meeting ends with a positive outcome. The primary focus of this method is on helping the employees identify and understand the source of conflict. A few guidelines for an effective confrontation meeting are:20 • The consultant develops a clear-cut agenda for the confrontation meeting including the time duration for each agenda of the meeting.

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• Each competing group or individual must get adequate time to state their problems effectively and justify their positions on the conflict. • The consultant should guide the dialogue process closely and be ready to clarify the issues involved in the confrontation. • Whenever necessary, the consultant should provide an instant summary and feedback about the confrontation meeting and its outcome. • When the meeting remains inconclusive, it is necessary for the consultant to decide the agenda for subsequent meetings. The difficult and delicate role of the consultants makes it compulsory for them to have sufficient experience and expertise in conflict resolution process.

Human Resource Management Interventions The purpose of human resource management intervention technique is to enhance the employees’ performance, satisfaction, commitment and involvement. An organization achieves the OD goals through human resource management functions like recruitment and selection, compensation management, performance management, integration and placement process. For instance, recruitment intervention may aim at getting the best talents to the organization; performance management may aim at identifying the prospective employees for future assignments; and reward intervention may focus on developing employee commitment and productivity. The grievance resolution and collective bargaining interventions may strive for establishing harmonious industrial relations. However, the selection of a specific intervention programme in human resource management intervention usually depends on the purpose of the OD goals.

Total Quality Management Total quality management (TQM) is a long-term OD intervention programme. The purpose of TQM is to develop a set of management practices that demonstrate the employees’ commitment towards high customer satisfaction on a continuous basis. This intervention programme emphasizes process evaluation and control. This method requires the entire organization to dedicate itself to the process, product and culture improvement activities. The presence of an effective leadership is an important pre-condition for the success of TQM. Being a continuous process, it seeks to achieve better team spirit, employee recognition, goal and vision accomplishment, and technology development.

Benefits of OD Intervention Programmes The important benefits of OD intervention programmes are as follows:

Better Interaction among the Employees The basic purpose of many OD intervention programmes is to increase communication among the employees. The aim of improved communication is to create a common understanding about the challenges in the environment and the need for changes in the organization. OD intervention programmes attempt to achieve this by influencing the employees and then bringing about the desired changes in their attitude and behaviour.

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Employees’ Skills Enhancement in the Changing Environment Modern organizations are operating in a highly unpredictable and unstable environment. Changes in such an environment normally pose several challenges for them. These changes force them to constantly enhance the skill levels of their employees in tune with the market requirements. Intervention programmes help the organizations constantly improve the knowledge, skills and competencies of their workforce.

Systematization of the Change Management Process Through intervention programmes, an organization makes OD the responsibility of all the members of the organization. This is made possible as almost all employees are generally involved in some form of training and development programme as part of the OD process. The process and outcome of OD interventions often involve many people, thereby systematizing the entire change management process.

Employee Evaluation and Feedback In many intervention programmes, employee evaluation becomes a critical part of the OD process. For instance, the survey feedback requires a complete survey of the attitude and behaviour of the employees, and the results of such surveys are passed back to the employees as feedback. In this process, the employees get to know about their existing behavioural and attitudinal problems. This awareness provides them opportunities to plan their future activities as part of career planning and development process.

Prevention Rather than Correction When OD is carried out as a continuous process in an organization, it enhances the organizational preparedness and readiness in meeting any changes and challenges that may arise in the environment. In such a scenario, the organization is able to prevent the negative fallout of those changes on the organization through timely and mature responses. As such, the intervention strategies enable an organization to adopt preventive rather than corrective measures in tackling the environmental challenges.

Summary 1. Organizational development is a deliberate and systematic process adopted to enhance the ability of an organization to identify, understand and accept changes and to benefit from such changes. 2. The steps involved in the OD process are (i) need identification, (ii) environment evaluation, (iii) action plans based on evaluation, (iv) actual intervention, (v) performance analysis, and (vi) stabilization and disengagement.

3. The approaches to OD are the data-driven approach, the system-design approach, and the contingency approach. 4.

The types of OD interventions are team building, survey feedback, training and development, leadership development, process-consultation interventions, force-field analysis, third-party peacemaking, human resource management interventions and total quality management.

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5.

The benefits of OD intervention programmes are better interaction among the members of the organization, employees’ skills enhancement in the changing environment, systematization of the

change management process, employee evaluation and feedback, and prevention rather than correction.

Review Questions Essay-type questions 1.

Examine the organizational development process critically using relevant examples.

2. Discuss the different approaches to the study of organizational development in detail.

3.

Enumerate the various organizational development intervention programmes using examples.

4.

Evaluate the meaning and merits of organizational development critically.

5. “Organizational development is a planned approach to change.” Discuss.

Skill-development Exercise Objective – The purpose of this exercise is to show you how to plan, design and execute organizational development intervention programmes in an efficient and successful manner. Procedure Note – The class is divided into groups. Each group has (1) an HR manager, (2) two HR team members, (3) an organizational development expert, and (4) two observers of the meetings. The role of the observers is to observe the different aspects of the role-playing sessions and give their feedback. Situation Excel Bank is one of the long-standing and reputed Indian private sector banks in the country. It has branches in 654 locations. Due to the declining profit margin in the banking industry as a result of intensified competition, the bank decided to diversify its operations and offer new services to its customers. As a part of this programme, it decided to offer bancassurance services to its existing customers. In bancassurance, the bank offers insurance products to its customers by insuring both moveable and non-moveable properties. The role of the bank in offering this service is that of an agent for an insurance company and it gets an appropriate commission from the insurance company.

However, this proposal met with stiff resistance from the bank staff as they were not prepared to carry out insurance business in the bank. Since bancassurance is a lucrative business, the management was not at all ready to go back on this proposal. The bank management finally ordered the HR department to conduct OD intervention programmes to ensure the support of the employees for the proposal. To help the HR team, the management employed an external OD consultant to supervise the change planning and management process. Now, the HR manager, in consultation with the external OD expert, begins the work. Step in the exercise There are three steps in the exercise: Step 1: The HR manager meets the OD expert to discuss the nature of the problem and the required intervention programmes. Step 2: The HR manager conducts a meeting in his department to decide on the exact OD intervention programmes to be launched for accomplishing the OD goals. Step 3: The observers analyse the performance of the members in the role-playing session and give their feedback.

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Case Study Akhil Vikas International is a top fast-moving consumer goods (FMCG) category company in India. It has quite a few well-known branded products which offer beauty, health and wellness solutions. It also keeps several popular brands of home care products, food and beverages. The company considers product differentiation as its main and successful marketing strategy. To achieve product differentiation, it adopts the TQM approach in the production process. Though the total strength of its workforce is 12,100, it enjoyed fairly good industrial relations so far. The unique HR policies and practices of the company were largely responsible for the cordial relationship between the superiors and the subordinates. There was a clear demarcation of duties and responsibilities between the supervisors and the workers, and this prevented possible conflicts and strains in the relationships. However, the situation changed dramatically in the recent period after the company went in for the modernization of its plant. As part of its modernization programme, it recruited a big chunk of knowledge workers recently to operate the high-tech machines. These workers were assigned to supervisors in different production units after undergoing orientation. Contrary to expectations, the management observed some unease in the relationship between the supervisors and the newly appointed subordinates. There were frequent complaints of ill-treatment from the subordinates and of disrespect from the supervisors. Consequently, tension began to build between these two groups in the organization, leading to declining employee morale, quality levels and performance efficiency. The management of Akhil Vikas was vexed over the developments in the organization and decided to utilize the services of IDEA—an external OD agency—to resolve the issues of the organization. The IDEA team, in coordination with the HR department, conducted an OD survey

to identify the cause of the frequent disputes between the supervisors and the subordinates. At the end of the survey, the team identified assertive and independent behaviour of the newly appointed high-tech workers as the cause of the disputes. The supervisors apparently perceived a direct challenge to their authority from these subordinates. Understandably, the team found intransigence bordering on arrogance in the attitude of the supervisors towards their subordinates. Thus, there was clear distrust between the supervisors and the new subordinates. However, these very supervisors maintained normal and cordial relationships with the older subordinates. The external experts attributed the crisis to the absence of any training for the supervisors in team-building and leadership. They also found the orientation and socialization provided to the new employees as grossly inadequate. Finally, the HR department, in collaboration with the IDEA team, organized a series of training programmes for the supervisors on topics like interpersonal skill training, emotional intelligence, team building, cross-cultural understanding, motivation, personality-type training and conflict management. The HR department also increased the duration of the orientation programme for the new employees by making it more extensive and relevant. The management is now fairly optimistic about the outcome of its efforts. Questions for discussion 1. According to you, who is to be blamed for the problems of Akhil Vikas International? 2. How do you assess the efficiency of the human resource department in carrying out the OD intervention programmes in general? 3.

What will be the possible outcome of the joint efforts of the HR department and IDEA in terms of organizational development and change management?

2.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), pp. 256–257.

Notes 1. Wendell L. French and Cecil H. Bell, Organization Development: Behavioral Science Interventions for Organization Improvement (Englewood Cliffs, NJ: Prentice-Hall, 1973), p. 18.

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3. Wendell L. French and Cecil H. Bell, Organization Development: Behavioral Science Interventions for Organization Improvement (Englewood Cliffs, NJ: Prentice-Hall, 1994). 4. W. Warner Burke, Organization Development: A Normative View (Reading, MA: Addison–Wesley, 1987). 5.

Harold Koontz, Cyril O’Donnell and Heinz Weihrich, Management (Tokyo: McGraw–Hill, 1980).

6. Richard Arvid Johnson, Management, Systems, and Society: An Introduction (Pacific Palisades, CA: Goodyear, 1976), pp. 219–222. 7.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 258.

8. Wendell L. French and Cecil H. Bell, Organization Development: Behavioral Science Interventions for Organization Improvement (Englewood Cliffs, NJ: Prentice-Hall, 1973), p. 18. 9.

10.

Kurt Lewin, Group Decision and Social Change (New York: Holt, Rinehart and Winston, 1958), p. 201. David L. Bradford and W. Warner Burke, Reinventing Organization Development: New Approaches to Change in Organizations (San Francisco: John Wiley and Sons, 2005), p. 10.

11. David Bracken, Carol W. Timmreck and Allan H. Church, The Handbook of Multisource Feedback: The Comprehensive Resource for Designing and Implementing MSF Processes (Toronto: John Wiley and Sons, 2000), p. 306.

12. Shelley E. Phipps, “The System Design Approach to Organizational Development: The University of Arizona Model,” Library Trends, (Summer 2004), p. 1; available at http://findarticles.com/p/articles/ mi_m1387/is_1_53/ai_n8640808. 13. Wendell L. French and Cecil H. Bell, Organization Development: Behavioral Science Interventions for Organization Improvement (Englewood Cliffs, NJ: Prentice-Hall, 1999), p. 145. 14. W. Warner Burke, Organization Development: A Process of Learning and Changing (Reading, MA: Addison–Wesley, 1992). 15. L. L. Goode and J. Bartunek, “Action Research in Unbounded Settings: The Example of an Apartment Complex,” Consultation, 9 (1990): 209–228. 16. Joan V. Gallos (ed.) and Edgar H. Schein (foreword by), Organization Development: A Jossey-Bass Reader (San Francisco: John Wiley and Sons, 2006), p. 682. 17. John Martin, Organizational Behaviour and Management (London: Thomson Learning, 2005), p. 799. 18. Edgar H. Schein, Process Consultation: Its Role in Organization Development (Reading, MA: AddisonWesley, 1969), p. 9. 19. Therese F. Yeager, Thomas C. Head and Peter F. Sorensen, Global Organization Development: Managing Unprecedented Change, (Charlotte, NC: Information Age Publishing, 2006), p. 75. 20. Eugene F. McKenna, Business Psychology and Organisational Behaviour: A Student’s Handbook (London: Psychology Press, 2000), p. 518.

PART IV

CHAPTER

13

HR Evaluation and Compensation

Performance Evaluation and Job Evaluation

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the meaning and objectives of performance evaluation 2 Present an overview of performance management 3 Understand the process of performance evaluation 4 List the issues and challenges that are faced by performance evaluation 5 Enumerate the steps that make performance evaluation programmes effective 6 Understand the meaning and benefits of job evaluation 7 Discuss the various methods and stages used for job evaluation 8 Understand the process of job evaluation 9 List the steps needed to make a job evaluation programme effective

The Aditya Birla Group is a large business conglomerate, with 100,000 employees encompassing 25 different nationalities. It has vast and diverse business interests and operates in more than 20 countries across 17 businesses. The group has several innovative HR initiatives that aim at treating the employees as group resources. Acknowledging employees through the Aditya Birla awards for outstanding achievement has been one of its major employee engagement programmes. In 2007, the group was adjudged the best employer in India and among the top 20 in Asia by a Hewitt Associates study for its HR policies and schemes in India. The group views a transparent performance management and job evaluation process as a vital

employee retention tool. The main features of its performance management process include predetermined goals and key result areas (KRAs) to enable the employees to know what is expected of them, a mid-year review, an annual performance appraisal process, which includes self-assessment, supervisor assessment and a skip-level review, an assessment of the individual on values compliance and demonstration, and, finally, a documentation of career aspirations along with the developmental requirements to achieve those aspirations. The Aditya Birla Group proves that companies can make rapid strides with an efficient performance management and job evaluation process and we shall discuss these in this chapter.

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Performance Evaluation: An Introduction Performance evaluation is one of the crucial steps in the process of human resource management. Through performance evaluation, an organization seeks to know what is done by an employee. Performance evaluation is concerned with the evaluation of the individual and group performance of the employees of an organization. Each organization can have its own way of appraising the performance of its employees. The mode of appraisal may be formal or informal. In any case, an organization requires effective appraisals to ensure that the employees’ efforts are goal-directed. In the absence of a reliable and objective performance evaluation of employees, an organization might suffer in the form of high labour cost, underperformance of its workforce, low productivity and underutilization of available resources. 1 Performance evaluation is a careful and predetermined way of assessing an employee’s performance during a given period of time. It involves the process of measuring an employee’s present actual performance with the estimated standard performance. The idea behind performance evaluation is to continuously enhance the employees’ performance and also to plan for their future. It helps an organization to identify and eliminate deficiencies in the performance of its employees. It, indeed, reveals the keenness of an organization in the growth of its employees. However, the eventual beneficiaries of performance evaluation are both the individual employees and the organization. This is because the objective of any evaluation process is to enhance the employees’ performance and through that the performance of the organization.

Performance Evaluation: An Overview Although performance evaluation is basically a procedure used for ascertaining, examining and recording information about the relative worth of the members of an organization, it has been defined differently by various authors. Box 13.1 lists some of the definitions relating to performance evaluation. We may define performance evaluation as an objective review and rating of an employee’s performance in comparison with the relative performance standards.

Box 13.1

Definitions

“Performance evaluation is a formal system of review and evaluation of individual or team task performance.”2 —R. Wayne Mondy “Performance appraisal is a systematic, periodic and impartial rating of an employee’s excellence in matters pertaining to his present job and his potential for a better job.”3 —Edwin B. Flippo

“Performance evaluation means evaluating an employee’s current and/or past performance relative to his or her performance standards.”4 —Gary Dessler “Performance evaluation is a systematic evaluation of the individual with regard to his or her performance on the job and his potential for development.” 5 —Dale S. Beach

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Performance Management: An Overview While performance evaluation is limited in its scope and confined to reviewing the performance of employees, performance management is a much wider process. It is, in fact, a total and integrated process comprising activities like goal-setting, training, evaluation, and rewarding of employees. It is a goal-based process aimed at guaranteeing that organizational processes produce the expected performance on the part of both the employees and the organization. It begins with the task of setting performance standards for employees followed by training and development. It finally ends with performance appraisal and thereby fixing rewards for employees in a fair and objective manner. Performance appraisal is a one-time event each year whereas performance management is a dynamic, ongoing, and continuous process.6 The foremost task of performance management is fixing goals in alignment with the strategic needs of an organization. Performance management constantly focuses on the effort of each employee towards the achievement of organizational goals. It may involve daily or weekly interactions to ensure continuous improvement in the employee’s capacity and performance.7 When the employee’s existing skills and knowledge are found to be insufficient and require improvement during the performance management process, training and development exercises are usually undertaken to achieve the required effectiveness. Besides, compensation may also be linked directly to attaining organizational goals. For instance, employees who are able to effectively contribute to the achievement of the organizational goals could be well rewarded.8 The crux of performance management is ensuring frequent interactions with employees in order to enhance their level of and capacity for performance on a sustained basis. This core feature is included in many of the definitions of performance management. Box 13.2 lists some of the definitions.

Objectives of Performance Evaluation Every organization practices some form of performance evaluation to achieve the pre-specified objectives. However, these objectives usually differ from organization to organization. Sometimes, they may vary even within the same organization from time to time depending upon the prevailing requirements. The common objectives of performance evaluation are: Box 13.2

Definitions

“Performance management is a strategic and integrated approach to delivering sustained success to organizations by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors.”9 —Michael Armstrong “Performance management can be defined as a process that consolidates goal setting, performance appraisal, and development into a single, common system, the aim

of which is to ensure that the employee’s performance is supporting the company’s strategic aims.”10 —Gary Dessler “Performance management means goal-oriented processes directed toward ensuring that organizational processes are in place to maximize the productivity of employees, teams, and, ultimately, the organization.”11 —R. Wayne Mondy

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Identify the Performance Gap Performance evaluation helps in determining the gap between the actual performance of the employee and the performance expected or desired by the organization.

Provide the Basis for Promotion, Transfer and Termination Performance evaluation facilitates the process of identifying in an objective manner the employees who deserve promotions, transfers or even terminations.

Aid in Designing Training and Development Programmes The results of performance evaluation can be used to identify the specific skills required to be developed for each employee and thus can help in developing the training and development programmes.

Assist in Wage and Salary Administration Performance evaluation helps in determining compensation packages like wage fixation, rewards allocation, and incentives for the employees on a scientific basis.

Help in Increasing Employee Effectiveness It facilitates the organization in improving the effectiveness of its employees by helping them identify their strengths and eliminating their weaknesses.

Improve Interpersonal Relations It helps in building a cordial industrial relationship by encouraging good contact between the management and the labour. It acts a mechanism for communication between the superiors and the employees.

Identify Employees’ Grievances It helps in identifying and recognizing the grievances of the employees at the earliest and thereby removing factors responsible for such grievances.

Uses of Performance Evaluation An organization may have several reasons to appraise its employees. For instance, HR managers require performance evaluation to provide feedback, support the performance enhancement drive, make valid decisions, justify terminations, recognize training and development needs, and defend any personnel decisions.12 In fact, the given uses of performance evaluation influence the decisions regarding the design and execution of performance evaluation technique. For instance, a particular performance evaluation technique suitable for determining training needs of employees may not be ideal for deciding the pay scales of employees. However, a comprehensive evaluation system can overcome this problem to a great extent. A properly designed evaluation tool can find a use in every stage of the human resource management process. Obviously, the information obtained through performance

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evaluation can help the HR managers in several ways. It can be used to convert strategic goals of the organization into the employees’ goals, to devise or revise its HR plans, to revisit the employees’ career plans, and to enhance individual and organizational performance. The following are some of the HR operations where the results of performance evaluation are widely utilized:

Human Resource (HR) Planning HR planning involves forecasting and determining the manpower requirements of an organization to meet its strategic goals. With the help of a performance evaluation, the organization can assess its available manpower effectively and plan its future HR programmes based on the anticipated labour requirements. Through performance appraisal, it can also plan and prepare a profile of its HR strengths and weaknesses to support its strategic missions and goals. Box 13.3 outlines the goals of the performance evaluation system at ACC.

Recruitment and Selection The purpose of any selection tool is to predict the likely performance of candidates when offered jobs. The scores from the various selection devices administered to candidates at the time of selection are usually correlated at a later stage with their actual job performance to determine the efficacy and validity of the selection tools. In fact, performance evaluation offers a way for validating both internal (promotions and transfers) and external (employing new people from outside sources) selection programmes.13 Performance evaluation ratings are good at predicting the performance of candidates. However, when not enough attention is given to the appropriate evaluation of the employees’ performance, the time and money spent on the designing and development of selection tools are simply wasted.

Employee Training and Development Performance evaluation can easily identify a worker’s specific needs for training. This is because shortages in performance are usually the direct outcome of the absence of adequate knowledge or skills on the part of the workforce. In fact, performance evaluation results can be used to decide whether an employee or group of employees will require additional training and development.14 Inadequacies in the performance of the employees can be identified

Box 13.3

Performance Evaluation System: An HR Effort Aimed at Recognizing Good Work

Almost all organizations have some means of evaluating their workforce performance. The means of evaluation may be a formal or informal. Though the basic objective of any evaluation is to improve individual and organizational performance, it serves different purposes for different organizations. For instance, some organizations may link pay and promotional decisions to evaluation results while others may use it just to know the deficiency in their employees’ performance. The interesting aspect of performance evaluation is that its results are

potentially valuable for practically every human resource functional area. The performance evaluation system at ACC is worth mentioning here. It is used as the basis for determining performance-linked incentives, good work awards, letters of appreciation, special increments, promotions, and nominations to external training programmes in India and abroad, public felicitation and appreciation. Adapted from: http://www. acclimited.com.

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through evaluation and training programmes formulated accordingly so that employees can build on their strengths even while removing their deficiencies.

Compensation Decisions Performance evaluation provides reliable information for determining the pay scale of the employees. In fact, compensation decisions, to varying degrees, are based on the results of an employee’s performance appraisal.15 Performance evaluation helps the organization to reward behaviour that contributes directly to the accomplishment of the organizational objectives. Thus, it is essential to design and execute a dependable performance evaluation system to reward the most efficient workers and groups appropriately. A recent study showed that twothirds of the companies use performance reviews to determine pay increases, and almost half use them to calculate bonuses.16

Career Planning and Development Performance evaluation is useful in determining the career plans of employees. Any organization would like to promote only the best qualified employees to the higher levels. In this context, performance evaluation data is vital in evaluating an employee’s strengths and weaknesses and also in deciding the employee’s potential. An organization may decide about transfers, lay-offs, and so on, based on the results of the performance evaluation. Finally, the HR professional can help employees in developing and implementing their career plans on the basis of performance evaluation. Box 13.4 shows the online evaluation practice at the Indian Oil Corporation.

Grievance and Discipline Issues Performance evaluation information is also used frequently for decisions relating to promotion, demotion, termination, layoff and transfer.17 Performance evaluation results can be used to initiate the necessary action against incompetent employees faring poorly in the performance evaluation, provided the process of evaluation is flawless and standard. Performance evaluation data can also be used as an important source of documentation for formal grievances that are filed in connection with employee disciplinary actions.18

Box 13.4

Performance Evaluation: A Basis for Career Growth

Performance evaluation is an ideal option for an organization to determine the ability of an individual employee to accomplish his tasks. An effective evaluation system must focus on the individual employee and his development, in addition to facilitating him to achieve the desired performance. A good performance evaluation system should focus not only on the organizational objectives, but also on the individual and the mutual ones.

For instance, Indian Oil Corporation, a national oil company, has an online performance measurement system in place. The performance and potential of the employees decides their promotion and career plan and progress. In fact, the career growth opportunities in this company are based on the individuals’ performance and their contribution to the common goal of sustained growth assessed through appraisals. Adapted from: http://iocl.com/PeopleCareers.aspx.

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Feedback Employees are usually interested in knowing the results of the performance evaluation. This is because they may be curious to know how well they are performing at present and how much improvement is required to attain the desired performance. This feedback enables them to have a clear idea about their standing in the organization as related to performance rewards like promotion, or merit pay. An objective and timely feedback can benefit the employees in terms of motivation and satisfaction; it can benefit the management in terms of increased cooperation, productivity and support from the employees.

Determining the Criteria for Performance Evaluation The determination of the criteria for performance evaluation often involves the tricky question of what aspects of employees’ performance are to be evaluated. The note of caution here is that the criteria selected should be purely job-related and well within the control of the workers. Also, they should be clearly defined and have no ambiguity. As far as possible, performance evaluation that is based on a single criterion is to be avoided. The job analysis report can help in identifying the criteria for each job. Normally, performance evaluation criteria involve individual traits, behavioural characteristics, goal accomplishment, scope for improvement, and competencies. We shall now discuss these criteria briefly.

Individual Traits The employees’ attributes like attitude, outlook and initiative can be the basis for the performance appraisal. However, it is to be ensured that the subjective elements in these traits are controlled carefully and defined properly, otherwise, they can cause inaccuracy in evaluation. For instance, subjective elements like leadership qualities, appearance, personal conduct, attitude towards life, ethical practice, imagination, mental alertness, and reliability can cause bias and prejudice in evaluation.

Behavioural Characteristics Behaviour is the aggregate of the responses, reactions or movements made by a person in any situation. Although the individual’s response on a particular occasion is difficult to determine, organizations may evaluate the standard task-related behaviour or competencies. For instance, leadership styles, teamwork, commitment, and customer care are some of the desired behaviours normally included as criteria to evaluate the employees. Organizations tend to recognize and reward those behaviours that can contribute to the overall growth of the organization.

Goal Accomplishment The successful accomplishment of goals can become a criterion for evaluating the performance of employees. The outcome of those goals that contribute to the success of the organization can be an ideal appraisal criterion. They may be financial goals like profit, cash flow or marketing goals like the desired sales, achieving the target market share or standing in the market, maintaining the time schedule, and total quality management. However, it is imperative that the management involve the employees in the process of fixing goals for evaluation.

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Scope for Improvement Performance evaluation criteria may focus on assessing the future potential of employees. A proper evaluation of the potential of employees can help in deciding their career plan and prospects systematically. It is to be noted here that the performance evaluation report would become mere historical documents with little use if the focus of the evaluation does not shift from the past to the future performance of the employees.

Competencies Competency is the quality of being well-qualified physically and intellectually. Performance evaluation can attempt to assess those job-related skills, knowledge, qualities, ethical values, flexibility and sense of judgment that contribute to job success. Susan Meisinger identified five key areas that require the application of specific competency and skills and contribute significantly to the success of an organization in general and HR management in particular. These are:19 • Strategic contribution: Connecting the organizations to their markets and quickly aligning employee behaviour with the organizational needs • Business knowledge: Knowing how businesses are run and translating this into action • Personal credibility: Demonstrating measurable value; being part of an executive team • HR delivery: Providing efficient and effective service to customers in the areas of staffing, performance management, development, and evaluation • HR technology: Using technology and Web-based means to deliver value to customers It is to be understood clearly that there is no available set of job-related criteria that can be universally applied for performance evaluation. The criteria usually differ, depending on the nature of job, purpose, and situation. Similarly, the criteria discussed here are not mutually exclusive. In fact, each appraisal tool can have a unique permutation and combination of these criteria. Finally, it should be ensured that irrelevant criteria, which can undermine the seriousness of the evaluation, are not included in performance evaluation.

The Process of Performance Evaluation The entire ethos of performance evaluation should start at the top and be built into the strategy of the firm. It should be embodied in the values of the company. The performance evaluation process should strengthen the working relationship between the managers and their employees. It should also contribute to the long-term success of the organization. The entire process should be a rewarding and satisfying experience not only for the organization but also for the individual employees. An ideal performance evaluation process should provide the basis for managing the business of today and for developing it in the future.20 Figure 13.1 illustrates the steps involved in a performance evaluation process. We shall now discuss these steps in detail.

Setting the Performance Evaluation Goals The first step in the process of performance evaluation is setting specific goals. These goals are usually set jointly by both the superiors and the employees. The goal-setting process

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Setting the performance evaluation goals

Establishing the performance criteria

Actual evaluation of employee performance

Post-evaluation interview with employees Figure 13.1 The Performance Evaluation Process

ensures that every employee knows what is expected of him and how the achievement of the goal contributes to the overall success. Organizations should select only those goals that are most important and realistically achievable. Stephen Williams specified the following three types of objectives for a performance evaluation programme:21 (i) Key result areas: The objectives which contribute to the achievement of the business goals of the unit. (ii) Performance standards: The objectives which contribute to the improvement in the performance of the individual job. (iii) Performance development: The objectives which contribute to the development in the performance of the individual. Undoubtedly, the effectiveness of performance appraisal depends on the efficiency of the objectives being framed.

Establishing the Performance Criteria The second step in the process is deciding the criteria for evaluation. These criteria are the basis for comparison. It is actually a reference point in terms of which other things can be evaluated. An organization has to decide what characteristics of the employees are to be evaluated. The criteria should be job-related, specific, and within the control of the employees. They may include, among others, the traits, behaviours, cost-related outcomes, competencies, goal achievement, and scope for further improvement. There should be joint discussions between the superiors and the employees regarding criteria formulation. Once the performance criteria are established, these should be communicated to all those concerned.

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Actual Evaluation of Performance At this stage, the employee’s performance is evaluated actually on the basis of predetermined criteria. The evaluator and the employee review the latter’s job performance jointly and appraise it against established performance standards. This appraisal assists in determining to what extent employees have met these standards, ascertaining the reasons for any deficiencies and preparing a plan to correct the problems.

Post-evaluation Interview with Employees As a final step in the formal evaluation process, the superior can have a meeting with the appraised employees to discuss the results of the evaluation, once the appraisal is over. At this stage, the evaluator can ascertain from the employees the reasons for their high or low level of achievement against pre-determined objectives. Further, the evaluator can help the employees consolidate their strengths and improve their relative weaknesses. At this meeting, goals can also be set for the next evaluation period and the process goes on. Box 13.5 depicts the elements of performance evaluation process at J. K. Lakshmi Cement.

Selection of the Evaluator for Conducting the Performance Evaluation In any evaluation process, the most important issue is deciding who should evaluate the employees. The person who is the evaluator is called the rator while the person who is being evaluated is called the ratee. One desirable factor for a person to be a rator is that he should have enough opportunity to take note of the employee’s (ratee’s) work performance over a period of time. Performance appraisal should be conducted by those who are most knowledgeable about an employee’s work performance and are able to closely monitor his job behaviour.22 In any case, it is the responsibility of the rator to ensure that there is no bias in the evaluation process. Let us now examine the different kinds of evaluators who usually undertake the performance evaluation process in an organization.

Immediate Supervisors It is usually the immediate supervisor who is the most conversant with the activities of the employee being evaluated. Similarly, the immediate supervisor is in a better position to

Box 13.5

Performance Evaluation Process: Role of KRAs

To achieve the pre-determined objectives, an organization may develop a variety of performance appraisal methods. However, the ultimate choice of a specific method would depend on the organizational philosophy, its strategic objectives, size, product and technology. Whichever method be adopted, the eventual aim of the management is to ensure that the performance and achievement of the employees do not go unnoticed. The performance appraisal system of J. K. Lakshmi Cement is an example of performance evaluation.

Individual performance targets are set in the form of the key result areas (KRAs) at the start of the year through consultations with the reporting managers. At the end of the year, each employee’s performance is evaluated against the predetermined KRAs. Finally, each employee is provided with an opportunity to discuss his/her achievements during the given period and also told to focus on improvement areas. Adapted from: http://www.jklakshmi.com.

PERFORMANCE EVALUATION AND JOB EVALUATION

effectively correlate his employee’s performance with that of his own unit and also with the overall performance of the organization. Further, the role of the performance evaluator can also strengthen the authority and control of the supervisor over the employees. Obviously, the employee’s immediate supervisor becomes the most preferred choice for his employee’s performance. However, the negative aspect of involving the immediate supervisor is that he may tend to emphasize more on a few aspects while ignoring other job-related factors. For instance, if the supervisor is basically a technocrat, he may have a tendency to provide undue importance to the technical competence of the employees while neglecting their other skills. There is also a possibility that the supervisor may approach the whole process of evaluation with a preconceived notion about an employee’s performance, thereby vitiating the whole exercise. This problem can be overcome by involving the employees closely in the process of determining the evaluation criteria and also by constantly reviewing the evaluation process after getting a feedback from them about the fairness of the exercise.

Peer Groups A peer is a person who is of an equal standing with another in a group. Of late, the evaluation of an employee by his peers is emerging as the more popular form of evaluation. The foremost strength of employing peers to evaluate an employee’s performance is that they work intimately with the ratee and probably have an undistorted view on typical performance, particularly in team assignments.23 The major advantage of this method is that it is best suited for group projects. Co-workers can evaluate certain aspects of an employee’s performance more sincerely than supervisors. For instance, factors like trustworthiness, communication skills, initiative, socialization skills, and inter-personal effectiveness can be evaluated more effectively by the co-workers. The difficulty in peer evaluation is that co-workers may not be willing to criticize one another especially when they work as a team. Besides, the possibility of unfair evaluation by a co-worker due to peer rivalry cannot be ruled out.

Employees Many organizations are serious about the evaluation of the superiors by the employees. There is a growing realization among the organizations that employee ratings are especially valuable when used for developmental rather than evaluative purposes.24 Typically, employees are better placed to observe their superiors’ managerial efficiency. This process can also make the supervisors more sensitive about the work group’s expectations and more mindful of the need for consensus in decision-making. This practice is more popular in educational institutions where teachers are evaluated by their students. The major problem in this method is the fear of victimization by the superior and that is why employees often prefer to evaluate their superiors in an anonymous manner.

Committees Organizations are now employing rating committees to evaluate the employees. These committees are normally balanced with the inclusion of a few supervisors, including the immediate supervisor. These multiple evaluators’ committees can overcome the problems of bias, prejudice, and preconceived notions. The composite ratings are also more dependable, just and valid. Further, evaluation can also be comprehensive with different evaluators assessing different aspects of an employee’s performance.

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Self-evaluation There has been controversy surrounding the usefulness of self-evaluation as the employees may tend to rate themselves higher than what they are evaluated by their superiors and co-workers. This method is normally used more for gathering useful and vital data about the employees than for evaluating them. Employees can provide details about their achievements and contributions over the review period. From the evaluation perspective, its value is significantly less, as a survey on the self-evaluation of one’s performance showed that nearly 40 per cent of the employees performing different types of jobs placed themselves in the best category (in the top 10 per cent) and almost all the remaining employees placed themselves in the well-above-average category (in the top 25 per cent) or in the above-average category (in the top 50 per cent).25 There is also a general feeling that self-evaluation data is just self-serving and, by itself, cannot present a valid picture of employee performance.26 However, the self-evaluation process can act as an instrument to motivate the employees as they can see it as an occasion to bring to the notice of the management their contribution toward the accomplishment of organization goals and gain recognition and appreciation. As a balance for other methods, self-appraisal helps superiors who are primarily concerned in ensuring employee participation and development.

Customers Many organizations have realized of late that it is in the interest of the organization to let the customers evaluate the performance of its employees. This is because the customers’ satisfaction and behaviour play an important role in the success and endurance of the organization. Besides, this can also exhibit the inclusive culture, the commitment towards customers, quality-consciousness, the employee’s accountability for action, and the dynamism of the organization. This process can be used to enhance the quality and efficiency of the employees in public relations and continuously improve the satisfaction levels of the customers. However, it is essential to make sure that the evaluation criteria be well within the control of the employees and they be adequately involved in the goal-setting process. This process may help the organization in achieving specific objectives like timely and proper after-sales service, maintaining the delivery schedule, and gradually reducing the number of unsatisfied customers.

Performance Evaluation Methods The decision regarding the selection of a particular type of evaluation usually involves answering questions like what aspects are to be evaluated and how they should be evaluated. Nevertheless, the purpose of evaluation is the major guiding factor for such decisions. For instance, traditional methods like rating scales, paired comparisons and other similar methods are appropriate when the purpose of evaluation is identifying suitable employees for promotions and compensation, whereas collaborative methods like evaluation by employees, peers, customers and self-evaluation are more suitable for developing the employees. Thus, managers have to carefully choose from the number of evaluation options available to them (Figure 13.2 lists the methods). We shall now see the important performance evaluation methods available to an organization.

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Figure 13.2 Performance Evaluation Methods

The Rating Scales Method In this method of performance evaluation, employees are rated according to pre-specified factors. This method is simple and clear-cut and it allows prompt evaluation of several employees at a time. In this method, evaluators record their assessments of the performance of the employees on a scale. A scale actually lists a group of traits and a range of performance expected for each trait. These traits are usually job-related factors like the quality and quantity of job and personal factors such as reliability, interpersonal skills, and adaptability. The scale may have various scores representing outstanding, average, improvement required, etc. The supervisor evaluates an employee by circling in the evaluation form a scale of each factor that best describes his or her performance. Finally, the assigned values are summed up for each trait. Organizations are now allotting a space in the appraisal form for the evaluator to comment (say, a written justification) on the particular rating given for each factor. The aim of this exercise is to focus on rectifying the deficiencies and discourage a subjective and hasty

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evaluation. Though this method is ideal for evaluating an employee, the limitation of this method is the possibility of the existence of the evaluator’s bias and prejudice.

The Ranking Method This is one of the oldest and easiest methods of evaluating the employees. Each employee is ranked by the evaluator on the basis of their relative worth to the organization, as compared to other employees. Each evaluated employee secures a place in a ranking order ranging from topmost to the worst for selected characteristics. In brief, the best employee in the list is ranked the highest, and the poorest one is at the bottom for the same traits. Though this method enjoys the benefit of ease of administration and explanation,27 it suffers from several defects. For instance, it provides scope for the evaluator’s bias and prejudice. This could be due to halo and recency effects. (Both of these have been discussed later in the chapter.) Besides, it is not very suitable for evaluation involving a large number of persons. Nor can this method be ideal when the employees have dissimilar behavioural qualities.

The Paired Comparison Method This method is only a variant of the ranking method but its ranking system is generally superior. In this method, two employees of a group are considered as a unit or pair. On the basis of predetermined criteria such as total performance, one employee is compared with another. This process of comparing a pair of employees continues till all the employees have been compared. Finally, the employee with the greatest number of favourable responses in inter-person comparison gets the highest ranking. This method can be illustrated better with a numerical example. Suppose six employees in a group are to be evaluated under the paired comparison method. The maximum number of pairs can be calculated with the help of the formula Maximum number of pairs = [n(n − 1)]/2. In the given example, the maximum number of pairs will be [6(6 − 1)]/2 = 15 This maximum number of pairs indicates the maximum possible alternative comparisons. A worker who emerges better than others in as many comparisons yields the best score. However, the major defect of this method is that it may not be appropriate when a large number of employees are to be compared in a short span of time.

The Forced Distribution Method In this method, the evaluator is forced to assign the employees to various performance categories like excellent, good, average, and poor, each with a predetermined percentage. For instance, the evaluator must have to distribute 10 per cent of the employees to the excellent performer category, another 10 per cent to the poor performer category, and the remaining to in-between performer categories. Forced distribution is emerging as a popular method as more organizations are beginning to use it due to an increased focus on pay for performance.28 The merit of this method is that it forces the weak managers to act against the poor performers, who would otherwise escape corrective action. However, this method is unpopular in many organizations as it usually keeps the employees in constant fear of their future. For instance, in a survey of HR professionals, 44 per cent of the respondents felt that the forced ranking system prevalent in their organization damaged the morale of the employees

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and generated a mistrust of leadership.29 This method can also cause potential damage to employee loyalty and cooperation as the employees may suspect it to be an exercise to get rid of them.

The Forced Choice Method In this method, the evaluator has to evaluate the employees with the help of a series of statements (or list of traits). The series may contain both favourable and unfavourable statements. Each statement would carry weights or scores, which may not be known to the evaluator. Now, the evaluator has to choose the most appropriate statement, which best represents the individual being evaluated. This method objectively evaluates an employee as an evaluator will not know the scores of each statement. Further, there is an in-built mechanism available in this method that compels the evaluator to ascertain both negative and positive traits of the employees. The limitation of this method is that the preparation of forced-choice instruments is usually a time-consuming process.

The Critical Incident Method In this method, the supervisor is required to keep a written record of positive and negative work-related actions of the employees. For instance, when a critical incident relating to the behaviour of the employee affects the unit’s or the department’s functioning, positively or negatively, the superior should record it. During the evaluation, these records can supplement other data effectively in evaluating the employee’s performance. The major advantage of this method is that it provides live and real examples of good and bad performance of an employee. It helps the employees in identifying the fundamental areas in which they are strong or weak. It also points out specifically what is to be done by an employee in order to eliminate deficiency in his performance. Further, this method ensures that evaluation is a continuous process and not a one-time affair in a year. Finally, it facilitates better counselling of the employees by their superiors. However, the limitation of this method is that the superiors may find it difficult to record the incidents involving their employees on a regular basis.30

The Essay Method In this method, the evaluator writes a short description of an employee’s performance. The evaluator has to provide a narrative of the employee’s strengths, weaknesses and potentials. This method focuses less on the employees’ regular day-to-day performance and more on their extreme behaviours at work. However, the efficiency of this method depends greatly on the evaluator’s writing skills and objectivity. The merit of this method is its simplicity as it does not require any complex preparation or training. It has, therefore, found wide acceptance as a good performance evaluation technique. However, the defect of this method is that it provides scope for manipulation by the evaluator if he has excellent writing skills. For instance, the evaluator can project a mediocre worker as an excellent performer through his sheer writing skills.

The Cost–benefit Method The essence of this method is that it focuses on the financial returns the organization obtains through an employee. In this method, the management evaluates the cost of retaining an employee in the organization and also the benefits accruing to it through that employee. Finally, a cost–benefit comparison is made as part of performance evaluation to determine

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the real contribution of that employee to the organization. The following factors provide essential guidelines for evaluating the performance:31 1. Value of goods or services produced by the employee 2. Quality of such goods or services produced 3. Indirect cost associated with goods or services produced 4. Abnormal loss arising out of accidents, spoilage, wastages, and damage to machines 5. Appearance, manners, and sociability skills of the employee 6. The cost of supervision needed for the present employee performance

The Work Standard Method In this method, the evaluator compares the performance of the employees against the standards established in the form of expected output. The standard output is usually established on the basis of the normal performance of an average employee. F. W. Taylor’s work study, including time study and work sampling, can be used to determine the work standard. The main advantage of this method is that the there is very little scope for the evaluator’s bias as the standards are fixed scientifically and objectively. Although this method can be applied to almost all types of jobs, manufacturing jobs usually get greater attention.

The Checklist Method In this method, a checklist containing a series of statements on the traits of the employees is prepared and presented to the evaluator, usually the immediate supervisor. The checklist has both positive and negative statements. Each statement is to be answered in the “Yes” or “No” format. It carries a score based on its importance to the overall evaluation. Once the evaluator completes the evaluation by ticking the appropriate columns that best represent the employee, the checklist is sent to the HR department for further processing like assigning predetermined scores, and totalling such scores. The main advantage of this method is that it is a simple, objective, time-saving and costeffective evaluation tool. Similarly, it does not require any specialized training on the part of the evaluator. The limitations of this method are many. For instance, there is a scope for the evaluator’s bias in this method. Similarly, ambiguous statements in the checklist can cause confusion and are liable to misinterpretation. Besides, the focus of the evaluation is mostly on personality factors rather than on performance factors. Further, it is normally difficult in the checklist method to assemble, analyse and weigh a number of statements about the employees’ traits and contributions.32

The Field Review Method In this method, the evaluation of an employee is done by someone other than his own superiors. The purpose of this is to avoid any possibility of the evaluator’s bias and prejudice. Normally, evaluation is done by the HR people, who scrutinize the records of those employees who are being evaluated and conduct interviews with them and their superiors. This method facilitates inter-person comparison of the managerial personnel in different places. It is also appropriate for choosing employees for future assignments. The major defect of this method is that it does not allow continuous evaluation of employees and that there is only an all-at-once approach to the process of evaluation. Besides, the superiors may view this as interference in their work.

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The Confidential Report (CR) Confidential report is a kind of evaluation practised predominantly in government and public sector organizations. It is called this because the evaluation records are kept strictly confidential and are accessible only to the pertinent officials. The evaluation report is prepared by the immediate superiors, usually on the basis of the continuous observation of employees over a period of time, say, in a year. The confidential report follows a predetermined format for gathering data relating to employee’s skills, ability, knowledge, initiative, leadership skills, attitude, integrity, scope for improvement, aptitude for learning, area of concern, and weaknesses. The report helps in determining the promotion, transfers and financial incentives of employees. The merit of this method is that it permits the continuous evaluation of employees by their superiors and also facilitates better control over them. The disadvantage is that there is a risk of the evaluator’s bias and prejudice.

The Result-based Evaluation System This is a variation of the Management by Objectives or the MBO model (explained in the later part of this chapter). Under the result-based system, the superior and the employees work together on setting goals for the subsequent evaluation periods. On the basis of consensus, the employees agree to achieve the goals set for them. For instance, they may agree to bring down the cost of production by, say, 5 per cent through productivity enhancement and reduction in wastages. Now, let us look at the some other methods that are a combination of the methods we just discussed.

The Behaviourally Anchored Rating Scales (BARS) Method The Behaviourally Anchored Rating Scales (BARS) method is a combination of the positive features of several other methods like critical incident, essay method and rating scales. In this method, the different performance levels of employees are shown by the side of the scale, with each level described in terms of specific behavioural example, either good or bad performance. This method specifies the various dimensions to be rated in behavioural terms and makes use of critical incidents to explain the various levels of performance. It helps the evaluators with a uniform frame of reference for evaluating the employees. A model BARS for judging the specific competency of an employee is presented in Table 13.1. The following steps have been suggested to develop BARS:33 1. Developing critical incidents: Identifying the persons having the knowledge of the job ( job holders and/or supervisors) in order to know from them the specific illustrations (critical incidents) of effective and ineffective performance. 2. Formulating performance dimensions: Asking these persons (job holders and/or supervisors) to cluster the critical incidents into a smaller set (of 5 to 10) of performance dimensions, and then defining each dimension, such as “skill in human relations”. 3. Reassigning the incidents: Another group of people who also know the job shall then reallocate the original incidents. They get the cluster definitions and the critical incidents and must reassign each incident to the cluster whom they think it fits best. When some percentage (say, 50 per cent to 80 per cent) of the second group assigns the same cluster to a critical incident as did the first group, that critical incident is to be retained.

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Table 13.1 A Pro Forma BARS for Judging a Specific Ability—the Salesman’s Competency to Create a Positive Image of the Product Marketed by the Organization

Outstanding Performance

Creates a brilliant impression on the prospective buyer of the product. Marvellously handles the prospective buyer questions and creates a very positive image of the product.

Excellent Performance

Builds a fine impression of the product. Doubts are clarified absolutely and a positive image of the product is created.

Good performance

Creates a reasonably fair impression of the product. The prospective buyer’s doubts are clarified satisfactorily and a good impression of the product is created.

Average Performance

Sincere effort is made to make a good impression of the product. The prospective buyer’s doubts are clarified mostly but at times information needs to be sought from other sources to clarify the customer’s doubts.

Poor Performance

Sometimes creates a poor impression of the product. Occasionally provides inaccurate or even false information while clarifying the prospective buyer’s queries.

Deplorable Performance

Creates a negative impression of the product. The prospective buyer’s queries are messed up. A very poor image of the product is created.

4. Rating the incidents: This second group should then rate the behaviour described by the incident as to how effectively or ineffectively it represents the performance on the dimension ( 7- to 9-point scales are typical). 5. Evolving a final instrument: Finally, six or seven of the incidents are chosen as the behavioural anchors of the dimension. The merits of this method are: • The BARS method enjoys better trustworthiness and accuracy since it is devised only by those who have complete knowledge of the job. • It offers superior and impartial evaluation of the employees as compared to other methods. • It can have better acceptance as the employees are usually involved in its development. • The inclusion of critical incidents for the evaluation of performance makes it easier to clarify the doubts of the employees about the rating procedure. • The evaluations based on this method seem to be relatively consistent and reliable, as different rators’ evaluations of the same person tend to be similar.34 Further, among all the evaluation techniques, the BARS method is perhaps the most highly defensible in court because it is based on actual observable job behaviours.35 The defects of this method are that each job will require separate BARS, which make the whole process a costly affair. It is also a time-consuming process as different groups of persons are to be involved in developing the performance dimensions. The other popular method is the 360-degree feedback method. Let us look at this in detail.

The 360-degree Feedback Method The 360-degree feedback method is gaining popularity as a comprehensive technique to evaluate the performance of employees. The uniqueness of this method is that all those who interact

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with an employee in any capacity will prepare an evaluation report on him, and this may include senior managers, supervisors, employees, peers, team members, internal or external customers and even the employees themselves.36 The 360-degree feedback is also differently described as a multi-source assessment, multi-perspective rating, multi-rator feedback or full-circle feedback as this method collects evaluation inputs from multiple levels both within and outside the organization. In fact, P. Ward defines the 360-degree feedback as “the systematic collection and feedback of performance data on an individual or group derived from a number of the stakeholders on their performance.”37 The main purpose of the 360-degree feedback method is to ensure a rather objective and comprehensive evaluation of a person’s performance. Critical information about performance in a 360-degree feedback process is normally gathered about the employees from their superiors to whom they report, their peers or coworkers (who work as their team members or equal cadres in other departments), their external and/or internal customers, and also from self-evaluation reports of the appraised employees. Figure 13.3 shows the various evaluators of an employee’s performance. Uses of the 360-degree Feedback Method Organizations generally use the 360-degree feedback to make evaluations available for traditional uses. However, of late, this feedback has been utilized even for non-conventional purposes like professional development, succession planning, and performance management. Let us now discuss these uses. • The organization can use the 360-degree feedback report as a critical input for determining the remuneration and other incentives of the employees. • It can act as an effective tool to determine the nature and type of training and development programmes required for the employees.

Employer

Customers

Supervisor

EMPLOYEE

Subordinates

Peers

Figure 13.3 Evaluators of the 360-degree Feedback Method

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• The feedback can be used as a major source for any succession planning schemes evolved by the company. • It can help employees become aware of both their areas of strengths and weaknesses in their performance sphere. • The organization’s core values can be strengthened by linking the individuals’ performance with such core values and then providing feedback to them on how they should attune themselves to such core values. • The feedback can be used by the organization as an input to performance management system. • It can promote teamwork and employee empowerment as employees also get an opportunity to evaluate their skills and the behaviours of their superiors. Box 13.6 outlines a new performance evaluation practice at Maruti Suzuki. Steps in the Development of the 360-degree Feedback Method An organization should adopt the following steps in the process of developing an instrument for the 360-degree feedback. Determining the objectives—The first step in the process is determining the exact objective of the whole programme. The objectives may be one or more of the following: (i) identification of training and development needs of the employees, (ii) determination of the pay package, (iii) performance management, and (iv) succession planning. Deciding the receiver and giver of feedback—Once the objective of the programme has been finalized, the organization should decide about the employees whose performances Box 13.6

The 360-degree Appraisal System in India

The unique feature of the 360-degree appraisal system is the all-around evaluation of an employee by a group of evaluators. Since the list of evaluators includes supervisors, employees, peers, and internal or external customers, many HR managers view this system as a decisive step towards the democratization of the performance appraisal process. It is also seen by them as an effort to make the evaluation process as fair and equitable as possible by moving away from the traditional top-down approach to the employee performance appraisal. However, for a long time, many Indian companies were not quite enthusiastic about the 360-degree appraisal system as an evaluation system due to wide and varied factors like troubling the conventional hierarchical structures, fear of eroded authority by the supervisors, and fear of victimization by employees. In recent times, there has been a change in the attitude and perceptions of organizations towards the 360-degree appraisal system, and an increasing number of organizations are

showing a keen interest in adopting the 360-degree appraisal system as part of their employee performance evaluation system. Maruti Suzuki and Ernst & Young have developed a 360-degree feedback system for assessing the senior leaders of the former company jointly. To start with, Maruti has covered the top managerial personnel like chief general managers and general managers under this evaluation system. That means that their performance will be assessed on the basis of the feedback from their peers and junior management employees within the same department. As part of the system, the peers and employees are asked to respond online to the questionnaire prepared by Ernst & Young, which had compiled the list of leadership competencies required for managerial people. Adapted from: http://www.thehindubusinessline. com/2007/02/05/stories/2007020502890100.htm.

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are to be evaluated under this system. Similarly, a decision will also have to be made about who will be the evaluators. It may be a 360-degree feedback with the ratee’s superior, peers, self-evaluation reports, and internal and external customers being involved. A decision is also required about the anonymity of the feedback reports as the source may or may not be anonymous. Establishing the performance criteria—At this stage, a decision should be taken about the area of work or behaviour on which feedback will be gathered. In this regard, the organization can use the available models like competency models or evolve a new model that fits the values, culture and nature of the work performed in the organization. However, the compatibility of the model with the software should be ensured as software packages are now essential for processing. Determining the mode of collecting the data—The organization has to develop a questionnaire based on its purpose and requirements. The company can design the questionnaire itself or outsource it from external sources. The outsourced questionnaire can then be modified later to make it fit for the internal conditions. Finalizing the method of data analysis and presentation—Since most of the organizations adopting this method usually depend on software packages for analysing the collected information, the organization has to decide whether to develop its own software or buy a ready-made package from the software companies. Large business concerns prefer to have their own software developed in-house while the smaller ones purchase it from outside. Trying a pilot scheme—A pilot scheme refers to clarifying the whole programme with examples or dry runs. It is better to pilot the whole programme, preferably at higher levels, so as to understand the efficacy of the feedback process. The pilot scheme can also be used to explain the objectives of the feedback process to all the evaluators, besides indicating the role of each participant. Finally, on the basis of the response of the participants in the pilot scheme, the required modification can be made to the feedback process. Execution of the feedback process—Once the necessary corrections have been made in the feedback process, it should be initiated after briefing the participants and allaying their fears about the whole exercise. The entire process should be supervised closely by the HR department till its completion. Evaluation and communication—Once the process is over, the data collected through feedback should be analysed carefully and reported to all those concerned. This is a crucial process and may face resistance from the evaluator, especially when the results are unfavourable. Since it is a continuous process, the experience can be effectively utilized for improving the whole process further. Box 13.7 shows a 360-degree feedback form template. Factors Enhancing the Effectiveness of the 360-degree Feedback Process An organization can improve the efficacy and success of the 360-degree feedback vastly if it ensures the presence of the following factors: • Securing the involvement and support of the higher levels of management in the feedback process. • Guaranteeing that all participants are aware of the evaluation criteria, the methods of gathering and summarizing the feedback, and the purpose for which the feedback is collected.

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A 360-degree Feedback Form Template

Feedback Form Headings and Instructions: ratee’s name, date, feedback responder’s name, position (if relevant) plus local instructions and guidelines for completion. Key skill/capability area

Skill/capability element

Question number

Feedback question

Feedback score

1 2 3 4 5 Optional section: For additional feedback and comments about the ratee

• Ensuring the genuine commitment of the participants in the process since the 360-degree feedback can be corrupted as it is possible that people say good things about one another, resulting in only good ratings. • Assuring that the feedback questionnaires are easy to understand and simple to fill up with necessary instructions. It should be confirmed that the feedback fits the work and behaviour of the employees. • Confirming that comprehensive communication and training programmes are provided to all the participants. • Maintaining the confidentiality of the feedback process to ensure that the participants feel comfortable that the information they give and receive is completely anonymous. Benefits of the 360-degree Feedback The 360-degree feedback has the following benefits: • As an all-around rating process, it is a modern and creative alternative to the traditional top-down evaluation process. • Organizations and individuals can have a broader view of the performance of the employees as multiple sources are involved in the feedback process. • As more than one person is responsible for the evaluation, many of the common evaluation errors and rators’ biases can be reduced or eliminated, resulting in a more objective measurement of an employee’s performance. • Since computer software packages are used extensively in the feedback process, a lot of time is saved as the evaluators can do the ratings rapidly and conveniently through online evaluation instruments. • The perception of feedback as a sincere, well-expressed, honest and objective exercise enhances the acceptance of the results of the process. • It enables the managerial personnel to have a reliable feedback of their performance and be aware of their own developmental requirements. • This process is legally better defendable as multiple evaluators are involved in the process.

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Defects of the 360-degree Feedback The 360-degree feedback suffers from the following limitations: • It is a costly and time-consuming process as it involves numerous evaluators and multiple sources. • The lack of honesty and impartiality in the evaluators can distort the feedback data, thereby making it vulnerable to criticism and failure. • Too much reliance on technology and bureaucracy can hamper the feedback process as the whole process becomes a mechanical exercise due to the intransigency of participants and the rigidity of the system. • When the participants are not sure of the confidentiality of their feedback report, they may tend to hide the realities while sharing or receiving feedback information. Another method that is gaining popularity is the 720-degree appraisal. Box 13.8 showcases this method.

Management by Objectives (MBO) Management by Objectives (MBO) is a popular method that counts on joint goal-setting to formulate and achieve objectives for the organization, the department and the individual. The uniqueness of the MBO method is that it enables the employees to get involved in the evaluation process by setting their own goals. Basically, MBO involves setting specific measurable goals by the managers in consultation with the employees and, subsequently, examining the latter’s progress towards those goals. Tosi and Carroll justify MBO as a form of performance appraisal, saying it involves the establishment of performance objectives and an assessment of how well those objectives are fulfilled.38 In a broader sense, an MBO programme involves the following phases: 1. Projecting the goals: Employees are asked by their supervisors to propose their own preliminary goals for a given period of time, in harmony with the organizational and department goals.

Box 13.8

720-degree Appraisal: An Emerging Evaluation Technique

The 720-degree evaluation is emerging as a possible alternative appraisal technique. Organizations are slowly but steadily realizing the need for this new system, which is better than the existing 360-degree evaluation, especially in terms of the focus of the evaluation and the involvement of the evaluators in the process. For instance, the 360-degree appraisal facilitates the formal assessment of an employee by the evaluators like the customer or the employee, possibly with the help of appraisal forms. But the 720-degree evaluation goes one step further and insists on a better focused, personalized and in-depth review of the employees occupying managerial positions. The evaluation of the employee is usually done

through detailed personal interviews with the performance evaluators. The 720-degree evaluation concentrates more on what matters the most for an organization. For instance, it could be the clients’ views and perceptions of the performance of the employees. The merit of this method is that it makes both the evaluator and the employee happy and comfortable. While the clients would appreciate a company which is more responsible and serious in knowing their opinions, the appraised employee would feel happy to be evaluated and appreciated by the clients they serve.

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2. Discussing the goals: The supervisor and the employees elaborate on the goals and, if necessary, modify them before reaching an agreement regarding the specific goals. 3. Developing yardsticks: The supervisor in consultation with the employees develops yardsticks for measuring performances to determine how far the objectives have been met. 4. Executing performance reviews: The employee’s actual as well as agreed performance is reviewed periodically to assess the progress and problems in accomplishing the goals. 5. Providing feedback: After assessing the employee’s progress, the supervisor discusses the ways and means for improving performance, if needed, with the employees. Though MBO is a complete system of planning and control and a complete philosophy of management,39 it suffers from a few limitations. These are: (i) It is a time-consuming process since it involves continuous goal-setting, frequent reviews and constant feedback. (ii) This method is better suited for only managerial jobs since goal-setting is usually not feasible at the non-managerial levels for employees.40

Issues in Performance Evaluation Performance evaluation is a crucial exercise not only to the organization but also to the individuals who are evaluated. This is because the employees are aware of the fact that their future rewards and career prospects are virtually tied to the results of such evaluation. Obviously, these expectations make the evaluation process a highly sensitive issue. The success of the performance evaluation process depends on the quality, credibility, and unfailing nature of the process. However, performance evaluation methods, particularly rating scale techniques, are often susceptible to problems like the lack of objectivity, halo effects, central tendency, leniency/strictness, bias, recency effects and employee resistance. We shall now discuss them in detail.

Absence of Objectivity Objectivity refers to judgment based on observable phenomena and uninfluenced by emotions or personal prejudices. The main weakness of the traditional evaluation methods like rating scales is the absence of objectivity. For instance, factors like creativity, quality, attitude, personality traits, and appearances are abstract in nature and are hard to evaluate objectively. It is also difficult to justify their inclusion as job-related factors. The inclusion of these factors, though necessary, can undermine the fairness of the evaluation.

Halo Effects Halo effects occur when the supervisor’s admiration for any one of the employee’s positive traits (like appearance, behaviour and competency) is carried over to his evaluation of all other aspects of that employee’s performance. The halo effect can then lead to an unduly higher rating. In fact, Andrew Solomonson describes halo effects as the influence of a rator’s general impression on the rating of specific ratee qualities.41 On the other hand, a supervisor may carry over his negative impression of one trait to all aspects of the evaluated employee’s performance. This reverse occurrence is known as the horn effect.

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Central Tendency Central tendency refers to rating all employees as average. This problem occurs when the evaluator tends to place the majority of employees in the average or middle of the scale without any justification. The evaluator resorts to this middle path especially when he is required to provide a written justification for extremely high or low ratings. Understandably, this defect usually undermines the usefulness of the evaluation for deciding the promotion, reward and development of the employee.

Lenient Attitude This problem occurs when the evaluator awards unjustifiably high ratings to employees. When the evaluator desires to stay clear of any controversy over the evaluation, he may adopt this behaviour. For instance, sometimes, the process may require the evaluator to share the evaluation results with the employees. Again, the purpose of evaluation can also cause extreme attitudes like leniency or strictness. For example, while appraising employees for administrative reasons such as pay hikes, a superior may be inclined to be more lenient than when evaluating performance to achieve employee development.42 In rare cases, the supervisor can also be excessively critical of an employee’s work performance. This too can affect the fairness of the whole exercise.

Bias When the evaluator is too concerned about the personal characteristics of the employees without focusing on the real performance, there is a real possibility of a bias in the evaluation. In fact, this problem surfaces when the supervisors allow individual differences such as gender, race or age to affect the ratings they give. Certainly, any biased behaviour will have an adverse influence on the outcome of the evaluation, thereby affecting the objectivity and fairness of the evaluation. Studies have confirmed that biases account for the biggest percentage of the observed variance in performance evaluations.43

Recency Effects Recency refers to a time immediately before the present. Recency effects occur in an evaluation when the evaluation process is distorted by the events happening just before the evaluation. This kind of recent events may have an unbalanced impact on the evaluators at the time of evaluation. This can be compared to a black dot on an otherwise plain paper. When the employees know the timing of the performance review, they may tend to present their best behaviour and improved productivity just ahead of the scheduled evaluation. For instance, a salesman may come up with an important order just before the evaluation to boost up his otherwise average annual performance and influence the evaluator.

Employee Resistance Any exercise that will impact their future development causes a typical uncertainty among the employees. The evaluation process may also cause apprehension in the minds of the employees as the results may decide the promotion, financial rewards, future responsibilities, and increased compensation for them. Employees normally view the evaluation as an opportunity for the supervisor to highlight their negative aspects. Obviously, this kind of fear can cause disquiet among the employees, leading to an outright resistance against the whole concept.

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Steps to Overcome the Problems in the Evaluation Process A defective evaluation can produce more harm to an organization than the absence of an evaluation process. An unfair evaluation of employees can cause strain in superior–employee relations, absenteeism, and high labour turnover. It may also breed inefficiency in the organization. However, most of the problems mentioned are not inherent to the evaluation process; rather, they reflect improper implementation. Let us now see what can make the evaluation process more effective and credible. • Proper training of the evaluators can help them observe the employee’s behaviour accurately. It can also solve problems like those of a lenient attitude, central tendency, and halo effects, especially those relating to rating scale errors. • While evaluating the employees, the evaluator must cover the entire evaluation period and not just the events that have occurred immediately before the evaluation. A continuous evaluation process by the supervisor can help overcome the problem of recency effects. Diary-keeping by the supervisors to compile and record both positive and negative critical incidents can help in avoiding the recency effects. • A careful study of the purpose of the evaluation and the merits of each appraisal tool before determining the right tool for evaluation is also essential. • Anticipating the possible problems in evaluation and developing their remedies can also ensure the smooth execution of the process. • An adequate opportunity should be provided to the evaluators to learn the job of evaluation by offering them sample jobs for trial evaluation.

The Post-performance Evaluation Interview: An Overview An essential part of the evaluation process is the post-performance evaluation interview conducted with the evaluated employees, usually at the end of the process. The evaluation process normally creates high expectation among the employees. For instance, the employees are very interested in knowing where they stand in the organization and what will they get out of the process. This information is made known to them only at the time of the evaluation interview. Though the post-performance evaluation interview is crucial to the final outcome of the evaluation process, many organizations are under-prepared for it and remain unaware of its usefulness. Simple tips for evaluators like preparing seriously for the interview, carefully piecing together the relevant facts and figures, getting the employees ready for the interview by giving them adequate notice, and carefully choosing the data can definitely enhance the quality and fruitfulness of the interview process. A few steps like the following can contribute to the effectiveness of the interview process: 1. Training the supervisor, who will conduct the evaluation interview with the employees, about the procedure to be adopted while conducting the interview. 2. Planning and organizing the interview meticulously to ensure that sufficient time is available for discussing different topics with the employees at different times. For

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instance, factors like rewards, promotions and transfers can be discussed in one phase while issues relating to training and development can be dealt with separately. 3. Determining the order of discussion for each phase of interview in order to cover all the criteria followed in the evaluation process. There should also be a pre-planned beginning, middle and end to an interview process. 4. It is very essential to encourage the employees to speak in the interview to make it a two-way communication process. Ideas, suggestions and explanations can be obtained from them for individual as well as organizational developments. 5. The evaluator should avoid getting too personal while sharing the information. Interperson comparisons should also be avoided to the greatest extent. A right combination of appreciation and admonition can yield positive results. 6. Lastly, the interview should be conducted in a polite, conducive and supportive manner.

Job Evaluation Job evaluation is a technique used for determining the relative worth of each job in the organization. The primary purpose of assessing the value of each job against another is to fix up the pay scale for each of these jobs. Job evaluation provides a critical input for the grading of jobs in the organization in an orderly and acceptable form. Job grading in turn helps the organization in determining the pay grades for different categories of jobs. The essence of job evaluation is the assessment of the efforts required to perform the job. Usually, jobs are evaluated on the basis of the duties, responsibilities, work pressures and contribution of each job to organizational goal accomplishments. Generally, job evaluations are conducted in two ways. These are analytical and nonanalytical job evaluations.44 In case of analytical job evaluation, the extent of the presence of certain defined factors in a job decides its value in the organization. As regards non-analytical job evaluation, the total job is measured and matched with other jobs to determine its overall rating within the organization. The essence of many definitions of job evaluation is the determination of the comparative value of each job in the organization. We shall now see a few definitions of job evaluation in Box 13.9.

Box 13.9

Definitions

“Job evaluation is a systematic process for defining the relative worth or size of jobs within an organization in order to establish internal relativities and provide the basis for designing an equitable grade and pay structure, grading jobs in the structure and managing relativities.”45 —Michael Armstrong et al.

Job evaluation is an attempt to determine and compare the demands which the normal performance of a particular job makes on normal workers, without taking into account the individual abilities or performance of the workers concerned.”46 —ILO report

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We may define job evaluation as a systematic technique used for deciding the relative worth of the job based on its comparison with other jobs.

Characteristics of Job Evaluation Based on these definitions, job evaluation has the following characteristics: • Job evaluation is primarily concerned with the determination of the worth of the job within an organization. It is not concerned with the external worth of the job, i.e., the worth of the job in the labour market. • It is non-personnel in approach as it does not consider the abilities and skills of the job holders while evaluating a job. • Job characteristics like duties, responsibilities and accountability often form the basis for the determination of the relative worth of the job. • In job evaluation, jobs are allocated to grades or levels, depending upon their performance or scores in the job evaluation process. • Determination of fair and equitable pay scales for jobs is the driving force behind the job evaluation process.

Objectives of Job Evaluation The following are the objectives of the job evaluation exercise in an organization: • to rank the jobs in the order of importance based on the job duties, responsibilities and other relevant factors • to develop job grades and pay grades for facilitating simple and efficient wage and salary administration • to institutionalize the system of pay scale fixation in order to ensure consistency and uniformity • to determine the pay scales of the employees in a systematic and scientific manner based on the relative worth of the jobs • to avoid or eliminate the employees’ grievances against the bias and prejudices in the determination of the pay scales of the employees • to enhance the ability of the organization in attracting and retaining the best talents

The Job Evaluation Process It is essential for an organization to develop a systematic and objective evaluation process to gain the confidence of the employees in the process. This is necessary because the results of job evaluation would form the basis for the sensitive exercise of pay determination. An organization can have its own process of conducting job evaluation. However, the following process can find acceptance in any form of organization with necessary organizationspecific modifications. As illustrated in Figure 13.4, the steps in a job evaluation process are (i) identification of jobs to be evaluated, (ii) gathering relevant information about the jobs,

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Identification of jobs for evaluation

Review and feedback

Gathering the relevant data

Wage and salary surveys

Determination of job ranking

Selection of benchmark jobs Figure 13.4 Steps in Job Evaluation Process

(iii) determination of job ranking, (iv) selection of benchmark jobs, (v) wage and salary surveys, and (vi) periodic review and feedback. We shall now see these steps in detail.

Identification of Jobs to be Evaluated The first step in a job evaluation process is the determination of jobs to be covered under the evaluation process. It is usually difficult for an organization to evaluate all the jobs of the organization. It, therefore, chooses a few key jobs which can represent a group of similar jobs for job evaluation purpose. Once the jobs are identified for evaluation, the next step is the determination of the factors to be evaluated in a job. The evaluator may evaluate one or more of the job factors like physical efforts, mental efforts, concentration, communication and leadership skills, education and experience, job complexity and pressure. However, the need for job factor identification may not arise if the evaluator settles for paired comparison in which “whole man to whole man” comparison is done.

Gathering Relevant Information about the Jobs The next phase of the job evaluation process is the collection of necessary information about the jobs being evaluated. For this, the evaluators may adopt data collection techniques like interviews, questionnaires, and observation, besides job description statement, for gathering relevant information. At this stage, the evaluator should completely satisfy himself about the adequacy of information available for assessing the worth of the job. Then, the evaluators should do a thorough analysis of all the information available with them.

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Determination of Job Ranking After analysing all the information relating to the jobs, the evaluator assesses the extent of the presence of the chosen factors in the jobs. Based on the result of such an assessment, the evaluator determines the ratings for each job. Since similar factors are assessed in an evaluation process, the ratings reflect the relative worth of a job in comparison to other jobs in the organization.

Selection of Benchmark Jobs The primary purpose of job evaluation is the development of pay grades for each category of jobs. In this regard, it is necessary for an organization to know what the other organizations are paying for similar jobs. However, it may not be feasible for an organization to ascertain the comparative pay scales of all the jobs in the organization. Due to this reason, the evaluators may select a few jobs which are normally found in every organization and are comparable in nature. These jobs are usually called benchmark jobs and serve as yardsticks for determining the pay scale of all other jobs in the organization.

Wage and Salary Surveys In this stage, an organization conducts a survey of pay scales of the benchmark jobs in other organizations in the industry. Salary surveys may be conducted by an organization in a formal or informal way. Similarly, an organization may either conduct a direct survey to gather relevant information or use the published reports of professional agencies or magazines. Based on such survey, the monetary value of each job is determined. Many organizations often use informal sources like telephones, newspapers and the Internet for conducting salary surveys.47

Periodic Review and Feedback Developments in the external environment influence the organizations continuously and also cause changes in the internal factors. For instance, technological changes influence the job characteristics and requirements profoundly. Consequently, organizations are forced to review the jobs at periodic intervals to determine their worth in the changed context. Feedback should also be collected from different stakeholders like job holders, supervisors, managers and unions about the various aspects of job evaluation to constantly improve the job evaluation process. Box 13.10 outlines the role of external HR experts in the job evaluation exercise.

Methods of Job Evaluation Job evaluation methods are usually classified into analytical and non analytical methods (see Figure 13.5). The analytical job evaluation methods are point ranking method and factor comparison method. The non-analytical methods are ranking method, paired comparison method, job grading method, and market pricing. We shall first discuss the analytical methods of job evaluation.

Analytical Methods In an analytical job evaluation, jobs are compared on the basis of a few well-defined factors. The presence or absence of these factors in a job determines its worth in the organization. We shall now discuss the analytical job evaluation methods.

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Box 13.10

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The Hay Group and the Reliance Group: Joint Job Evaluation Initiative

Job evaluation is a useful technique employed by an organization to evaluate the worth of a job relative to other jobs. It forms the basis for determining the internal worth of a job. Organizations may either develop their own system or employ the services of external experts for evaluating the internal rankings of jobs. They generally depend on two basic methods for evaluating the jobs. These are job ranking and point ranking methods of job evaluation. The major contribution to the development of point ranking was made by the Hay group management consultants. Today, the Hay group has developed the Job Evaluation Manager (JEM), which is a Web-enabled application that assists the organization in the consistent and continuous evaluation of jobs across different business units and geographic locations. One of the prestigious clients of the Hay group in India

is Reliance Industries Limited. Let us see the joint initiative of the Hay group and the Reliance group on the job evaluation front. Reliance has completed the “end-to-end” job evaluation exercise for its jobs in petrochemicals business with the assistance of the Hay group. It is planning to decide all its HR-related activities like organization structuring, career planning, compensation, and benefits planning on the basis of the results of the job evaluation done by the Hay group. The company has also decided to extend the services of the Hay group to the remaining business units of the group. Adapted from: http://www.ril.com/html/aboutus/ human_resource.html; and http://www.financialexpress.com/news/ril-engages-hewitt-hay-group-for-hrinitiatives/312603/.

Job evaluation methods

Analytical methods

Point ranking

Factor comparison

Non-analytical methods

Ranking methods

Paired comparison

Job grading

Market pricing

Figure 13.5 Methods of Job Evaluation

Point Ranking It is one of the quantitative methods in job evaluation. In this method, the worth of a job is determined on the basis of the extent of the presence of some defined factors in that job. These factors are usually called compensable factors. They may include any key factor like skills, knowledge or efforts that are compensable in monetary terms.48 The following steps are taken in the point ranking method: 1. The evaluators first determine the factors to be evaluated and then assign points for each of these factors, depending upon its importance. 2. After that, they evaluate each job against these compensable factors and award appropriate points.

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3. The jobs with a high concentration of these compensable factors get higher points. 4. Finally, these points are aggregated for each job and, based on the overall scores, jobs are ranked. The efficiency of the point ranking method depends critically on determining the compensable factors and assigning points to each of these. The evaluators may assign more weightage to some factors if they consider them as decisive for the performance of a job. They may also decide on different factors for different jobs. Similarly, they may attach different weightages to different compensable factors. Education, experience, working conditions, physical or mental efforts, responsibility, work hazard and mental stress are a few examples of the compensable factors. The merits of this method are: (i) Being a quantitative method, it is more objective and accurate than the non-analytical methods. (ii) It is usually more convincing to the employees in accepting the pay scale developed by the organization. (iii) It is an exhaustive evaluation method as jobs are broken into compensable factors, and each factor receives due attention of the evaluators. The limitations of this method are: (i) It is a complex and time-consuming process to develop weights and points for the compensable factors. (ii) It is difficult to explain this method to the average worker as he may differ with the evaluators’ criteria for choosing the compensable factors and the system of weights. (iii) It may not be ideal for jobs which require more of non-quantifiable traits like mental dexterity or acumen. Factor Comparison Factor comparison is another quantitative method extensively used in job evaluation. This method is widely seen as an improvement over the ranking method. In this method, a set of factors common to all jobs are identified and assigned points. The five universal job factors are mental requirements, physical requirements, skills, working conditions and responsibilities.49 Then, each job is compared with others for each one of these factors. Understandably, each job undergoes multiple comparisons with other jobs. For instance, a job may be compared with another for a specific factor like job responsibility and get ranked for that. In the next stage, the same jobs are again compared but for another factor, say, for problem-solving skills. In this way, every job is compared with every other and ranked for all the defined factors. Finally, the points secured by a job for all common factors are totalled and its overall rating is determined. We shall now see the steps in the factor comparison method. Identifying the jobs to be evaluated—At the first stage, the team of evaluators should identify the benchmark jobs for evaluation. These jobs must be capable of representing all others in the organization. Selecting the compensable factors—At this stage, the evaluators gather all the relevant information about the benchmark job through sources like job description and job specification statements. This information is then used for identifying the key factors called compensable factors. These factors must be very important for the successful performance of the job. Once the compensable factors are identified, the evaluators should clearly define each of them in order to achieve consistency in evaluation. Assigning weights for each selected factor—Based on the assessment of the key factors, the evaluators should assign weights as per the significance of these factors to the jobs. For instance, when the evaluators decide that physical endurance is most important for the job, they should assign the highest weightage to that factor. Similarly, the second-most important factor would receive the second-highest weightage, and this goes on till all the compensable factors are assigned due weightages.

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Evaluating and ranking jobs—This is the crucial stage in the factor comparison method. At this stage, the evaluators actually assess the benchmark jobs in terms of the presence of key factors. The evaluators use the job description and job specification statements extensively for assessing the key compensable factors. Each job gets a final rating based on the degree of presence of these key compensable factors. Expressing ranks in wage terms—In the last stage of the factor comparison method, the evaluators should assign wage rates in monetary terms for each of the compensable factors. Based on the degree of presence of the compensable factors, each job gets rated in wage terms. Finally, all the jobs are ranked relatively on the basis of their financial value.

Non-analytical Methods In the non-analytical methods of job evaluation, the whole job is taken up for evaluation. Obviously, jobs are not broken up as parts or elements for evaluation. As such, this method is concerned with job matching and not job analysis. The important non-analytical job evaluation methods have been discussed here. Ranking In this method, each job is ranked after its comparison with all other jobs in the organization. Based on their worth to the organization, jobs are placed in a vertical order. An important prerequisite for the job ranking method is job analysis and the resultant job description statement for each job under consideration. On the basis of the job description statement, the evaluator identifies the most critical factor required for successful performance of the job. For instance, persuasion skills may emerge as the decisive factor for the marketing jobs. Based on that single factor, the total job is evaluated and ranked relatively. The merits of this method are: (i) It is the simplest and least expensive method. (ii) It is also less time-consuming and flexible. However, it suffers from a few limitations. These are: (i) It may overemphasize the relevance of a single factor in a job while totally neglecting other important factors. (ii) It does not indicate the extent of the difference between any two successive jobs in the rank order. (iii) It is a subjective evaluation method as the whole job is evaluated and ranked without any reference to its distinct characteristics. Paired Comparison In this method, each job is individually compared with every other in the organization. If, during the comparison, a job is found to have more value than another, it is assigned some reward points. If it is considered less important, it gets no points. In this way, each job accumulates points, and at the end of the multiple comparisons, rankings are done on the basis of the aggregate scores. In the paired comparison method too, a job description statement is an essential document for determining the relative worth of each job. The merits of this method are: (i) It is simple and easy to compare one job with another. (ii) Each job gets equal attention in the multiple pair comparisons and, thus, better consistency is established in job grading. The limitations of this method are: (i) it is a subjective process as the whole job is compared with another whole job and, as such, the unique job characteristics are overlooked in the comparisons. (ii) It is difficult to apply this method if there are a large number of jobs as multiple comparisons would involve numerous computations. Job Grading In this method, jobs are grouped on the basis of the similarities found in their characteristics and values. In other words, jobs with characteristics in common are assembled into groups. This kind of grouping of similar jobs is usually called job classification. Generally, jobs within each job group or class are eligible for the same pay scale or

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grade. In addition to the job description statement, this method also requires the preparation of the class description statement. A job description indicates the job characteristics while class description specifies the group characteristics. The class characteristics may include, among others, the problem-solving skills required, the communication and persuasion abilities needed, demand for creativity, the physical or mental efforts required, and the difficulty and stress involved in the job. After the class description statement is prepared, each job is evaluated against the class description. When a job is found to have characteristics similar to the class characteristics, it is included in that job class. The merits of this method are: (i) This method is more practical than job ranking as job classifications are essential for pay grading or classification. (ii) It is neither complicated nor expensive. (iii) It simplifies the wage and salary administration as jobs within a group or class are similar in characteristics. Moreover, this kind of classification of job groups results in groups that are also usually fewer in numbers in the organization. The defects of this method are: (i) The preparation of a class description is a difficult and time-consuming process. (ii) The absence of a credible justification for the inclusion of jobs in a job class may cause employee grievances and strain industrial relations. (iii) The classification of jobs may cause subjectivity in evaluation. Market Pricing Job evaluation ensures internal equity in the fixation of pay scales for different jobs. However, internal equity alone is not sufficient in compensation management. It is also essential for an organization to establish external equity in the pay scales for a job. External equity refers to bringing the pay scales for jobs in the organization on par with the pay scales of similar jobs in other organizations. That is why organizations often conduct salary surveys to know the relevance of their own pay scales to the market conditions. Sometimes, the organizations may, knowingly or unknowingly, overpay or underpay their employees for their job efforts. When an organization overpays its employees, it would be a financial burden for it. In contrast, if it underpays them, it would find it difficult to attract and retain the best talents. To avoid such circumstances, organizations may adopt market pricing as a method of job evaluation. In the market pricing method, the wages prevailing in the labour market act as the basis for job evaluation. The organization conducts an extensive salary survey for all the benchmark jobs. Based on that survey, jobs are evaluated and pay scales are fixed appropriately. At this stage, the evaluators should take a decision about whether to the fix the pay scales above the market rate or on a par with it. However, when similar jobs are not available in other organizations, it would be difficult to frame the market-based pay scales. In such cases, the organization can adopt the ranking method to determine the pay scales based on the available information.50 The merits of this method are: (i) It is a simple and flexible method. (ii) It is an objective method of job evaluation as the evaluators’ judgment is not required. (iii) It does not demand any special skills or training on the part of the evaluators. The limitations of this method are: (i) It may be difficult to get survey data for all benchmark jobs. (ii) Even temporary conditions in the market may influence the salary survey and also the pay fixation process. (iii) Any downward revision of the pay scales on the basis of the market conditions can affect the labour–management relations.

Benefits of Job Evaluation An objective job evaluation can offer wide and varied benefits to an organization. These benefits are:

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Basis for Developing Job Grading and Job Family Structure Job evaluation provides the basis for developing or reviewing job grading in the organization. It also helps in creating job families by grouping jobs having similar characteristics.

Basis for Fair Pay Policy Job evaluation enables an organization to develop a systematic and scientific basis for the determination of equitable pay and other incentives.

Facilitates Better Financial Management Since pay scales are fixed on the basis of the relative worth of the job to the organization, the possibilities of overpayment to jobs get reduced. As a result, job evaluation enables an organization to save HR cost and achieve better financial planning and control.

Ensures Harmonious Industrial Relations The employees’ perception of fairness and transparency in decisions involving job evaluation and pay fixation can avoid their dissatisfaction over pay and benefits. Obviously, this would enable the organization to keep labour turnover and absenteeism well under control. In the long run, the organization would enjoy high goodwill in the labour market and would also be able to attract the best talents with ease.

Basis for Training Need Identification As job evaluation studies the job characteristics and job demands in terms of the efforts and skills required, it can also be used to determine the training and development requirements of the job holders.

Basis for Career Planning and Development Since job evaluation considers the behavioural, motivational and personality requirements of a job in addition to the job characteristics, it provides the basis for determining the career plans and succession plans of the organization.

Limitations of Job Evaluation Job evaluation is a basic requirement for determining the pay scale of employees in a systematic and objective manner. However, the objectivity in determining the compensation suffers due to the defects in the planning and/or execution stages of job evaluation. We shall now see the limitations that affect the efficiency of job evaluation: • None of the methods in job evaluation is considered to be completely objective as some amount of subjectivity is involved in the selection of benchmark jobs and key compensable factors. • Job evaluation does not usually consider the influence of external factors on the jobs. When a job gets higher pay in other organizations, it would be difficult to fix anything less than the prevailing wages even if job evaluation recommends so. • Due to the faster pace of changes in external factors like technology and labour market characteristics, job characteristics and requirements undergo changes in quick

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succession. This makes job evaluation results relevant for a short period only. Thus, organizations are often under pressure to undertake job evaluation frequently. This may push up the HR cost of the organization. • Conventionally, job evaluation means higher pay scales for the employees and additional financial commitment for the organization. Consequently, organizations are averse to the job evaluation exercise. • The determination of employee compensation is often influenced by the bargaining power of the employees and their unions. However, the job evaluation process never considers this factor while deciding the pay scales for the jobs. • Traditionally, organizations consider the experience, seniority and commitment of the employees while fixing their salary and other benefits. But, there is no in-built provision for these factors in performing the job evaluation while arriving at pay scales for different jobs. • Since job evaluation is usually a time-consuming, complex and costly process, small and medium organizations give little importance to it while fixing the pay scale.

Measures to Enhance the Effectiveness of Job Evaluation Pay scale fixation is a sensitive exercise for any organization as it can influence employee satisfaction, commitment and performance decisively. The need for objectivity in pay scale fixation apparently enhances the significance of the job evaluation exercise in an organization. Through careful and methodical measures, the organization can enhance the effectiveness of the job evaluation process. The measures required for improving the effectiveness of job evaluation are:

Gaining the Confidence of the Employees It is necessary for an organization to involve the employees in job evaluation by educating them about the need for and the purpose of the evaluation exercise. All their doubts about job evaluation must be clarified promptly.

Adequate Training for the Evaluators The evaluators for the exercise should be chosen carefully and trained adequately. They must be experienced and mature persons with a good standing among the employees.

Ensuring Top Management Support The purpose of undertaking job evaluation is justified only when its report is considered seriously by the management for pay scale fixation. Thus, the attitude of the management determines the real worth of any job evaluation exercise. It is, therefore, necessary to ensure the commitment of the top management not only for the job evaluation exercise but also for the implementation of the evaluation report.

Defining the Job Factors Clearly The evaluators must develop a clear-cut criterion for the selection of benchmark jobs for evaluation. Similarly, they should choose the job factors properly and define them

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unambiguously. Further, they should assign weights to these factors after considering all the relevant information duly.

Distinguishing the Job from the Job Holder The evaluators should never be influenced by the performance and behaviour of the job holders. They should strictly confine themselves to the requirements and conditions of the jobs alone. They must rank the job and not the job holders.

Ensuring the Accuracy and Reliability of the Source Documents Job evaluation depends largely on the job description statement and, to some extent, on the job specification statement. Thus, it is necessary to ensure the accuracy and relevance of these documents before using them for the job evaluation exercise. The job evaluation may go wrong if these documents are outdated and inaccurate.

Recognizing the Role of Trade Unions It is important to consider the views of the trade unions while developing the pay scales for different jobs. The organization must have some provision in the job evaluation process for considering the unions’ views on jobs before finalizing the job evaluation reports.

Summary 1.

Performance evaluation is an objective review and rating of an employee’s performance in comparison with the relative performance standards.

2.

Performance management is a total and integrated process comprising goal-setting, training, evaluation, and rewarding of employees.

3.

The objectives of performance evaluation are identification of the performance gap, providing a basis for promotion, transfer and termination, aid in designing training and development programmes, assistance in wage and salary administration, help in increasing employee effectiveness, improvement in interpersonal relations, and identifying the employees’ grievances.

4.

5.

Performance evaluation is widely used in HR activities like human resource planning, recruitment and selection, employee training and development, compensation decisions, career planning and development, grievance and discipline issues, and employee feedback. The important criteria used for determining standard performance are: individual traits, behavioural

characteristics, goal accomplishment, scope for improvement, and competencies. 6. The steps in a performance evaluation process are: setting performance appraisal goals, establishing performance criteria and informing the employees about them, actual evaluation of performance, and discussing the evaluation results with the employees. 7.

The potential evaluators for performance evaluation are the immediate supervisor, the peer group, employees, committees, self-evaluation, and customers.

8.

The performance evaluation methods are rating scales, ranking method, paired comparison, forced distribution, forced choice, critical incident, essay method, cost–benefit, work standard, checklist, field review, confidential report (CR), and resultbased evaluation system.

9.

Behaviourally anchored rating scales (BARS) method is a combination of positive features of several other methods like critical incident, essay method and rating scales.

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10. The uniqueness of the 360-degree feedback method is that all those who interact with an employee in any capacity will provide an evaluation report on him. The steps in the development of the 360-degree feedback are determining the objectives, deciding the receiver and giver of feedback, establishing the performance criteria, determining the mode of collecting the data, finalizing the method of data analysis and presentation, trying a pilot scheme, execution of the feedback process, and evaluation and communication. 11. Management by Objectives (MBO) counts on joint goal-setting to formulate and achieve the objectives of the organization. 12.

The problems in performance appraisal are the absence of objectivity, halo effects, central tendency, lenient attitude, bias, recency effects and employee resistance.

13. Post-evaluation interview is the interview conducted with the evaluated employees, usually at the end of the evaluation process. 14.

Job evaluation is a systematic technique used for deciding the relative worth of a job based on its comparison with other jobs.

15.

The steps in job evaluation process are: (i) identification of jobs to be evaluated, (ii) gathering relevant

information about the jobs, (iii) determination of job ranking, (iv) selection of benchmark jobs, (v) wage surveys, and (vi) feedback. 16. The non-analytical methods of job evaluation are ranking method, paired comparison, job grading, and market pricing; the analytical methods are point ranking method and factor comparison method. 17. The steps in the factor comparison method are: identifying the jobs to be evaluated, selecting the compensable factors, assigning weights for each selected factor, evaluating and ranking jobs, and expressing ranks in wage terms. 18. The benefits of job evaluation are: forms a basis for developing job grading and job family structure, forms a basis for fair pay policy, facilitates better financial management, ensures harmonious industrial relations, a basis for training need identification, and forms a basis for career planning and development. 19. The measures to enhance the effectiveness of job evaluation are: gaining confidence of the employees, providing adequate training for the evaluators, ensuring top management support, defining the job factors clearly, distinguishing the job from the job holder, ensuring the accuracy and reliability of the source documents, and recognizing the role of the trade unions.

Review Questions Essay-type questions 1.

Explain critically the traditional methods of performance evaluation.

8.

Discuss the relevance of performance evaluation to the various HR functions of an organization.

9.

Illustrate with examples the most suitable methods for evaluating the employees of public sector organizations.

10.

“Performance evaluation discourages creativity.” Do you agree with this statement? Justify your stand.

11.

Evaluate critically the attitude of Indian organizations toward the concept of performance evaluation. Trace the developments that contribute to the growth of performance evaluation as an important HR tool.

2. Describe in detail the various steps involved in the performance evaluation process. 3. Write about each of the possible evaluators in a performance evaluation process. 4.

Discuss the role of the performance evaluation system in an organization.

5.

Evaluate critically any five performance evaluation methods.

12.

6.

Enumerate the meaning, merits and limitations of the 360-degree feedback method.

13. Examine the meaning, characteristics and objectives of job evaluation.

7.

What are the challenges facing performance evaluation today? How will you overcome them?

14. Explain critically the steps involved in the job evaluation process.

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15.

Enumerate the analytical job evaluation methods with relevant examples.

16.

Discuss in detail the non-analytical job evaluation methods with pertinent examples.

17.

Evaluate critically the merits and limitations of job evaluation.

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18.

What are the challenges facing job evaluation in an organization? How will you overcome such challenges?

19.

“Job evaluation improves employee satisfaction, performance and commitment.” Discuss.

Skill-development Exercise Objective – The objective of this exercise is to let you know how to conduct a performance evaluation of your employee in an effective manner through role-playing. Procedure note – For this exercise, the class will be divided into small groups with each group having one line manager, one employee working under the line manager, one HR manager and two observers to monitor the performance evaluation interview. The HR manager will coordinate the evaluation process and the two observers will take care of the analysis and feedback aspects of the role-playing session. Situation Mr Amarnath is the branch manager of the Good Luck Life Insurance Company. He was asked by the HR manager to provide the annual performance evaluation report on one of his team members, Mr Vignesh. All through his career, spanning seven years, Vignesh maintained an unblemished record about his performance as a development officer. However, this year there were several complaints about his attitude and behaviour, especially in dealing with the customers. He was reported to be nonchalant and insensitive when attending to the needs of the customers. A discussion with his immediate supervisor

about his performance did not help Vignesh’s cause. Reports from his peers were also negative and confirmed his deviant behaviour. In this situation, Mr Amarnath has called Vignesh for an appraisal interview. Steps in the exercise Step 1: The HR manager visits the branch and informs Amarnath, the branch manager, about the changes made in the style and format of the evaluation technique. He enquires about the attitude and behaviour of the staff in general. Step 2: Amarnath speaks to Vignesh and fixes up a convenient date for the formal evaluation interview and passes the information to the HR manager. Step 3: Amarnath conducts the performance evaluation interview for Vignesh before the two observers. Step 4: The performance appraisal report is sent to the HR department and subsequently Amarnath provides his feedback to the HR manager in person. Step 5: The observers give their feedback on the interview process. The role play ends and the general classroom discussion begins.

Case Study Performance Management System at Kaveri Boilers Kaveri Boilers Private Limited is a medium-sized company engaged in the production of industrial boilers for the past 40 years. It has 5,800 employees. It is basically a non-unionized company with traditional HR policies and practices. The performance management (PM) policy of this company primarily focused on rewarding efficiency and chastising incompetence. This company attached immense weightage to its annual performance

evaluation practice and treated it as a major event in the organization. Even though the outcome of the performance evaluation process often formed the basis for compensation fixation, promotion, transfer, and disciplinary actions, many employees viewed it as a mere fault-finding exercise without any performance improvement initiative. The PM system of Kaveri worked as follows. When an employee’s performance declines beyond the permissible levels, a warning is issued to him and he is usually asked to explain the reason for the decline.

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In the absence of any convincing reply or significant improvement in his performance within a reasonable time-frame, the company resorts to lateral transfers and the poor performer is normally shifted out of his present department and moved to another. However, the same appraisal system is continued there too and the employee is monitored closely. If the employee still continues to fare poorly, his services are terminated after due notice. This practice goes well with the overall objective of the company’s performance management system, which focuses on quality sustenance at all levels without making any compromise even while preserving the morale of the performing employees by quickly recognising their talents and rewarding them rightly . Although the current performance management system has succeeded in maintaining the quantity and quality of the products at barely satisfactory levels, the response of the employees to this kind of evaluation has been far from encouraging. The employees have a grudge that the appraisal system has always been keeping them on tenterhooks. To make matters worse, the indifferent attitude and low morale

of those employees who have been transferred as part of the penalty has made the situation uneasy and caused anxiety among other employees. The HR manager is a mystified man and has no clues as to why the current system has not been able to produce the desired results of optimum productivity and adequate patronage of employees. Now, the challenge before the HR manager and his team is to pinpoint the real reason for the problems of the organization on the labour front and then decide whether to continue with the existing evaluation system after making necessary modifications or replace it with some other system that will be more acceptable to one and all. Questions for discussion 1.

Can we blame the existing performance management system for all the problems of the company?

2. Are there any HR issues other than performance appraisal involved? If yes, what are they? 3.

If you were to be the HR manager, what will you do to resolve the crisis?

Notes 1. Vesa Suutari and Marja Tahvanainen, “The Antecedents of Performance Management among Finnish Expatriates,” Journal of Human Resource Management, 13, no.1 (February 2002): 53–75. 2. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ: Pearson Education, 2007), p. 245. 3.

Edwin B. Flippo, Personnel Management (New York: McGraw-Hill) 1984, p. 5.

4.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 310.

5. Dale S. Beach, Personnel: The Management of People at Work (New York: Macmillan, 1975), p. 290. 6.

“HR Drives More Training, Appraisals, and Other Updated Review Practices,” HR Focus, 83 (April 2006): S1–S4, referred by R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ: Pearson Education, 2007).

7. Clinton Wingrove, “Developing an Effective Blend of Process and Technology in the New Era of

Performance Management,” Compensation and Benefits Review, 81, no. 1 (January/February 2003): 27. 8.

“Performance Management: Getting It Right from the Start,” HR Magazine, 49 (March 2004): Special Section 2–10.

9.

M. Armstrong and A. Baron, Performance Management: The New Realities (London: Institute of Personnel and Development, 1998).

10. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 310. 11. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ : Pearson Education, 2007), p. 244. 12.

Dick Grote, “Performance Appraisal,” Executive Excellence, 19 (December 2002): 12.

13. Richard D. Arvey and Robert H. Faley, Fairness in Selecting Employees, 2nd ed. (Reading, MA: Addison–Wesley, 1988), pp. 151–164. 14. Howard P. Smith and Paul J. Browner, Performance Appraisal and Human Development: A Practical

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Guide to Effective Managing (Reading, MA: Addison–Wesley, 1977) pp. 35–42.

27.

Edwin B. Flippo, Personnel Management (New York: McGraw-Hill, 1984), p. 206.

15. E. E. Lawler, Pay and Organizational Effectiveness: A Psychological View (New York: McGraw-Hill, 1971).

28.

“‘Rank and Yank’ Systems May Improve Workforce Performance, Study Finds,” Community Banker, 14 (April 2005): 64.

16.

Kathryn Tyler, “Performance Art,” HR Magazine, 50 (August 2005): 58–63.

29.

“Why HR Professionals Are Worried About Forced Rankings,” HR Focus, 81 (October 2004): 8–9.

17. “Why a Well-honed Performance Management System Is Now Key,” Compensation & Benefits for Law Offices, 6 (April 2006): 1–10.

30.

Wayne F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 6th ed. (New Delhi: Tata McGraw–Hill, 2002), p. 206.

18.

Referred by Terry L. Leap and Michael D. Crino in Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 325.

31. Arun Monappa and Mirza S. Saiyadain, Personnel Management, 2nd ed. (New Delhi: Tata McGrawHill, 2006), p. 215.

19.

Susan Meisinger, “Adding Competencies, Adding Value,” HR Magazine, 48 (July 2003): 8.

20.

Stephen Williams, “Strategy and Objectives” in Frances Neale (ed.) Handbook of Performance Management (Mumbai: Jaico Publishing House, 2002), p. 7.

21.

Stephen Williams, “Strategy and Objectives” in Frances Neale (ed.) Handbook of Performance Management (Mumbai: Jaico Publishing House, 2002), p. 15.

22. Kenneth N. Wexley and Gary P. Latham, Developing and Training Human Resources in Organizations (Glenview, IL: Scott Foresman, 1981), pp. 79–88; see also R. I. Lazer and W. S. Wikstrom, Appraising Managerial Performance: Current Practices and Future Directions (New York: The Conference Board, 1977).

32. J. P. Guilford, Psychometric Methods (New York: McGraw-Hill, 1954). 33.

Donald Schwab, Herbert Heneaman III, and Thomas Decotiis, “Behaviorally Anchored Scales: A Review of the Literature”, Personnel Psychology, 28 (1975): 549–562.

34.

Kevin R. Murphy and Joseph Constans, “Behavioral Anchors as a Source of Bias in Rating”, Journal of Applied Psychology, 72, no. 4 (November 1987): 573–577.

35.

Joseph J. Martocchio, Strategic Compensation, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 2001): 77.

36. Sue Bowness, “Full-Circle Feedback,” Profit, 25 (May2006): 77. 37.

P. Ward, “A 360-Degree Turn for the Better,” People Management, February 1995, pp. 20–22.

23.

George T. Milkovich and Jerry M. Newman, with the assistance of Carolyn Milkovich, Compensation, 7th ed. (Boston: McGraw–Hill, 2002): p. 368.

38. H. L. Tosi and S. J. Carroll, “Management by Objectives,” Personnel Administration, 33 (1970): 44–48.

24.

Manuel London and Arthur Wohlers, “Agreement Between Employees and Self-Rating in Upward Feedback,” Personnel Psychology, 44, no. 2 (Summer 1991): 376.

39 K. Albrecht, Successful Management by Objectives: An Action Manual (Englewood Cliffs, NJ: Prentice Hall, 1978).

25. George Thornton III, “Psychometric Properties of Self-Appraisal of Job Performance,” Personnel Psychology, 33, no. 5 (Summer 1980), p. 265. 26.

George Thornton III, “Psychometric Properties of Self-Appraisal of Job Performance,” Personnel Psychology, 33, no. 5 (Summer 1980): 263–272.

40.

Stephen J. Carroll and Henry L. Tosi, Management by Objectives (New York: Macmillan, 1973).

41. Andrew Solomonson and Charles Lance, “Examination of the Relationship Between True Halo and Halo Effects in Performance Rating”, Journal of Applied Psychology, 82, no. 5 (1997): 665–674.

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42. “Research on Performance Appraisals Wins Award,” HR News, 16 (July 1997): 13. 43. Gary Gregures et al., “A Field Study of the Effects of Rating Purpose on the Quality of Multi-Source Rating,” Personnel Psychology, 56 (2003): 1–21. 44. Michael Armstrong, Ann Cummins, Sue Hastings and Willie Wood, Job Evaluation: A Guide to Achieving Equal Pay (London: Kogan Page, 2003), pp. 2–5). 45. Michael Armstrong, Ann Cummins, Sue Hastings and Willie Wood, Job Evaluation: A Guide to Achieving Equal Pay (London: Kogan Page, 2003), pp. 2–5). 46. International Labour Organization Report, “Job Evaluation,” (Geneva, 1961), p. 8.

47. Richard Henderson, Compensation Management, 10th ed. (Upper Saddle River, NJ: Prentice Hall, 2005), pp. 260–269. See also “Web Access Transforms Compensation Surveys,” Workforce Management, 24 April 2006, p. 34. 48.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 434.

49. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ : Pearson Education, 2007), p. 286. 50. Bruce R. Ellig, The Complete Guide to Executive Compensation (New York, NY: McGraw–Hill Professional, 2007), p. 177.

CHAPTER

14

Compensation Administration

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 List the objectives, steps and challenges of compensation administration 2 Explain the elements, types and theories of compensation 3 Explain the concept of wages 4 List the kinds of pay structure 5 Elucidate the objectives of remuneration 6 List the elements and criticisms of executive compensation

As on 31 December 2008, steel conglomerate Arcelor–Mittal had nearly 316,000 employees and 66 factories in 20 countries. Its compensation strategy aims at motivating the employees towards organizational goal accomplishment, encouraging them to develop their skills and competencies continuously, retaining those who achieve performance standards and forcing the low achievers through pay-performance sensitivity to improve their performance. Arcelor–Mittal views its employees as its most valuable assets and adopts four key steps to achieve the required production efficiency. These steps are aligning the organizational structure with the company’s goals, ensuring the right people for the right roles, succession planning and development, and effective incentive programmes. The basic elements of Arcelor–Mittal’s compensation plans are: (i) the basic salary, which is competitive with similar organizations and also in the median of the market pay range, and (ii) the above-market bonus

as a reward for its employee in the years that have good results. The company also offers an Employee Share Purchase Plan (ESPP) to all its employees in different countries along with the bonus reward. To enhance the effectiveness of the compensation plans, Arcelor–Mittal ensures complete transparency and internal equity in pay fixation by adopting a group methodology in job evaluation. It also relates pay with performance to achieve the desired performance and efficiency. Further, the executive compensation plan of Arcelor–Mittal consists of a fixed annual salary, short-term incentives like performance-related bonus, and long-term incentives such as stock options. In addition to these rewards, its executives are also eligible for perks like company cars, insurance policies, and pension plans. Now that we have discussed the compensation schemes of one of the largest companies in the world, we shall now discuss the relevance of compensation for organizations in general.

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Introduction Compensation administration is always a vexing issue for the HR managers in the management of human resources. They always strive to develop compensation packages that satisfy the interest of both the organization and the employees. But, it is a tough and challenging task for any HR manager as there is an inherent conflict of interest between the management and the labour over the sharing of the earnings of the organization. For instance, the management’s goal is to limit the cost of production by controlling labour costs whereas the employees’ aim is to earn more from their profession. However, modern management no longer views compensation as merely a reward for the energy, expertise and time expended by the employees. It considers compensation as an effective tool to accomplish both the organizational and individual needs in a systematic and satisfactory manner. For many organizations, compensation is a vital instrument to attract and retain the best talents and motivate them to give their best for them. Human resources are unique and precious for any organization. In fact, this is the only resource that is involved in each and every activity of an organization. Certainly, the survival and growth of an organization is critically linked to the performance and commitment of its workforce. It is, thus, necessary for the organization to keep the employees satisfied and motivated on a sustained basis. Effective compensation policies and practices constitute a major HR-oriented approach for achieving the desired level of employee morale and organizational effectiveness. The term compensation is generally a broad concept covering incentives, allowances, and benefits, besides the basic salary. Rewarding the employees for their job efforts is the focus of the definitions of compensation. Box 14.1 lists a few of its definitions. We may define compensation as the sum of the rewards for the job-related efforts of the employees and also for their commitment to and involvement in the job.

Objectives of Compensation Administration Although talent attraction and retention is the primary objective of compensation administration, it also serves several other purposes. We shall now discuss the important objectives of compensation administration in detail.

Equity in Compensation The primary objective of compensation administration is to ensure internal and external equity in the payment of salary and other benefits to the employees. Internal equity refers to the Box 14.1

Definitions

“Compensation is a broad term pertaining to financial rewards received by persons through their employment relationship with an organization.”1 —Terry Leap “Compensation means all forms of pay or rewards going to employees and arising from their employment.”2 —Gary Dessler

“Compensation is the total of all rewards provided to employees in return for their services. The overall purposes of providing compensation are to attract, retain, and motivate employees.”3 —R. Wayne Mondy

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payment of equal compensation for jobs of similar nature and worth within the organization. The organization should determine the worth of each job through a job evaluation process. Through job evaluation, jobs with similar characteristics could be brought under a single job grade for the purpose of fixing the same pay grade. External equity refers to the payment of compensation to the employees at par with the wages and salary paid by similar companies for similar jobs in the industry. For this, organizations usually undertake industry-specific salary surveys in the labour market to determine the average salary offered for jobs of a similar nature.

Enhancing Individual and Organizational Efficiency Achieving the desired level of individual and organizational efficiency is also an objective of compensation administration schemes. Every organization considers compensation as an effective instrument to fulfil the organizational goals and objectives by enhancing the productivity, performance and commitment of the employees. Organizations normally achieve the desired level of employee efficiency by including an incentive component in the compensation payable to the employees. Generally, these incentives are linked to the performance of the employees and the profitability of the organization. An organization may offer individual and/or group incentives to its employees as part of the compensation package in order to ensure effective goal accomplishment.

Employee Motivation and Retention Retaining the existing employees is another objective of the compensation programmes. A well-designed compensation scheme motivates the employees and facilitates the retention of the best employees for a long time in the organization. In this way, it helps the organization in keeping the labour turnover and the related HR costs under control.

Goodwill in the Labour Market Encouraging the best candidates to apply for the job vacancies and to make them accept the job offers issued by the organization after successful selection is another objective of compensation administration. Through an effective compensation policy, an organization can create a highly positive image of itself in the labour market. The goodwill created in the labour market should enable the organization to get the required number of suitable candidates with ease.

Adherence to Laws and Regulations Complying with the prevailing laws and legislation of the country of operation is another objective of the compensation administration system. A sound compensation system would normally consider the challenges and constraints imposed by the government on compensation management. A good compensation plan would operate effectively without violating any of the legal provisions governing the computation and payment of wages and other incentives and benefits to the employees.

Controlling the HR Cost Any compensation administration aims at keeping the HR cost well under control. Certainly, a good compensation policy would neither overpay nor underpay its employees. In fact, an

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effective compensation policy would reasonably satisfy the divergent needs and aspirations of both the employees and the employers.

Improving Industrial Relations An effective compensation administration scheme intends to improve the labour–management relations in the firm. In many organizations, compensation is the major source of conflict between the management and the labour unions. However, a well-designed and transparent compensation plan would enable the organization to prove its interest in the well-being of its employees. It, thus, helps the firm in improving the employer–employee relations.

Types of Compensation Typically, an organization provides compensation to its employees in two forms. These are: direct and indirect compensation. Depending upon its size and the compensation policy, an organization may determine the compensation packages for various categories of jobs. Small organizations usually restrict the number of components in a compensation package and also give more weightage to direct cash compensations like basic pay and variable pay. In contrast, large organizations may include several components in a compensation package. They may also offer different kinds of compensation packages for different categories of employees. We shall now discuss the direct and indirect compensations.

Direct Compensation Direct compensation normally includes the amount payable to the employees as direct cash rewards for the work extracted from them. This may include any form of monetary benefit payable to the employee at periodic intervals. The basic pay and variable pay are the important components of direct compensation. We shall now discuss them in detail. Basic Pay This is the basic salary received by the employee as a direct compensation for the work done by him. It is a fixed component in the compensation and it often forms the basis for the computation of variable components like bonus and other benefits. It does not usually include any incentives or allowances. The basic pay in a compensation package actually reflects the worth of a job determined through job evaluation. Generally, the compensation policy of an organization and the external labour market conditions influence the determination of the basic pay for a job. Variable Pay This is a pay which is basically linked to the performance of the individual, group or the organization. Organizations normally offer a portion of the compensation in the form of variable pay to its employees. Variable pay may include incentives, commissions, profit-sharing, gain-sharing, and bonuses. It can be defined as an alternative compensation scheme that correlates the pay with the business results and promotes a participative management process.4 We shall now discuss a few components of the variable pay. Profit-sharing—In this variable type of pay, an organization distributes a part of its profit to its employees. An important form of a profit-sharing plan is the bonus plan, in which the employees get a share of the profit at the end of the year. However, some organizations may defer the payment of the shares of profit till the expiry of a specific period. Till such time, the deferred profit share would be in the account of the employees but maintained by the company.

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315

Gain-sharing—In gain-sharing, compensation is determined on the basis of the group or organizational performance. Normally, savings in costs, increase in quality, productivity, and customer satisfaction are the measures used for sharing the gains made by the organization. Equity plans—Equity stock option plans (ESOPs) offered by the companies are also one of the direct compensation schemes. The purpose of ESOPs is to create an ownership interest for the employees in the organization. In this form of direct compensation, employees stand to gain from the overall performance of the organization. This can also help the employees in integrating their individual interests with the organizational interest.5

Indirect Compensation Indirect compensation includes the benefits enjoyed by the employees but paid by the organization. Usually, indirect compensations are available to all the employees irrespective of their performance in the job. Mostly, the decisions relating to indirect compensation are influenced by the employees’ length of service and eligibility. Besides, indirect compensation decisions are normally guided by the policies and benefits offered by similar organizations.6 Typically, the components of indirect compensation are health-care schemes like Mediclaim, insurance schemes, leave travel concessions, retirement benefits and other social security schemes. An organization may also offer facilities like club membership, car, and vacation at holiday resorts as part of indirect compensation. Box 14.2 outlines the role of compensation strategy in talent attraction and retention. The primary objective of the compensation plans is to satisfy the employees’ needs. These needs may be classified as monetary and non-monetary. The monetary needs are satisfied through direct and indirect cash compensation. The non-monetary needs are satisfied through non-monetary rewards. Non-monetary benefits include such benefits provided by the organization to the employees that do not entail any cash expenditure. These non-monetary rewards in general Box 14.2

Compensation Administration Programme of L&T

Compensation fixation is understandably the most challenging task for the HR department. This is because there is an inverse relationship between the cost for an organization and its profit. Moreover, the labour cost usually constitutes a major portion of the total cost for an organization. Therefore, the compensation plans should be developed in such a way that they not only enhance the efficiency of the employees but also help retain the efficient ones in the business for a relatively longer period of time. A compensation package must have several internally consistent components to achieve multiple objectives. It is pertinent to cite here the compensation theme of Larsen & Toubro Limited (L&T). L&T is one of the reputed companies engaged in engineering and construction business. The primary objective of its compensation is the general well-being

of the employees. The company views its employees as a source of definite competitive advantage. Through its compensation programmes, it looks to attract and retain talented employees. Its compensation motto is to offer salary and benefits which are the best in the industry. With regard to perks, the company offers medical insurance schemes, retirement benefits, free transportation and part-furnishing of accommodation at different project sites. In addition to getting all the benefits available to the employees, the executives of the company are also entitled to company cars and loans for furniture, housing and children’s higher education. The company extends financial credit to them to buy personal computers. It also enables them to secure membership of superannuation scheme and reimburses their club membership expenses. Adapted from: http://www.lntecc.com/HR/benefits.asp.

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help the organization in ensuring better cooperation and commitment from the employees. These may include, among others, job rotation, job-sharing, and flexi hours, e-commuting, free parking, reduced supervision, and promotions or transfers without any monetary benefits. Non-monetary benefits normally provide intrinsic satisfaction to the employees and keep up their motivation and morale.

Theories of Compensation To gain a deeper knowledge of compensation, it is important to know a few relevant theories of compensation. We shall now see these important theories.

The Equity Theory The equity theory is an important contribution of John Stacey Adams, a behavioural psychologist. According to this theory, ensuring a fair balance between an employee’s contributions to the job and the rewards he receives in return from that job is important for developing a mutually beneficial relationship with the employees. When the employees believe that their rewards in the form of salary, incentives, and benefits from the job are greater than their job efforts, they would be satisfied with the job. They would also be motivated adequately to perform better in their jobs. On the other hand, these employees would be frustrated and de-motivated when they believe that their contribution to the job is greater than their reward from it. This theory traces the cause of employees’ satisfaction and dissatisfaction in the job to their perception of fairness or unfairness in the balance between their job efforts and job rewards. It is, therefore, necessary for the organization to develop a fair balance between the job efforts called input and the job rewards called output. The following illustration would highlight the working of Adams’ equity theory. Table 14.1 outlines the working of equity theory process.

The Expectancy Theory Vroom’s expectancy theory is another important guiding factor in understanding employees’ psychology concerning work and reward. According to this theory, employees work hard in Table 14.1

The Working of the Equity Theory Process

Input

Output

Result

• • • • • • • • • • • • •

• Monetary rewards (salary, incentives and benefits) • Non-monetary rewards (recognition, reputation, self-responsibility, achievement, appreciation, recognition, sense of advancement, job security)

Input greater than output Outcome Low employee satisfaction and motivation

Effort Trustworthiness Hard Work Commitment Involvement Knowledge Ability Dynamism Flexibility Perseverance Determination Keenness Sacrifice of individual goals

Source: http://www.mindtools.com/; reproduced with permission.

Output greater than input Outcome High employee satisfaction and motivation

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the job when they are sure of positive outcomes in the form of attractive rewards from the job. Employee motivation is the function of three factors, namely, effort, performance and outcome. Employees work with zeal when they are certain about achieving superior performance and positive outcome in the job. Thus, positive expectations about the eventual job outcomes create high employee motivation in the organization. As per this theory, an organization must constantly reinforce the belief of the employees that their efforts would get them good rewards. It should be ensured by the organization that the sincere efforts of the employees result in a high performance, which, in turn, gets them a good reward.

The Contingency Theory According to this theory, different compensation strategies act equally well in different circumstances. As such, there is no single compensation strategy available for all conditions. The effectiveness of compensation strategy certainly depends on the congruence among the firm, the environment and the compensation strategies. Thus, it is possible to know the importance of compensation only when other job properties are provided.7 This theory can be understood better through the following example. A promising candidate, owing to family reasons (like children’s education), is not willing to leave his location (city or country). In fact, he prefers to settle in a local job even if the compensation is not rewarding. In this case, compensation becomes a secondary factor for the prospective candidate since the location of the organization becomes a primary factor. In such a situation, it is necessary for the organization to ascertain the additional monetary compensation required to persuade the prospective candidate to give priority to compensation with respect to other factors. The essence of this theory is that the importance of compensation varies from one market to another, depending upon the presence or absence of other job properties.

The Agency Theory The agency theory views the employer as the principal and the managers as the agents. Usually, the managers never own complete responsibility for all the decisions made by them since they are not the owners of the business. Therefore, it is necessary for the organization to use compensation as an effective means for creating ownership interest among the managers. To achieve this, it is necessary to align the interest of the employees to that of the owners through unique compensation schemes. In this regard, there are various options (stock options and performance shares) available for the organization to increase the stake of the employees in its overall well-being. Finally, this theory insists that the organizations develop labour-market-oriented and performance-linked contractual relationship with the managers to motivate them constantly to achieve the organizational goals. Compensation administration system can be classified into two kinds—behaviour-oriented system and outcome-oriented system. In the case of behaviour-oriented compensation system, employees are eligible for merit-based compensations. In contrast, the outcome-oriented compensation system provides for performance-based compensation like stock options, profitsharing, gain-sharing and managerial commission. The agency theory supports ideally the concept of outcome-based compensation for enhancing the employees’ commitment and involvement. This theory also induces the employees to take better responsibility for their decisions. Agency compensation like employee stock options are perceived as less expensive by the organization as it does not entail any cash outlay for the firm.8

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Concept of Wages Wages are one of the important factors of production in any organization. It is also an important determinant of the price and profit of the product. It is, therefore, necessary to know the various wage concepts used in the determination of employee compensation. We shall now see these concepts briefly.

Real Wages When the income earned by the employees as a reward for their job efforts is expressed in real purchasing power, it is called real wages. The actual goods and services which wages can buy constitute real wages. These real wages are usually adjusted for the prevailing rate of inflation. Any fall in real wages normally indicates the diminishing purchasing power of employees and reduced consumption. The consumer price index acts as the basis for calculating such real wages of the employees. The economic growth of the employees ultimately depends on the real wages received by them. Thus, the real wages are the indicator of the changes in the economic well-being of employees over a long period of time.

Minimum Wages Minimum wages refer to the legally permissible minimum compensation payable to the employees for their job efforts. In India, the Minimum Wage Act, 1948, fixes the minimum rates of wages for certain jobs. The Committee Report on the Working of the Minimum Wages Act, 1948, has defined minimum wages as “the wage which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the worker too. For this purpose, the minimum wage must provide for some measure of education, medical requirements and amenities.”9 The purpose of minimum wages is to ensure the payment of fair wages to the employees to preserve their efficiency. The goal of providing minimum wages is to assist the employees and their families achieve self-sufficiency in life. Besides meeting the basic requirements of life like food, clothes, rent, fuel and lighting, the minimum wages should enable the employees to take care of their medical, educational and minimum recreational expenses. Since the payment of minimum wages is a statutory requirement, the organization must pay such wages, irrespective of its financial ability and the labour market conditions.

Fair Wages Fair wages are the wages which are usually positioned above the minimum wages but below the living wages. In the case of fair wages, the organizations should not fix any wages below the minimum wages as fair wages. However, they can consider the industry’s ability to pay for determining any wages above the minimum wages. Usually, an organization considers the productivity, the location of the industry, the level of national income and the pattern of its distribution, and the wage levels prevailing in the same area for determining the fair wages. Normally, fair wages relate with fair workload and the needs of a standard family.

Living Wages Living wages is defined by the committee on fair wages as the “highest level of wages that should enable the earner to provide for himself and his family not only the bare essentials

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of food, clothing and shelter but a measure of frugal comfort, including education for his children, protection against ill-health, requirements of essential social needs and a measure of insurance against the more important misfortunes, including old age.”10 The purpose of living wages is to ensure that the employees get an income which is sufficient for meeting their present and future necessities and contingencies. The living wage may be described as an ideal wage for an employee as it takes care of all his needs and those of his dependents adequately. However, the living wages must be based on the national income and the ability of the industry to pay such living wages.

Pay Structure Pay structure refers to the various levels of pay existing in an organization for different categories of jobs. An ideal pay structure creates a logically designed framework, which, in turn, facilitates the fixation of equitable and fair employee compensation.11 The purpose of developing a pay structure is to achieve an effective differentiation of pay based on knowledge, skills, abilities, commitment, performance and productivity of the employees. Generally, organizations consider the job evaluation report and the conditions prevailing in the labour market while framing the pay structure. A pay structure helps in determining the promotion and succession plans of an organization. Depending upon its compensation philosophy and policies, the organization may decide whether to opt for a single pay structure or a multiple pay structure.

Kinds of Pay Structure It is essential for an organization to have a need-based pay structure with the right mixture of flexibility and stability. An organization can choose an appropriate pay structure from the different pay structures available. We shall now discuss the kinds of pay structure briefly. The Narrow-graded Pay Structure The narrow-graded pay structure is also called the traditional pay structure. Organizations normally have several pay grades in the pay structure. Each pay grade comprises several pay levels or scales. It consists of a group of jobs with similar internal worth and market considerations. It also has the lowest and highest limits within which the pay may be fixed for an employee. The traditional pay structure provides multiple pay-raise opportunities for the employees and also facilitates a faster pay progression from one pay grade to another. The merit of this method is that it avoids ambiguity and ensures better clarity as each pay grade consists only of jobs with exactly equivalent worth. The limitations of this method are: (i) The presence of several pay grades might lead to difficulty in pay revisions and compensation management. (ii) There is a risk of employees reaching the peak stages of pay grades faster than they actually deserve. The narrow pay grade has been illustrated in Figure 14.1. Each pay grade in the figure consists of only three pay levels and the employees can quickly move to the next pay grade in this pay structure. The Broad-graded Pay Structure In a broad-graded pay structure, the number of pay grades is kept to the minimum. Even if an employee gets several pay hikes in this form of pay structure, he would remain within the same pay grade for a relatively longer period of time. Usually, there would be few restrictions and conditions imposed for pay progression within a pay grade. However, the organization may enforce necessary conditions for the movement of employees from one pay grade to another. In this way, an organization can ensure better

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Pay level or scale

Pay level or scale

Pay grade

Pay grade

Figure 14.1

Figure 14.2

A Narrow-graded Pay Structure

A Broad-graded Pay Structure

control over compensation management. Similarly, an organization can link pay rise with performance, skills and experience effectively. Figure 14.2 shows six pay levels in each pay grade, which means that the employee would move to the next pay grade only for his seventh pay hike in the existing pay grade. This structure would obviously keep the employees within a pay grade for a longer period. The Job Family Structure The job family structure refers to the classification of jobs on the basis of discipline, occupational category, or functional areas in an organization that defines the nature and type of performed work. The organization may have distinct job families for different departments like production, marketing, finance, purchase, and research and development (R&D). Each job family can have its own set of salary ranges that are usually based on pay trends in the relevant labour market. For instance, one pay grade can be offered for the marketing department while another can exclusively deal with the R&D wing of the

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organization. Within each pay grade, the employees of the same department may be fixed in different pay levels, depending upon predetermined criteria like experience, education, responsibility and competencies. The number of pay levels in each pay grade may be decided on the basis of the nature of the department, the complexity of the jobs, labour market conditions, and organizational policy. Typically, a university may have distinct job families for administrative services, facilities services, information technology services, media/public relations/alumni services, research/science services, safety and security services, and student/ academic services.12 Figure 14.3 shows the pay grades for a job family structure. The Career Family Structure A career family structure is similar to a job family structure except that the focus here is on career path and development. In the career grade, each employee gets a career progression (moves to higher pay scales) in a career hierarchy but remains within a single pay grade. Obviously, each employee would be aware of his career growth prospects in the organization and also of the financial prospects associated with his career growth. Career grades can help the organization get the best talents from the labour market because there would be clarity and firmness in the career growth and development for every position in the organization. A career grade also facilitates the decisions regarding the training and development requirements of the employees. However, it should be ensured that the progression within the career grade is based only on the requirements of the job and not on the skills and personal attributes of the employee.

Essentials of a Sound Pay Structure A sound pay structure is critical for effective compensation management by an organization. It improves employee satisfaction, commitment, motivation and performance. It can also enhance the co-operation between the employer and the employees. We shall now see the main ingredients of an effective sound pay structure. Alignment with the Business Objectives and Needs While determining the pay structure of the employees, it is essential to consider the objectives of the organization. These objectives are capable of providing directions to the entire business. They can also guide all the pay decisions

1

2

3

4

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6

Administrative services (number of pay scales—7) 1

2

3

4

5

Academic services (number of pay scales—5) 1

2

3

Information Technology Services (number of pay scales—3) Pay level or scale Pay grade Figure 14.3 The Job Family Structure for an Educational Organization

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of the organization. An organization may have specific objectives in terms of profit, customer satisfaction or expansion programmes. Different pay structures may be ideal for accomplishing different organizational objectives and needs. For instance, the marketing department may find a traditional pay structure suitable for its employees while the production department may opt for a broad-graded pay structure. The organizations may settle for a single or multiple pay structure, depending on their business needs, objectives and characteristics. Internal Equity A sound pay structure ensures fairness and equity in the determination of pay levels for its employees. There must be equal pay for jobs of similar nature based on job evaluation. To achieve genuine equity in pay scale determination, there must be an objective evaluation of the job duties, responsibilities, difficulties and other factors connected with the job. The merit, seniority, and competencies of the employees should also be duly considered. There should be no discrimination in the fixation of pay levels on the basis of gender, caste, religion or region. The worth of the job should be the only guiding factor in deciding the pay levels and grades. External Equity In addition to ensuring internal equity in determining the pay structure, an organization should also make certain that there is an external equity in the pay fixation. External equity ensures that the employees’ pay levels are comparable with those of employees in similar jobs in similar organizations. Pay parity with other organizations helps the organization in attracting, retaining and motivating talented employees. Organizations usually conduct salary surveys to identify the pay levels of the industry in general and the competing firms in particular. They can do a realistic assessment of the degree of external equity in the existing pay scales with the help of exit interviews and labour turnover rates. Although higher pays normally attract the best talents from the labour markets, this cannot be the only criterion for achieving external equity. This is because the employees give equal weightage to other factors like job security, organizational environment and non-monetary benefits, while deciding the degree of external equity in an organization. Reward for the Desired Performance and Behaviour Pay levels should be fixed in such a way that they reward the employees adequately whenever they come up with the targeted performance levels and behaviour. They should also be capable of sustaining the employees’ willingness to continue with the same performance and behaviour in the future too. Similarly, there must be an in-built incentive available in the pay scale for encouraging high performance, high involvement and commitment among the employees. Legal Compliance The pay structure of an organization must be in compliance with the prevailing laws and regulations of the country. It should also implement the recommendations of the statutory wage boards in a time-bound manner. The organization should incorporate the relevant provisions of the Minimum Wages Act 1948, Payment of Wages Act 1936, Industrial Disputes Act 1947, Equal Remuneration Act 1976, and other relevant acts in its compensation policy. Finally, since the government may impose rules and regulations from time to time, the pay structure must be flexible enough to fit in these changes in its pay structure quickly. Reconciling Individual and Organizational Interest The pay structure should serve not only the interests of the employees but also the organizational interest. There must be due regard for the long-term interest of the organization while fixing the pay scale of

COMPENSATION ADMINISTRATION

the employees. The pay structure must have the capacity to attract the right employees at a reasonable cost to the organization. To reduce the financial burden of the organization, a good portion of the employees’ pay may be linked to their performance and productivity. Such an arrangement would enable the organization to control the labour cost effectively.

Factors Influencing Compensation (Wages and Salary) Administration As illustrated in Figure 14.4, the nature and amount of compensation payable by an organization is influenced by a host of internal and external factors. But, the degree of influence of these factors might differ from one organization to another and also from one situation

Compensation administration

External factors

Internal factors

Labour market conditions

The organization′s capacity to pay

Labour legislations

Corporate policies and philosophy

Comparative pay scales

HR policies and strategies

Cost of living

Performance evaluation

Geographical location

Collective bargaining

Technology

Globalization Figure 14.4 Factors Influencing Compensation Administration

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to another. In the globalized and intensely competitive market conditions, organizations continuously make varied efforts to achieve cost-effectiveness and need fulfilment through their compensation policies.13 As mentioned earlier, the factors influencing compensation administration are classified broadly into internal and external factors. The external factors influencing compensation are (i) labour market conditions, (ii) labour legislations, (iii) comparative pay scales, (iv) the cost of living, (v) the geographical location, (vi) collective bargaining, (vii) technology and (viii) globalization. The internal factors influencing compensation are (i) the capacity of the organization to pay, (ii) corporate policies and philosophy, (iii) human resource policies and strategies, and (iv) performance evaluation. We shall now see these factors in detail.

External Factors The external factors remain outside the purview of an organization and yet influence its compensation administration. In fact, most of the factors influencing compensation administration are external. We shall now see these factors in detail. Labour Market Conditions The difference between the demand for specific categories of employees and their supply in the labour market influences the compensation administration decisively. When the demand for labour exceeds its supply, there would be a labour shortage. In such a situation, the organizations are forced to offer higher rates of compensation to get the required number of suitable employees. This is because the people possessing the required skills would obviously demand more compensation for their services. In contrast, it would be sufficient to offer a minimum amount of compensation to employees possessing skills which are abundantly available in the labour market. A paradoxical situation might also prevail in the labour market. On the one hand, there could be a short supply of skills which are desperately needed by the organizations. On the other hand, there could be an abundant availability of some other skills for which supply in the labour market may far exceed the organizations’ demand. Such a paradoxical situation often leads to the pampering of some sections of labour like the technical and managerial people by the organizations and the exploitation of other sections like the low-skilled and unskilled people. In manufacturing organizations, the technical jobs at managerial levels are usually offered more pay as these jobs are often in short supply in the labour market, while the non-technical ones at non-managerial levels are paid lowly because of their excess supply in the labour market. Labour Legislations Labour laws and regulations normally have a specific influence on the wages and salary administration of an organization. Generally, the legislations enacted by the central and state governments regulate the minimum wages and bonus payable to the employees, the workloads and the working hours. Some of the important labour laws guiding organizations’ approach towards compensation payment are the Minimum Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965, Equal Remuneration Act 1976 and Payment of Gratuity Act 1972. The organizational policies concerning compensation must strictly adhere to all these and other relevant laws and regulations in force. Organizations should also comply with the recommendations of wage boards, tribunals and wage committees. Comparative Pay Scales Organizations should consider the wages paid by similar organizations in the industry for similar jobs. When an organization pays less than the

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prevailing wages to its employees, its workforce strength would erode due to the high labour turnover. In contrast, when it pays more than the prevailing wages, it would be able to attract and retain the best talents. Thus, the prevailing wages critically influence the compensation policy of the organizations. Cost of Living At times of rising prices, the cost of living emerges as a major factor in determining the salary levels of the employees. When there is an upward movement in the cost of living, the real wages decline, affecting the purchase power of the employees. Due to the changes in the cost of living, organizations usually keep a portion of the employees’ compensation (such as dearness allowance) in a variable form. The dearness allowance is fixed on the basis of the prevailing cost of living and it changes as the cost of living changes. For instance, seven major cities in India, namely, Mumbai, New Delhi, Chennai, Kolkata, Hyderabad, Pune and Bangalore, have seen a remarkable increase in the cost of living in the recent past, and this has pushed up the salary levels of the employees in these cities.14 Though the dearness allowance is linked to the cost of living, it hardly reduces even when there is a decline in the cost of living, especially in the case of government jobs. Collective Bargaining The strength of the unions is one of the important influencing factors in compensation administration. When the unions in an organization are strong, the wage agreements are usually concluded in favour of the employees. This is because these unions exert strong pressure on the employers, both internally and externally, during wage negotiations. The unions may also ensure that the organizations strictly comply with the laws and regulations enacted by the government from time to time. In the case of non-unionized organizations, the employers enjoy more freedom in determining the wages of the employees and may tend to fix lower wages for them. However, some non-unionized organizations may fix higher wages voluntarily just to thwart the employees’ need to have unions in their organizations. Industry-level wage agreements reached through collective bargaining between the employers’ federation and the employees’ federation also has influence on the pay levels of the member-organizations. Technology The level and sophistication of the technology available in the industry can also influence compensation administration. When the manually performed jobs are easily and effectively replaceable with the existing technology, the organization may not be inclined to offer higher wages for such jobs. When there is a skill deficit in such jobs, the organization might prefer automation rather than paying higher wages to the job holders. However, organizations may have to offer higher wages to the high-tech jobs which usually require multi-skills and technological prowess. Geographical Location The location of the organization is also a major factor influencing compensation administration. When the organization is located in cities or urban areas, it may have to hire employees for higher wages due to the high cost of living prevailing in these areas. In contrast, the organizations located in rural or semi-urban areas may pay less to their employees, taking advantage of the low living cost in these areas. Globalization Globalization has brought in several multinational companies to the country. The compensation policies and philosophies of these globalized companies have begun to influence and shape the HR and wages practices of the Indian companies. As a result, domestic firms are now offering several innovative compensation schemes on a par

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with foreign companies to attract and retain the efficient employees. Major organizations are now designing and developing global compensation strategies in a centralized manner to achieve optimum effectiveness in human resource and compensation managements. Thus, globalization also influences the compensation administration of an organization.

Internal Factors The internal factors influencing the compensation administration are also significant in number. We shall now discuss these factors in detail. Capacity of the Organization to Pay Organizations may have the willingness to pay more compensation to their employees but they may not have the financial ability to do so. Understandably, the financial strength of the organization is one of the highly critical factors that determine compensation administration. For instance, when the organization pays higher wages to its employees, it normally pushes up the cost of production and prices of its products. High wage cost may also impact the turnover and profitability of the organization. In such a situation, small and medium-sized organizations may not be able to afford any hike in employee salary and wages. Ironically, low wage cost may be beneficial to the firm in the short period but it may affect employee satisfaction, performance and motivation in the long term. Low wages might also cause high absenteeism and labour turnover. In a nutshell, the organization must pay wages which are not only justifiable but also within its abilities. Corporate Policies and Philosophy Corporate philosophy, mission and vision statements provide overall directions to the entire organization and this includes its compensation administration. Organizations may deliberately pay the industry’s best wages and salary to attract and retain the high-calibre employees. Similarly, the corporate philosophy of an organization may aim at developing competitive advantage through its human resources. In such a situation, the organization may offer high financial incentives to the employees for developing their skills and competencies. Thus, the corporate philosophy and mission statements of the organization influence the compensation administration crucially. Human Resource Policies and Strategies The HR policies of an organization which deal with various aspects of human resource management also influence compensation administration. They usually form the basis for the terms and conditions of the employment. For instance, the promotion policy which stipulates the number, nature and frequency of promotions for different categories of employees in turn influences the compensation policies of the organization. Moreover, the HR policies are revised from time to time, depending upon the developments in the environment of an organization. Such changes in HR policies bring about corresponding changes in the compensation policies of the organization. Performance Evaluation Report Compensation administration is also influenced by performance evaluation results, job evaluation report, job description and job specification statements. The employees’ performance assessed through performance evaluation techniques may be used for determining the wage levels of the employees. Similarly, the job evaluation report can be used for fixing compensation for different jobs. The job description, which specifies the job content and context, and the job specification, which spells out the job holders’ skills and qualification, are also used for determining compensation.

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Steps in Compensation Administration The purpose of compensation administration is to compensate the employees satisfactorily and equitably and achieve the organizational goals effectively. Organizations usually develop their own compensation system for determining and computing the compensation schemes of the employees. As mentioned in Figure 14.5, an effective compensation programme involves the following steps: (i) analysis of the job, (ii) evaluation of the job, (iii) developing the pay structure, (iv) survey of wages and salary, (v) pricing of the job, and (vi) compensation revision and control. We shall now discuss these phases involved in compensation administration.

Analysis of the Job The first step in the process of compensation administration is the analysis of the job. This should be done to determine the content and context of each job, including its duties, responsibilities and accountability. Job description, which is a written form of job analysis, is used as the basis for identifying and studying the characteristics of a job as part of compensation development measure.

Evaluation of the Job After the jobs have been analysed on the basis of job description statements, the second phase of compensation administration involves the assessment of the worth of the jobs from the compensation perspective. An appropriate job evaluation technique is employed for ensuring

Analysis of the job

Evaluation of the job

Developing the pay structure

Survey of wages and salary

Pricing of the job

Compensation revision and control Figure 14.5 Steps in Compensation Administration

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internal equity in determining the compensation structure for different jobs. Job evaluation is indeed a process of evaluating the worth of the job on the basis of not only its context and content but also the necessary skills and responsibilities required for it. Organizations may employ methods like job ranking, job grading, paired comparisons, factor comparison and point ranking for evaluating the worth of the job.

Developing the Pay Structure The pay structure determines what an individual is paid.15 Once the internal relationship among the jobs based on their relative worth has been determined, the organization determines the pay structure and pay grades for jobs of similar importance and difficulties. The organization may choose to have either the narrow-graded pay structure or the broad-graded one for compensation administration.

Survey of Wages and Salary At this stage, an organization conducts a wages and salary survey in the labour market to gather information about the compensation provided by similar organizations in the industry for similar jobs. The primary goal of conducting a salary survey is to ensure external equity while determining the pay scale of the employees. As part of the salary survey, the organization may gather necessary information pertaining to the prevailing wage rates for the jobs in the labour market, and also information about the cost of living and inflation. Typically, an organization has two options in a salary survey. It may either conduct its own survey to know the trend in the labour market or buy the survey results of the professional agencies.

Pricing of the Job Job pricing refers to the determination of wage rates for jobs within the organization on the basis of the job evaluation and salary survey. As part of this process, the internal worth of the job is matched with the external worth to determine the price of the job. While finalizing the compensation for jobs, the guiding principle should be ‘pay the job and reward the person’.16 Paying the job means the payment of the right wages for the job depending upon its worth, while rewarding the person refers to rewarding an individual for his efficiency assessed through performance evaluation.

Compensation Revision and Control In many organizations, employee compensation forms a major portion of the total operating expenses. It is, therefore, necessary to develop an appropriate mechanism for monitoring the labour cost effectively. Organizations may use techniques like budgeting, performance evaluation, and other appropriate ratios like the compa ratio for determining the efficiency of compensation programmes. Budgeting is an effective technique of controlling the financial expenditures of an organization. It also helps in monitoring, controlling and coordinating the labour cost of the organization. Budgets actually set the standards for the organization in evaluating the financial expenditure-relating employee compensation. The Compa ratio is a relevant accounting ratio to know the present efficiency of the compensation schemes and helps in achieving the targeted efficiency in salary fixation.

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It facilitates the organization in knowing how close the present salary levels are to the targeted ones. This ratio helps the firm identify the mid-points in the existing pay grades, which, in turn, serve as standards for measurement of compensation efficiency. The compa ratio is calculated as follows: Compa ratio = (average wage rate actually paid)/(mid-point range) The range in this ratio refers to the minimum and maximum wage rates in the pay grade or classification. The mid-point refers to the exact halfway between the minimum and the maximum in a pay grade. The compa ratio is normally one. When the result of compa ratio is more than one, it means the average salary paid by the organization in the pay grade is above the mid-point. If the target of its compensation programme is to pay the employees at the mid-point in the pay range, it should make efforts to bring down the salary levels. On the other hand, when the result of the compa ratio is less than one, it means the existing salary levels are less than the mid-point in the pay range. In such a situation, the organization may decide to either retain the salary at the same level or raise it to levels closer to the mid-point by effecting pay increases.

Challenges in Compensation Administration Compensation administration is a highly sensitive and challenging job for the HR department. It ought to fulfil the divergent needs of both the employees and the employers justly and satisfactorily. However, organizations often face numerous challenges in developing effective compensation administration. We shall now discuss the important challenges in compensation administration.

Emergence of Innovative Job Designs The growth of unconventional employment schemes like flexi hours, e-commuting and parttime jobs have posed new challenges to organizations in developing compensation administration. They find it difficult to develop clear, consistent compensation policies that are fair to both conventional (full-time) and unconventional jobs. For instance, they are not definite about extending the benefits available to full-time employees to other segments of employees like those in telecommuting and others. In the case of the flexi-hour system of employment, the supervisory time and the cost of supervision are exceptionally high. In such a situation, organizations would have to decide who should bear the cost of additional supervisions and other support service cost.17 All these developments pose challenges to the organizations in developing suitable compensation packages.

Relevance of Money as a Prime Motivator A growing number of behavioural scientists are questioning the relevance of money as a motivator. According to A. Kohn, the more the money used to motivate people, the more they tend to lose interest in whatever they had to do to get the rewards.18 Thus, there is a need for the organizations to move beyond money as compensation and focus on other intrinsic factors as possible alternatives for achieving the desired employee performance, satisfaction and cooperation. However, many organizations still view monetary benefits as the only compensation for the employees’ job efforts.

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Lack of Objectivity in the Fixation of Pay Structure Many organizations are employing subjective job evaluation techniques like job ranking, job grading and paired comparison for assessing the worth of the job. This may affect the objectivity not only of the job evaluation but also of the compensation administration. This is because job evaluation forms the basis for determining the compensation plans. Consequently, imperfections in the job evaluation may result in underpaying or overpaying of jobs.

Political and Legal Challenges Changes in the provisions of the existing laws and regulations may require corresponding changes in the compensation plans of the organization. Whenever there are amendments in the laws concerning compensation and other benefits, it becomes imperative for the organization to implement those changes. At times, this may even necessitate a complete revision in the compensation plans. Similarly, the political ideologies and philosophies of the ruling party generally determine the government’s attitude at the time of wage negotiations and industry-level collective bargaining. A labour-friendly government may pressurize the employers to concede higher benefits to the employees at the collective bargaining process. Thus, the change of government and policies affects the compensation policies of an organization.

Difficulties in Fixing Compensation for Distinct and Critical Skills Organizations are now finding it necessary to develop tailor-made compensation packages to reward the unique and critical skills of talented employees. In a highly competitive and globalized environment, it is necessary to have highly flexible and individualized compensation plans to satisfy the reward requirements of highly skilled employees. Organizations are also under increasing pressure to develop competence-related and skill-based pay for encouraging the employees to improve their knowledge, skills and ability on a continuous basis. All these developments make compensation development and administration a much more complex task.

Balancing Organizational and Individual Needs Organizational compensation plans must balance the needs of the organization and those of the individuals. But, from the compensation perspective, the needs of the employers and those of the employees are mutually exclusive in nature. When the employees’ monetary needs are satisfactorily addressed, it would enhance employee motivation, satisfaction and retention but it could also push up the labour cost for the organization. On the other hand, when compensation policies favour the organization, it could improve the profitability of the business and the product performance in the market. However, such a compensation policy would discourage the talented employees from remaining for long in the organization; they might quit the organization and seek better fortunes elsewhere. Thus, the compensation plans must be devised ingeniously to fulfil the needs of both the organization and the individuals.

Ethical Issues in Pay Fixation Beyond legal compliance in compensation administration, organizations are expected to abide by the ethical probity in decisions involving compensation fixation and administration. There must be a sense of fairness in the actions of the organizations relating to compensation planning and administration. Employers are expected to stick to the standards that show a strong sense of justice and equity and also a consideration for the interest of all

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the employees of the organization.19 However, the unevenness in the demand for and supply of labour in the market often forces the organizations to offer exceptionally high compensations to some employees with much needed skills. In contrast, these firms offer abysmally low compensations for those skills which are abundantly available in the market and thus easily replaceable. Organizations often face ethical dilemmas while fixing compensation for employees on the basis of demand and supply in the labour market.

Executive Compensation Executive compensation refers to the compensation package offered to the managerial personnel of an organization. The managers’ role and performance are always crucial to the survival and growth of organizations. It is, therefore, essential to offer them satisfactory compensation packages in order to attract and retain the talented executives. However, executive compensation is a matter of intense debate both inside and outside an organization. This is because the managers, especially those at the top levels, play a major role in developing their own compensation packages. Besides, executive compensation often forms a substantial portion of the total labour cost of an organization. Moreover, it is difficult to evaluate the performance efficiency of the managerial people objectively. A typical executive compensation package comprises the base pay, short-term and long-term incentives, and managerial benefits and perks.20 Unlike wages and salary for workers, a major portion of the executive compensation is often tied to the performance of the company. Typically, an organization considers the extent of duties, responsibilities and risks involved in managerial positions for determining the executive pay packages.21 Box 14.3 outlines the system of executive remuneration fixation in Indian companies. Box 14.3

Executive Remuneration Packages the Modus Operandi at the Reliance–Anil Dhirubhai Ambani Group

In the recent past, Indian companies have seen remarkable changes in the remuneration payable to its executives who make critical decisions on their behalf. Since 1991, there has been a manifold increase in the compensation payable to the executives of Indian companies. Generally, these managers get their remuneration in the form of the base salary, short-term incentives (STI) and the longterm incentives (LTI). The base salary is often decided by the performance of both the individual executive and the company. Similarly, the short-term incentives are related with market practices and the performance of the company and the individual during a specific year. Normally, the seniority and experience of the executives are seldom considered in deciding the short-term incentives. Finally, the long-term incentives are influenced by the future potential of the executives to the organization, besides their contribution to its overall growth of the firm. Though organizations can have their own system for determining the executive compensation packages, some of the companies have an excellent mechanism for

evolving the executive compensation packages. The case of the Reliance–Anil Dhirubhai Ambani Group (ADAG) is worth mentioning. The Reliance–ADAG has constituted a Remuneration Committee, which periodically assesses the efficacy of the overall compensation structure and policies of the organization. After careful assessment, this committee presents its suggestions to the management. The future remuneration payable to the executives is formulated on the basis of this committee’s recommendations. The committee enjoys complete autonomy and faces no managerial interference. Indeed, the chairman of this committee is an independent director while the members are non-executive directors, of which most are independent directors. The committee also has the authority to seek professional advice on related matters, from within as well as outside the company. Adapted from: http://www.relianceadagroup.com/ adportal/ADA/aboutus/corporate.html.

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Objectives of Executive Compensation Packages The driving force behind the development of executive compensation package is the organizational objectives and the human resource requirements of the business. It is essential for an organization to ensure that the compensation packages develop necessary ownership interest for the managers in the organization and also make them more responsible for their decisions. We shall now discuss all the objectives of executive compensation. Aligning the Managerial Interest with the Ownership Interest Except the base salary, which is a fixed remuneration, the remaining components of the executive pay packages are usually variable in nature. Normally, these variable components of compensation are dependent on the organizational performance. The purpose of correlating a substantial portion of pay with the performance is to create a personal interest for the managers in the affairs of the company and to encourage them to be more sensitive to the needs of the organization. Bringing in the Best Executives With an increased competition for talented executives in the labour market, the executive compensation plans play an important role in attracting the best talents to the company. They also help an organization retain its prized executives for a long term and protect them from possible poaching by the rival companies or by professional head-hunters. Enhancing Employee Motivation, Involvement and Commitment The decisions of the managers can make or mar the future of an organization. Their responsibility for effective management of the business is greater than the responsibility of the non-managerial employees. Thus, there must be in-built elements in the executive compensation packages to motivate the executives on a sustained basis. Promoting Managerial Efficiency Some of the components of an executive compensation package like managerial commission are meant directly for improving the competency and commitment of the managers. In fact, the net profit computed in financial accounts is an important indicator of the managerial efficiency. That is why managerial commissions are usually based on the net profit available to the business. Ensuring Complete Financial Security Since managerial decisions carry considerable risk not only to the organization but also to the individual managers, it is important to offer financial security to the managers. Executive compensation must provide the necessary incentive and financial protection to the managers to encourage them to take reasonable risk in the decisions. Encouraging Progressive Learning Executive compensation must aim at encouraging the managers to develop their skills and competencies on a continuous basis. The managers need to be up to date in their knowledge and skills in order to identify, understand and act on the challenges posed by the changes in the environment.

Elements of Executive Compensation The major deficiency of modern-day companies is the separation of ownership and control.22 In the company form of organizations, the ownership lies with the shareholders and the

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control with the managers. As such, there is no incentive available for the managers to own complete responsibilities for the decisions made on behalf of the organization. To overcome such a lacuna, executive compensation plans are used creatively by the organizations to develop ownership interest for the managers in the organization. Organizations usually offer employee stock options, profit-sharing and gain-sharing schemes for linking ownership with administration and control. We shall now see these components in detail. Basic Salary The basic salary is the key component in the compensation packages offered to the executives. Since executive compensation emphasizes more on performance-based pay and incentives, salary is usually not the major portion of these pay packages. However, the basic salary often forms the basis for computing other components. For instance, the bonus and other variable compensations like the dearness allowance are usually expressed as a percentage of only the basic pay. Similarly, pension plans and other retirement benefits are also decided only on the basis of basic salary. Prior to deciding the base salary, organizations usually undertake job evaluation exercises for assessing the internal worth of the managerial jobs. However, the base salary of top managers is largely determined through extensive salary surveys. The size of the company is also a major influencing factor in determining the salary of the managers. Annual Bonus Plans Typically, a profit-making organization offers bonus schemes to its managers as part of the compensation package. The bonus is considered as a shortterm performance-linked incentive scheme. It is computed and paid on the basis of the performance of a single year. Under a usual bonus plan, an organization may pay bonus to managers when they achieve the performance standards. They may not get any bonus till they achieve those specified performance standards. Bonus schemes can be classified on the basis of performance measures, performance standards and pay–performance relationship structure.23 Organizations may use one or more performance measures for determining bonus. However, accounting profits (like EBIT, revenue growth and operating income) invariably form an important financial measure. Organizations may also use non-financial performances like goal accomplishments by the managers as the basis for determining bonus plans.24 For the purpose of bonus computation, an organization may use various forms of performance standards like budget standards, past-year performance standards, discretionary standards (subjective standards set by the management), peer-group standards (based on performance of similar companies), and timeless standards (fixed performance standards).25 Stock Option Plan It is a unique compensation plan in which the managerial personnel get the right to buy the stocks (mostly equity shares) of their company in the future at a price which may be equal or less than the price prevailing at the time of purchase. The stock option is normally a non-tradable long-term incentive available to the managers. However, the option to buy stock would normally lapse when the executive leaves the organization for any reasons. As discussed earlier, the stock option is an effective executive compensation scheme available to the organization to create ownership interest for the managerial personnel. The purpose of the stock option is to encourage the managers to accept increased responsibility for their decisions involving the future of the organization. The stock option is an effective motivational instrument for managers if there is a continuous increase in share prices. In contrast, it may not be as effective when there is a declining trend in the share prices.

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The main advantage of this compensation scheme is that there is no direct or immediate cash outflow for the company when the manager exercises this stock option. It is also effective in ensuring the retention of efficient managers on a long-term basis. Additional Long-Term Incentive Plans (LTIP) In addition to stock option schemes, an organization may also employ other long-term reward schemes for enhancing the performance, involvement and commitment of the executives. The aim of LTIP is to enhance the performance–pay relationship considerably. Normally, organizations impose specific performance conditions on the managers for getting long-term incentives. LTIP can be computed on the basis of the cumulative performance of managers on a multi-year cycle (typically an average of three to five years). Performance unit or share is one of the popular forms of the long-term incentive plan. As per this incentive scheme, a manager would be entitled to get specific cash or shares as the reward in the event of completing the performance targets successfully. Though long-term incentives are generally tied to the overall organizational performance, they may also be linked to group performance within the organization.26 Box 14.4 outlines the role of LTIP in enhancing employee performance. Managerial Commission Commission pay is emerging as one of the important components of executive compensation packages. It is an annual performance–based incentive scheme. The commission payable to managerial people is viewed as an important technique in achieving the required level of motivation, involvement, and efficiency among managers. The primary purpose of managerial commission is to encourage the managers to keep the expenses under control and improve sales income. The commission payable to managers is normally computed in two ways. These are: commission payable on profit before charging such a commission, and commission payable on profits after charging such a commission. The ratios for these managerial commissions are:

Box 14.4

Long-Term Incentive Plan at the ING Vysya Life Insurance Company

Generally, an organization views its executive compensation as a decisive factor in achieving the desired level of executive retention. Attracting and retaining the most-talented executives for a long term is also central to ensuring stability in the mission, vision, philosophy and direction of the business. Companies always view longterm incentive plans as an effective tool in achieving the twin purpose of creating ownership interest among executives so as to take better responsibility for their decisions and improving their executive retention rate. Regarding long-term incentive plans (LTIP), ING Vysya Life Insurance Company is a case in point. It is a part of the ING Group, one of the largest financial services providers in the world. The ING group has a top-level Remuneration and Nomination Committee for designing short-term and long-term

incentives for the top senior managers. It pays shortterm performance related bonus to its employees as part of STIP. The target short-term incentive plan pay-out is usually 100 per cent of the base salary. But the actual bonus amount depends upon the attainment of group financial targets and specific individual qualitative and quantitative objectives for each senior manager. The company also offers stock option and performance shares as part of the long-term incentive plan for these managers. LTIP is also determined as 100 per cent of the base salary for the senior manager. However, the final grant would depend upon the group’s short-term incentive plan performance. Adapted from: http://www.ing.com/xpedio/ annualreport2007/governance/remuneration_report/ remuneration_exec_board_2007.html.

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Commission payable on net profits before charging such a commission = Net profit × Rate of commission/100 and Commission on net profits after charging such a commission = Net profit × Rate of commission/(100 + Rate of commission) Regarding managerial commission, the Companies Act 1956 states as follows: “Subject to the provisions of Section 198 and Section 309, a company having profits in a financial year may pay any remuneration, by way of salary, dearness allowance, perquisites, commission and other allowances, which shall not exceed five per cent of its net profits for one such managerial person, and if there is more than one such managerial person, ten per cent for all of them together.”27 Executive Perks It is a unique kind of benefit payable to the top managers as recognition for their contribution to the growth of the organization. An important prerequisite for deciding executive perks is determining the job worth of the executives. Usually, executive perks are allowed to a select group of key executives. Normally, executive perks involve, among others, luxurious residential apartments, company cars, special parking space at office, private dining rooms, membership in country clubs, sponsored vacation trips, interest-free loans, insurance schemes and annual health examination. In addition to providing perquisites to individual executives, organizations may also extend some of these facilities to their family members, for example, reimbursement of children’s educational expenses and spouse travel. Some organizations use executive perks to let the executives stay connected to the office. For this, they provide laptops, cell phones and computers to its executives.

Criticisms of Executive Compensation Executive compensation packages are surrounded by many controversies. Most of them revolve around the mode and quantum of payment to the senior managers. In fact, several countries, including India, have enacted specific legislations to limit the compensation payable to the top managers of the companies. We shall now discuss the merits and demerits of executive compensation from different perspectives. Complaints of Over-payments A common complaint is that of the top managers getting a pay excessive for their performance and disproportionate to the duties and responsibilities associated with the job. That companies are usually more generous in rewarding the managers than their workers is another charge against executive compensation. Critics complain that the executive compensations grow much faster than the non-executive compensations available for ordinary workers.28 However, there are several factors which support the cause of executives and justify the payment of higher compensation to them. These are: • The nature of executive jobs is such that the managers often undertake risk by taking decisions relating to an uncertain and unknown future. Their decision may affect the future not only of the organization but that of themselves in the organization. Thus, they are justified in their demand for adequate reward for the risk involved in the managerial job. • Compensating the highly qualified and skilled managerial people obviously requires payment of hefty compensation to these employees. When the organizations fail to respond positively and adequately to the demands of competent people, they may lose

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to their rivals in the competition for the services of capable executives in the labour market. • As regards executive retention, companies often face the prospect of their highly competent managers being lured and eventually poached by the competitors. They usually prevent such a situation by offering attractive short- and long-term incentives. These factors necessitate the development of the best executive compensation packages to attract and retain the talented executives. Undue Influence on Compensation Determination Another criticism levelled against executive compensation is the role of top managers in the process of determining their own compensation packages. Usually, a compensation committee is nominated by the board of directors to develop compensation packages for the managers. Some critics believe that these compensation committees are unduly influenced by the top managers in the process of fixation of executive perks. This criticism is not true in majority of the cases since many compensation committees tie a large portion of the executive compensation to the organizational and individual performance goals. Disregard for the Financial Health of the Organization One more complaint against executive compensation is that there is a disregard for the financial health of the organization while determining the incentives, bonus and perks for the managers. Critics argue that the top managers must get generous rewards only when the company has done well. Now, as mentioned earlier, most of the executive compensation elements are connected only to the organizational performance. It is thus apparent that the top managers would be eligible for attractive rewards only when the company succeeds. Secrecy Shrouding Executive Compensation Since many organizations reward their managers mainly through executive perks and other not-so-visible schemes, critics complain that there is no transparency in the development and execution of executive compensation packages. They claim that many benefits and perks in compensation are hidden benefits and, therefore, need to be valued appropriately. In reality, specific provisions are available in existing laws like the Companies Act of 1956, to regulate the managerial remuneration payable to the employees. Inequality of Incomes in the Organization From a macro-level economic perspective, executive compensation packages are often criticized as ignoring the share of workers in the wealth and prosperity of an organization. Critics point out that this often leads to the uneven and unjust distribution of income within the organization. However, organizations normally provide due share in the organization’s profit to the workers by declaring a certain percentage of profits as annual bonuses to employees. Exorbitant Exit Fees The Golden Parachute Scheme is a unique executive compensation plan in which a top executive is eligible for a severance pay in the event of his present company being taken over by some other company as part of a merger plan. Severance pay may also be paid to managers when their services are terminated for other reasons. Critics, however, complain that the top managers often get exorbitant exit fees for leaving the organization. They also complain that the top managers often block important merger-and-acquisition proposals in order to extract huge exit fees from the company. However, the severance pay normally forms part of retirement benefits, which are to be duly approved by the competent authorities.

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Summary Compensation is the sum of rewards for the job-related efforts of the employees and for their commitment and involvement in the job.

corporate policies and philosophy, (iii) human resource policies and strategies, and (iv) performance evaluation.

2. The objectives of compensation administration are (i) equity in compensation, (ii) enhancing individual and organizational efficiency, (iii) employee motivation and retention, (iv) goodwill in the labour market, (v) adherence to laws and regulations, (vi) controlling HR cost, and (vii) improving industrial relations.

10. The steps in compensation administration are (i) analysis of the job, (ii) evaluation of the job, (iii) developing the pay structure, (iv) survey of wages and salary, (v) pricing of jobs, and (vi) compensation revision and control.

1.

11.

The challenges facing compensation administration are: emergence of innovative job designs, relevance of money as a prime motivator, lack of objectivity in the fixation of pay structure, political and legal challenges in compensation administration, difficulties in fixing compensation for distinct and critical skills, balancing organizational and individual needs, and ethical issues in pay fixation.

3.

Compensation can be classified as direct and indirect compensation. The elements of direct compensation are basic and variable pay, which includes profit-sharing, gain-sharing and equity plans. Compensation can also be classified as monetary and non-monetary.

4.

The types of theories of compensation are equity theory, expectancy theory, contingency theory and agency theory.

12.

Executive compensation refers to the compensation package offered to the managerial personnel of an organization.

5. The basic concepts in wages are real wages, minimum wages, fair wages and living wages.

13.

The objectives of executive compensation packages are: aligning managerial interest with ownership interest, bringing in the best executives, enhancing employee motivation, involvement and commitment, promoting managerial efficiency, ensuring complete financial security, and encouraging progressive learning.

6.

The kinds of pay structures are narrow-graded pay structure, broad-graded structure, job family structure and career family structure.

7.

The essentials of a sound pay structure are aligning with the business objectives and needs, internal equity, external equity, rewarding the desired performance and behaviour, legal compliance, and reconciling individual and organizational interest.

8.

The external factors influencing compensation are (i) labour market conditions, (ii) labour legislation, (iii) comparative pay scales, (iv) the cost of living, (v) the geographical location, (vi) collective bargaining, (vii) technology and (viii) globalization.

9.

The internal factors influencing compensation are (i) the capacity of the organization to pay, (ii) the

14. The elements of executive compensation are the base salary, annual bonus plans, stock option plan, long-term incentive plan (LTIP), managerial commissions, and executive perks. 15. The criticisms against executive compensation are: complaints of overpayment, undue influence on compensation determination, a disregard for the financial health of the organization, secrecy shrouding executive compensation, inequality of incomes in the organization, and Golden Parachute Schemes.

Review Questions Essay-type questions 1.

Discuss in detail the different types of compensations using relevant examples.

2.

Evaluate the relevance and utility of various theories on compensation.

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3.

Enumerate the various kinds of pay structure with suitable examples.

4. Examine critically the factors influencing the wages and salary administration using examples. 5.

Describe the different steps in a compensation administration process in detail.

6.

Evaluate the challenges facing the compensation programmes in Indian companies.

7. Explain the meaning, objectives and problems of executive administration schemes. 8.

9.

What are the various criticisms made against executive compensation plans? State how far these criticisms are true.

10. Enumerate the role of human resource managers in the development and administration of compensation programmes. 11.

“Compensation must fulfil the intrinsic and extrinsic needs of the employees.” Discuss.

12. “Compensation programmes must be fair to both the employers and the employees.” Justify.

Describe the various components of executive compensation packages in detail.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop compensation plans that can increase employee performance and job satisfaction. Procedure Note – The class is split into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two job evaluation committee members, (4) two office-bearers of the executive staff association, and (5) two observers of the meetings. The role of the observer is to observe and report on the various aspects of the role-playing sessions.

executive pay revision, the management issued a few specific guidelines to the HR managers. These are: (i) compressing the number of pay grades in the pay structure, (ii) enhancing executive perks, (iii) streamlining the employee stock option (ESOP) scheme, and (iv) increasing performance-based variable components in the compensation packages. Keeping these guidelines in the background, the HR manager begins the preparations for pay revision.

Situation

Steps in the exercise

Chitartha Life Insurance is a leading insurance company engaged in the business of providing insurance solution to the customers. The company offers a variety of insurance products like health insurance, children’s growth plan and pension plan, besides regular premium plans. The employee compensation objective of the company is to achieve optimum employee efficiency and commitment through performance-linked pay packages. It has succeeded fairly in achieving its objective through a perfect pay–performance alignment.

There are three steps to the exercise:

Chitartha’s HR policy provides for the extensive revision of the employees’ pay scales once in every five years. Due to time and resource constraints, the HR department normally undertakes separate revisions for workers and executives and completes both these revisions in two successive years. Since the HR department completed the pay revisions for the workers last year, it should complete the pay revision exercise for the executive cadres this year. Regarding

Step 1: The HR manager meets the office-bearers of the executive staff association to ascertain their compensation needs and know their suggestions for the new executive compensation package. Step 2: He contacts the job evaluation committee members and gathers information about the worth of the various executive positions and about the pay scales of similar positions in similar organizations in the industry. Step 3: He convenes a meeting of his HR team to finalize the new pay scale for executives after due considerations of the relevant reports and guidelines. The revised pay structure will then be sent to the top management for approval. Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

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Case Study Pareek Laboratories came into existence in 1979 as a medium-sized pharmaceutical company with just two generic products and 340 employees. In a span of 30 years, it has grown astonishingly and now emerged as the second-best pharmaceutical company in the country with a sizeable presence in the global market. The company’s staff list comprises 8200 talented employees. Today, the company has twelve research centres, of which four are located abroad. It is marketing nearly 625 branded products in more than 58 countries. It has also been successful in introducing 20 products in a year on an average, which itself is an indicator of the strength of its human resources. The top management of the company strongly believes that its highly skilled employees are responsible for its stupendous performance and growth. The company has a full-fledged HR department under the stewardship of HR Director Mr Nikesh Verma. The HR department, through sustained measures and a meticulous approach, has fostered loyalty and job involvement among the members of the company. Since its inception, the labour turnover rate of the company has been far less than the industry average, except for the past two years, including the current year. Obviously, the company is concerned about the recent disturbing trend in the employee attrition rate, particularly at the executive levels. Since executive retention is crucial to the stability of the business, the company wants to reduce the executive turnover at the earliest before too much damage is done. Many of the serving executives have blamed the pay revision conducted two years back as responsible for this trend. In the last pay revision, the company moved from a narrow-graded pay structure to a broad-graded one. Consequently, the number of pay grades were reduced and kept to a minimum in the revised pay structure. Junior-level executives complained that they got a raw deal in the new pay grade fixation and the pay difference between their level and the higher level (middle-level executives) became unacceptably large. The executives also found fault with the job evaluation techniques followed for determining the internal worth of the jobs. They felt that the ranking method adopted in job evaluation was highly subjective and functionally erratic. The junior-level executives also alleged that the job evaluation committee had evaluated persons instead of positions at executive levels,

and that was responsible for the anomalies in the pay grade allocation. They wanted the HR department to undertake a fresh and objective evaluation of jobs and reallocate pay grades on the basis of the result of a new job evaluation. However, the HR department, which takes overall responsibility for job evaluation and pay revisions, resolutely rejected the accusations made by juniorlevel executives. It maintained that the job evaluations were conducted in the most objective manner. The HR people also stated that the large differences between the pay scales of junior executives and those of the middle-level ones were due to the recent increase in the duties and responsibilities of the middle-level managerial jobs and not due to any flaw in the job evaluation or pay revision process. But the junior-level managers were not prepared to accept the explanation of the HR people and kept asking for a fresh exercise to fix the worth of each job in the managerial levels and reallocate pay grades. Now, the management is in an acute dilemma. If it concedes the request of the junior-level managers and orders a fresh job evaluation and pay grade fixation for them, it might send wrong signals to other sections of the employees and they also might seek revisions. If it does not concede their request, it may not be possible to reduce the high executive turnover. Finally, the management has instructed the HR department to come out with some plausible solutions to this serious issue. Questions for discussion 1.

Do you agree with the contention of the junior-level executives that flawed job evaluation and pay grade fixation are responsible for the labour turnover problems of the company?

2. According to you, who is to be blamed for the high level of executive attritions prevailing in the company? 3.

If you were to be the HR director, how would you have responded to the criticisms of the executives?

4. What will be your suggestions to solve the present imbroglio faced by the management?

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Notes 14.

“Indian Cities Become Costlier: Survey,” The Financial Express, available at http://www.financialexpress.com/news/Indian-cities-become-costlierSurvey/209092/.

15.

David Allen Baldwin, The Library Compensation Handbook: A Guide for Administrators, Librarians, and Staff (Westport, CT: Libraries Unlimited, 2003), p. 226.

4. John G. Belcher, Jr., How to Design and Implement a Results-oriented Variable Pay System (New York: AMACOM, a division of American Management Association, 1996), p. 10.

16.

Donald L. Caruth and Gail D. Handlogten, Managing Compensation (and Understanding It Too): A Handbook for the Perplexed (London: Greenwood Publishing Group, 2001), p. 18.

5. Anne M. Bogardus, Human Resources Jumpstart (Alameda, CA: Sybex Inc, 2004), p. 93.

17. Robert T. Golembiewski, Handbook of Organizational Consultation (London: CRC Press, 2000), p. 421.

1.

Terry L. Leap and Michael D. Crino, Personnel/ Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 353.

2.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 390.

3. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ: Pearson Education, 2007), p. 276.

6.

David Allen Baldwin, The Library Compensation Handbook: A Guide for Administrators, Librarians, and Staff (Westport, CT: Libraries Unlimited, 2003), p. 174.

7. S. Rottenberg, “The Baseball Players’ Labor Market,” Journal of Political Economy, 64 (1956): 190. 8.

K. Murphy, “Explaining Executive Compensation: Managerial Power Versus the Perceived Cost of Stock Options,” University of Chicago Law Review, 69 (2002).

9.

Report on the Working of the Minimum Wages Act, 1948; available at http://labourbureau.nic.in/ Mini%20Wages%202k5%20Intro.htm.

10.

Report on the Working of the Minimum Wages Act, 1948; available at http://labourbureau.nic.in/ Mini%20Wages%202k5%20Intro.htm.

13.

19. R. Bruce McAfee and Claire J. Anderson, “Compensation Dilemmas: An Exercise in Ethical Decision-making,” Developments In Business Simulation & Experiential Exercises, 22 (1995): 157. 20.

Mark Meltzer and Howard Goldsmith, “Executive Compensation for Growth Companies,” Compensation and Benefits Review, (November/ December 1997): 41–50.

21. Jeff London, “Severance Packages Following Disney: In Search of Board Backbone,” Directorship, 32 (March 2006): 20–22. 22.

Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics, 3 (1976): 305–360.

http://www.indiana.edu/~uhrs/csi/compBrochure. html.

23.

Raymond F. Veilleux and Louis W. Petro, Tool and Manufacturing Engineers Handbook, Vol. 5: Manufacturing Management, 4th ed. (Dearborn, MI: Society of Manufacturing Engineers (SME), 1988), p. 10.2.

Kevin J. Murphy, “Executive Compensation,” (June 1999), available at http://www-rcf.usc.edu/~ kjmurphy/ceopay.pdf, p. 10.

24.

Kevin J. Murphy, “Executive Compensation,” (June 1999), available at http://www-rcf.usc.edu/~ kjmurphy/ceopay.pdf, p. 12.

11. Michael Armstrong, Employee Reward (London: Chartered Institute of Personnel and Development, 2002), p. 204. 12.

18. A. Kohn, “Beyond Bribes and Threats: How Not to Get Control of the Classroom,” NAMTA Journal, 23, no. 1 (1998): 6–61.

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25.

26.

341

to Compensation Strategy and Design, 5th ed. (New York: McGraw–Hill Professional, 2008).

Kevin J. Murphy, “Executive Compensation,” (June 1999), available at http://www-rcf.usc. edu/~kjmurphy/ceopay.pdf (for more information on the kinds of performance standards, refer to http://www-rcf.usc.edu/~kjmurphy/ceopay. pdf).

27. http://www.vakilno1.com/bareacts/companies-act/ SCHEDULE%20659%20-%20674/sSCXIII%20-%20 671.htm.

Lance A. Berger and Dorothy R. Berger, The Compensation Handbook: A State-of-the-Art Guide

28. Robert W. Kolb, The Ethics of Executive Compensation (Oxford: Blackwell Publishing, 2006), p. 2.

CHAPTER

15

Incentives and Benefits

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the significance of incentive programmes 2 Understand the wage incentive planning process 3 List the prerequisites for good incentive schemes 4 Enumerate the different types of incentives 5 Evaluate wage incentive schemes 6 List the objectives of fringe benefits 7 List the forms of benefits

The Raymond Group is an India-based textile major operating at the global level. It is one of the largest integrated manufacturers of worsted fabric in the world and contributes to almost 60 per cent of the worsted suiting market in India. The HR objectives of Raymond get reflected in its vision which aims to make “Raymond the most desired workplace for the top talent.” As far as the fringe benefits are concerned, the company provides educational, housing, recreational and spiritual support systems to its people. The specific fringe benefits available in the company include employee staff quarters, guest houses, Raymond products at concession rates, company bus, and the Singhania School project, which ensures that the employees’ children have the facility to enrol themselves in the schools run by the J. K. Trust at 50 per cent of the fees. In many cases, the children’s education is provided absolutely free. Besides, the company contributes promptly to statutory fringe benefits like Provident Fund and

Employees’ State Insurance. It also periodically conducts several fun-filled events to let the employees connect with one another on a regular basis. For senior managers, the company organizes events like the annual “Raymond Interchange,” an ongoing initiative that harnesses the collective views on business strategy, and the CEO Forum, which is conducted six times a year. It adopts the 360-degree feedback system that provides senior managers with valuable inputs through evaluations from their colleagues, subordinates and customers. The feedback system also facilitates the management in arriving at decisions concerning wage incentives and career plans for individual employees by understanding their real potential, interests and goals. The success of the Raymond Group proves the important role of wage incentives and fringe benefits in contributing to an organization. Given this context, we shall discuss incentives and benefits from different perspectives in this chapter.

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Introduction Hard work pays is the simple philosophy behind wage-incentive programmes. Employees usually get wage incentives in addition to their base salary in the organization. Wage incentives enable an organization to present challenges and rewards alike to its workforce in order to make the employees enjoy their jobs more. The primary purpose of providing wage incentives is to enhance the organizational performance and employee productivity. Understandably, incentives constitute an important HR tool to achieve the desired performance goals within a reasonable cost. Performance-based incentive programmes enable an organization to keep its employees satisfied without producing any permanent rise in pay and/or benefits. Thus, wage incentive schemes help an organization establish a formal relationship between individual performance and remuneration. Wage incentives also motivate the employees to work harder in their jobs in order to get recognition in monetary and non-monetary terms. However, when the rewards offered as a part of the incentive programme do not fulfil the exact needs of the employees, they cannot be considered as an incentive at all. The incentive programmes should be such that they should get and keep employees motivated by fulfilling their exact needs. Generally, incentives are provided to employees when their actual performance meets the performance standards set by the organization. Although organizations predominantly offer monetary rewards as a part of performance-related incentives, they may also offer non-monetary rewards to their employees. Finally, an important prerequisite for any effective incentive scheme is the presence of an objective performance evaluation procedure. Terms like wage incentives, variable pay, pay for performance, incentive plans and contingent pay are used in organizations interchangeably.1 Rewarding employees for reaching the predetermined performance levels is the essence of the definitions of incentives. Box 15.1 lists a few of these definitions. We may define wage incentives as any form of performance-based financial and/or non-financial rewards payable to attract and retain the best talents without any permanent financial commitment for the organization.

Objectives of Wage Incentives The primary objective of wage incentive schemes is to attract and retain efficient employees and induce them to work harder in the job. Through these schemes, organizations usually look to achieve the twin aims of getting the best out of their employees and ensuring Box 15.1 Wage incentives are defined as “variable rewards granted according to variations in the achievement of specific results.”2 —Milton L. Rock

“Wage incentive may be defined as the stimulation of efforts and effectiveness by offering monetary inducements or enhanced facilities.”4 —P. C. Tulsian

“Wage incentive (contingent pay) refers to payment related to individual performance, contribution, competence or skill or team or organizational performance.”3 —Michael Armstrong

“Wage incentives are designed to stimulate human effort by rewarding the person, over and above the time-rated remuneration, for improvements in the present or targeted results.”5 —National Commission on Labour

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adequate rewards for employee efforts.6 We shall now discuss the other important objectives of wage incentive schemes.

Developing an Ownership Interest Wage incentive schemes aim at creating a personal interest among the employees in organizational affairs so that this would, in turn, improve the sense of responsibility of these employees.

Enhancing Employee Motivation Organizations look at wage incentives as a viable option to increase and then sustain employee motivation through monetary and non-monetary rewards.

Improving Employee Retention Wage incentives aim at controlling the labour turnover arising out of employee dissatisfaction due to the absence of merit recognition and poor pay. Thus, incentive programmes aim at enhancing the employee retention rate.

Facilitating a Greater Role for Employees in Pay Determination Wage incentive schemes enable the employees to determine their own income by linking their pay with their actual performance. By varying their performance levels, they can earn the required incomes.

Increasing the Performance and Productivity By establishing a link between the pay and the performance, organizations aim at increasing organizational performance and employee productivity to the desired levels.

Reducing the Labour Cost Through productivity-linked incentive schemes, organizations seek to avoid a permanent raise in the pay levels of the employees. This is in contrast to the basic pay and other fixed employee benefits, which permanently commit the organization to a fixed labour cost, irrespective of its performance and profitability.

Reducing the Time and Cost of Supervision Wage incentive schemes aim at reducing the supervisory cost and time by enhancing the sense of responsibility of the employees through linking their performance with pay.

The Wage Incentive Planning Process Though each organization can have its own style of incentive plans to serve the needs of its employees, the incentive planning process illustrated in Figure 15.1 can be adopted by any organization with necessary modifications. We shall now see the steps in an incentive planning process.

INCENTIVES AND BENEFITS

Step 1 Setting objectives for incentive programmes

Step 2 Determining the nature of reward and the mode of payment

Step 3 Sharing goals with the employees

Step 4 Evaluating the actual performance of the employees

Step 5 Application of incentive plans

Step 6 Feedback

Figure 15.1 The Wage Incentive Planning Process

Setting the Objectives The first step in the process of installing an incentive plan is the determination of goals for such incentive plans. Organizational objectives usually provide the basis for determining the goals of the incentive programmes. An organization must decide the specific goals it wants to accomplish through the incentive schemes and how its employees can contribute to those goals. It is only when the employees believe that the performance goals are attainable that they would put in the additional efforts required to accomplish them.7 Depending upon the requirements, an organization may set individual or group goals as part of the incentive programmes. However, an organization should revise these goals periodically to ensure that there is a continuous improvement in the performance of the employees.

Determining the Nature of Reward and the Mode of Payment Having formulated the goals to be accomplished through incentive plans, the next step is the determination of the type of incentives and the mode of its payment. An organization should first determine the total compensation payable to the employees for reaching specific performance goals. It should also choose between individual and group incentive plans to achieve the proposed incentive goals. Besides, it should decide between monetary and non-monetary rewards for compensating its employees. It should also weigh up the merits and demerits of different incentive plans before choosing an ideal plan for goal accomplishment.

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Sharing the Goals with the Employees In the next step, the organization should effectively communicate the objectives and nature of the incentive plans to all its employees so that they can understand their role and reward in the incentive plans clearly. All the features of the incentive plans should be explained to them and all their queries clarified. The organization should ensure that the employees believe that the rewards offered to them are worth the efforts put in by them in the job.

Evaluating the Actual Performance At the end of a specified period, the organization must evaluate the employees’ performance to decide whether they attained the performance standards and also the amount of incentives payable to each one of them. However, organizations do not evaluate the employees’ performances only to determine the wage incentives. Usually, the performance evaluation system keeps incentive fixation as one of its several objectives. Depending upon the requirements, the organization may choose from the evaluation methods like rating scales, ranking method, paired comparison, forced distribution, forced choice, critical incident, essay method, checklist, field review and confidential report (CR) to evaluate the employees’ performance.

Application of Incentive Plans Once the performance of employees has been evaluated, the next stage is the application of appropriate incentive plans to determine the performance rating and pays of the employees. Typically, the employees at this stage get to know what their reward will be. In fact, the process of an incentive scheme begins with goal setting and ends with reward decisions. Organizations should ensure that the employees’ performances are adequately rewarded and the incentive objectives accomplished.

Feedback Sometimes, the employees may not be satisfied with the incentive plans, the performance evaluation process or the mode of payment of incentives. In such a situation, the incentive schemes may not only fail to motivate the employees but also dissatisfy them, causing increased labour turnover and absenteeism. To avoid such a situation, it is necessary for the organization to receive periodic feedback from the employees in order to know their views on the incentive schemes. An organization may undertake attitude surveys among the employees to decide the fairness and efficacy of the incentive programmes from their perspectives. Besides, it should have a proper procedure to permit the employees to appeal against the incentive pay in case they have any grievance. Box 15.2 outlines the various incentive practices prevalent in organizations.

Prerequisites for a Good Incentive Scheme Only an effective incentive scheme can have a desired impact on the productivity and efficiency of the employees. The installation of a good incentive scheme requires meticulous planning and honest execution. Before installing an incentive scheme in an organization, it is necessary to conduct a survey to ensure that the environment is appropriate for its introduction. The organization should also make certain that the incentive schemes proposed to be introduced fulfil the following conditions:

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Box 15.2

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Each organization should first ascertain the diverse needs of its employees before developing incentive plans and fringe benefit programmes. It should also consider its organizational objectives seriously as it could provide an overall direction to the HR people about how they should proceed in the compensation planning activities. Last but not the least, it should thoroughly study the HR problems before finalizing any incentive schemes. For instance, if executive attrition is the major issue in the organization, it should develop incentive programmes (like ESOP and deferred profit sharing plan) which retain the executives for long in the organization. On the other hand, when cost reduction is the focal point, it can develop a gain-sharing plan to control the cost of production. Similarly, when the organization is located at a remote place, the transport facilities become a major fringe benefit for the employees. In a nutshell, the needs of the organization and its members drive its incentive plans and fringe benefit schemes. However, there are a

few organizations that may offer several incentives and facilities just to keep their workforce happy, efficient and productive. We shall now see the compensation practice of Ranbaxy Laboratories. Salaries and other benefits in Ranbaxy are comparable with the best in the industry. Its incentive policy is such that it rewards its employees highly if their performance is consistently outstanding. As part of its fringe benefit schemes, it offers group life insurance, medical insurance and pension plans to its employees and their dependents with an adequate financial protection on a long-term basis. Stock ownership is another successful long-term incentive offered by this company to retain the managers and improve their income and investment. It encourages its employees to take up company stock in their early stages of career so that they can gain from the success and growth of the company through capital appreciation. Adapted from: http://www.ranbaxy.com/ career/Lifeatranbaxy.aspx.

Transparency The foremost requirement for an effective incentive scheme is its transparency. The scheme must be comprehensible to all the employees who are part of this scheme. Even uneducated employees must be able to understand the working of the incentive schemes clearly. As far as possible, highly technical and complex computation procedures must be avoided. This is because simplicity and transparency can greatly improve the employees’ trust in the incentive schemes.

Objectivity The incentive scheme should keep subjectivity in the performance evaluation and incentive computation to the minimum. The greater the subjectivity in the incentive schemes, the larger the scope for charges of personal bias and prejudice in the determination of rewards for employees. When the employees suspect unfairness in the distribution of monetary rewards, they might remain indifferent to or even oppose the scheme. Thus, an effective incentive scheme must be equitable, objective and fair to all the employees.

Measurability The next important prerequisite for an effective incentive scheme is that the scheme be quantifiable. The incentive scheme must be readily measurable. It should be based on rational and scientific work measurements. Organizations should not attempt to keep abstract terms like attention, required concentration and stress levels as the basis for determining the incentives. They should keep measurable terms alone as the basis for fixing the incentives for the employees.

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Attainability The performance goals fixed by an organization for computing the incentives should be practical and achievable. If they are too tough to be achieved by the employees, the latter may not be keen on accomplishing these goals. Eventually, the employees may develop an indifferent attitude towards the incentive schemes of the organization. By involving the employees adequately in the preparation of the incentive schemes, organizations can ensure that the goals and incentive schemes are attainable and practicable. Thus, a participatory and inclusive approach in the designing of incentive schemes would be a prerequisite for effective schemes.

Flexibility An effective incentive scheme should be flexible enough to adapt itself to the changes in the internal and external environment. The organization must be able to effect changes in the scheme without too much delay. The administrators of the scheme should review its performance periodically and make necessary changes, as and when required. However, flexibility in an incentive scheme does not mean that the scheme or reward can be revoked at will. In fact, once the rewards have been computed and officially declared, they must be paid by the organization at all costs.

Comprehensiveness An effective incentive scheme should have something to offer for all the employees of the organization. All the sections of the employees—from foremen and supervisors to helpers— must be covered under the scheme. The total cooperation of the workers, managers and unions must be obtained for the scheme. Covering only some employees under the scheme and rewarding only a few of them could prove detrimental to their unity and team spirit. Thus, a good incentive scheme should be comprehensive and inclusive in nature.

Cost-effectiveness A good incentive scheme should not only be efficient but also economical in achieving the goals of the incentive programme. The purpose of linking pay with performance is to achieve cost-effectiveness in the management of the incentive scheme. In contrast, if the cost of maintenance of such schemes is more than the savings made through them, there is no point in continuing with such schemes. The organization should discontinue the schemes when their benefits are outweighed by the cost of their maintenance.8

Instantaneous feedback As far as possible, the reward available to the employees must be paid immediately. This would make an incentive scheme more relevant and attractive to those who participate in it. Besides, the employees would be more determined in earning the reward if it is going to benefit them in the immediate future. Thus, an effective incentive scheme should pass on the rewards to the employees as quickly as possible. To accomplish the goals of the incentive schemes effectively, their administrators must have periodic consultations with all the stakeholders of the scheme, namely, the employees, the management, and the trade unions.

INCENTIVES AND BENEFITS

Types of Incentive Schemes Incentive schemes are also known as payment by results. The three factors which favour the payment of wage incentives to employees are: (i) The employees must be rewarded for their additional efforts in the job; (ii) The payment facilitates the earning of higher wages as an inducement for additional efforts; (iii) It improves productivity and organizational profitability.9 The fairness of the outcome (reward) of an incentive scheme determines its ability to win the employees’ cooperation with the scheme. However, the type of scheme is a critical factor in determining the quantum of reward available to the employees. Therefore, an organization must be prudent in choosing incentive schemes as the nature of a scheme has a direct bearing on its outcome. However, the organization must invariably ensure that the incentive scheme chosen must be easy to operate and simple to understand. Broadly, the incentive schemes are classified into four categories: straight piece rate, differential piece rate, task and time bonuses, and merit rating. Depending upon its compensation policy and incentive goals, an organization may primarily choose from among the following four categories. A brief explanation of each of these categories has been explained as follows.

Straight Piece Rate This is a simple method where incentives are computed and paid to the employees in direct proportion to their performance in the job. Under this method, the same rate of incentives is paid to the employees for each unit of goods produced by them. The incentive rate remains constant for all levels of production. It is essential to ensure that the incentive rates fixed are accurate and practical; otherwise the scheme would lead to overpayment or underpayment of jobs. In the long run, neither too low rates nor too high ones would help the organization in achieving the goals of the incentive programmes, such as employee satisfaction, organizational efficiency and profitability. The prerequisites for the implementation of this scheme are: (i) The skill levels required in production must be similar. (ii) Production should be expressible in units or numbers. (iii) Production stoppage for which the employee is not responsible should be compensated adequately. The formula for computing the earnings is: Wage Earnings = number of units produced × the piece rate per unit This method can be better understood through a numerical example. Let us say that there are two employees A and B working in the same department and producing identical products. The piece rate available for each unit of goods produced is Rs 12 per unit. At the end of the day, employee A produces 17 units and employee B 20 units. As per this scheme, the total earnings of A would be Rs 204 (17 units × Rs 12) and those of B, Rs 240 (20 units × Rs 12). Obviously, the extra efforts of employee B has been recognized and rewarded with extra incentives. While fixing the straight piece rate, the organization must take into consideration the difficulty involved and the time required for performing the job, the quality of machines used, the safety requirements, and the quality standards. In a nutshell, the employee must get reasonable wages for reasonable efforts. The merit of this method is that it avoids complex computation procedures. In fact, the employees themselves can work out their earnings. The limitation of this method is the non-availability of in-built measures to avoid excessive speed and quality compromises in performance.

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Differential Piece Rate Although the straight piece rate is simple to operate, it fails to recognize, motivate and reward the highly efficient employees in the organizations. It has no provision to sustain their motivation and energy levels on a continual basis. To overcome these defects in rewarding the employees, organizations apply a differential piece rate for determining the employees’ earnings. In the differential piece rate system, more than one piece rate is offered to the employees. As part of this system, the organization sets several standards of performance and also different wage rates for each standard. An employee reaching a particular standard of output gets his wages computed on the basis of the applicable wage rate for that category. Clearly, the wage rate increases as the output increases and the employees are strongly motivated to reach higher levels of productivity. We shall now see a general example of this system. The standard output set by an organization for its employees in the production department is 60 units per day. As per its incentive plan, it offers Rs 2.50 per unit for the employees whose production exceeds the standard output and Rs 2 per unit for the employees whose production is less than the standard output. If employee A produces 60 units in a day, he would be eligible for Rs 150 (60 units × Rs 2.50) per day. If employee B produces 49 units, he would be eligible for Rs 98 (49 units × Rs 2 per unit). Under the differential piece rate system, employees are strongly induced to reach the standard output. However, the major limitations of the differential piece rate system are: (i) It may be difficult to set accurate and agreeable standards of production. (ii) This method may result in the employees cutting corners in their bid to produce faster. (iii) It may create tensions and rivalry between the slow and the fast performers. (iv) The employees may complain of unfairness in the standard setting when they are not able to achieve it.

Task and Time Bonuses This is a modified form of differential piece rate system. The purpose of this bonus plan is to reduce the wage incentive cost as the output increases.10 As per this incentive scheme, once the employee reaches the standard output, his wage incentive will begin to decline. The purpose behind this move is to discourage haste in the production by the employees, understandably the major defect in the differential piece rate system. Under this system, organizations first set a standard time for each job and the hourly wage rates. Now, the employees who complete the job within the standard time get a bonus for the time saved (difference between the actual time taken and the standard time) in addition to the wage rates applicable for the time worked. However, the other employees, who do not complete the job within the standard time, get ordinary hourly wages for their actual working hours without bonus. We shall now see a simple example of task and time bonus plan. The standard time fixed for performing job X is 5 hours and the hourly rate payable to the employees performing that job is Rs 10 per hour. The bonus available for the time saved in the job is 100 per cent. Now, employee A completes the job in 4 hours and employee B completes it in 5 hours. In this case, employee A would get Rs 50 (4 hours × Rs 10 per hour + bonus of Rs 10 for one hour saved) for four hours of actual work. Employee B would get Rs 50 (5 hours × Rs 10 per hour) for five hours of actual work. The merit of this system is that it encourages the employees to work hard but never penalizes them for not reaching the standard time. The limitation of this method is that the organization may deliberately set tough standards for getting rewards so that it becomes simply impossible for the employees to obtain them.11

INCENTIVES AND BENEFITS

Merit Rating This is another form of determining the wage incentives for the employees in areas of activities where these rates cannot be adopted. Merit rating aims at evaluating the relative worth of the employees in the organization before awarding them appropriately. In this method, the organization links a part of the employees’ wages to their actual performance in comparison with the standards set by it. These standards may be in terms of critical job factors like competency, initiative, attitude, safety records, punctuality, regularity, health, dynamism, behaviour, reliability and adaptability. Depending upon the importance of these factors to the job, the organization may assign points to each of these factors. The employees’ overall performance in the job is then evaluated to determine their aggregate scores, which, in turn, decide the incentives payable to them. The merit of this method is that it can be applied even to those jobs which cannot be measured in terms of production units. In fact, it is found to be more relevant for employees performing administrative and technical jobs.12 Organizations in reality classify their wage incentive programmes on the basis of individual, group and organization-wide performance. Depending upon the objectives of the incentive programmes, an organization may decide to offer schemes for individuals, groups or for the organization as a whole (see Figure 15.2). If the management strongly believes that individual incentive programmes would promote inter-personal rivalry, thereby harming the team spirit of the members, it may decide in favour of group incentive schemes. If the management foresees inter-group enmity as a result of group-based incentives, it might settle for organization-wide incentive programmes. We shall now discuss the individual, group and organization-wide incentive plans in detail.

Individual Incentive Programmes Organizations usually adopt individual incentive programmes when the performance of each employee can be measured with a fair amount of accuracy. Usually, a portion of the employee’s pay is decided as a function of his performance. The aim of individual incentive programmes is to enhance the efficiency, commitment, involvement and personal satisfaction of the employees. Without doubt, there is a direct and specific link between employee performance and earnings and, as such, this link can be used to enhance the productivity.13 Organizations usually pick one or more schemes from among straight piece rate, differential piece rate or merit rating methods to offer as individual incentive programmes to the employees. We shall now see the different types of individual incentive schemes. Taylor’s Differential Piece Rate Plan F. W. Taylor is one of the pioneers to advocate differential incentive schemes for individual employees. The purpose of Taylor’s differential piece rate is to encourage efficiency and discourage inefficiency among the employees. Under this piece rate plan, two wage rates are available to the employees. These are: (i) low piece rate for those employees whose performance is less than the standard; and (ii) high piece rate for any performance which is equal to or more than the standard. The standard performance is decided by the organization usually through work study comprising time study, motion study and fatigue study. In this method, the efficiency of the employee can be expressed as a percentage in terms either of the actual time taken for a job against the time allowed or of the actual output against the standard output. The merit of this method is that it grants attractive incentives for highly skilled and hard-working employees. Further,

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Incentive programmes Individual incentive plans

Group incentive plans

Organization-wide incentive plan

Taylors differential piece rate plan

Cost efficiency plan

Profit sharing plan

Merrick multiple piece rate plan

Improshare

Employee stock option scheme

Emerson efficiency plan

Towne incentive plan

Stock option plan

Gnatt task and bonus system

Scanlon incentive plan

Bedeaux system

Rucker incentive system

Barth variable incentive plan

Priestman bonus plan

Halsey premium plan

Rowan incentive plan

Hayne's incentive plan

Figure 15.2 Types of Incentive Programmes

this scheme is easily understandable and executable. A classification based on Taylor’s differential piece rate is presented in Table 15.1. The formula for computation of earnings under Taylor’s differential piece rate is Earnings = actual output × the piece rate Efficiency level =

actual output ×100 normal output

We shall now see numerical examples for better comprehension of this method. Example 15.1 Weekly working hours = 48; Hourly wage rate = Rs 7.50; Piece rate per unit = Rs 3; Normal time taken per piece = 24 minutes

INCENTIVES AND BENEFITS Table 15.1 The Classification Based on Taylor’s Differential Piece Rate Plan

Piece Rate Applicable

Output

80% of the normal piece rate

The actual output is less than the standard output.

120% of the normal piece rate

The actual output is equal to or more than the standard output.

Table 15.2 The Classification Based on the Merrick Multiple Piece Rate Plan

Piece Rate Applicable

Output

Normal piece rate

The actual output is less than 83% of the standard output.

110% of normal piece rate

The actual output is between 83% and 100%.

120% of normal piece rate

The actual output is above 100%.

Normal output per week = 120 pieces; Actual output for the week = 150 pieces We shall now compute the earnings as per Taylor’s differential piece rate. Efficiency level = (150/120) × 100 = 125 As per Taylor’s differential piece rate, 125% means above normal, i.e., a 120% bonus is applicable. Piece rate = Rs 3 × 120/100 = Rs 3.60 Earnings = Actual output × Piece rate = 150 × Rs 3.60 = Rs 540 The Merrick Multiple Piece Rate Plan It is generally viewed as an improvement upon Taylor’s piece rate plan. It contains three piece rates as against Taylor’s double piece rates. It provides for gradually rising piece rates for the additional range of output produced by the employees. Like in Taylor’s piece rate system, the standard hours for performing a job should be decided by the organization carefully. The merit of this method is its ability to reward the highly efficient employees adequately by keeping one more rate for these high achievers. Besides, the provision of an additional scale for employees performing below the standard output is more acceptable to all the unions since it does not penalize any employee. A classification based on Merrick multiple piece rate plans is presented in Table 15.2. The formula for the various categories of output: Less than 83% = actual output × normal piece rate Between 83% and 100% = actual output × normal piece rate × 110% Above 100% = actual output × normal piece rate × 120% We shall now understand this method through a numerical example. Example 15.2 Standard output = 120 units Piece rate = Re 0.20 Case (i): Output = 100 units

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Case (ii): Output = 150 units Case (iii): Output = 75 units Case (i): Output = 100 units Efficiency level = 100/120 × 100 = 83.33% As the efficiency level is more than 83% but less than 100%, we shall apply the ‘110% of the normal piece rate’ category. Earnings = 100 × (110/100) × 0.20 = Rs 22 Case (ii): Output = 150 units Efficiency level = (150/120) × 100 = 125% As the efficiency level exceeds 100%, we shall apply the ‘120% of the normal piece rate’ category. Earnings = 150 × (120/100) × 0.20 = Rs 36 Case (iii): Output = 75 units Efficiency level = (75/120) × 100 = 62.5% As the efficiency level is less than 83%, we should apply only the ‘normal piece rate’ without any bonus in the present case. Earnings = 75 units × 0.20 = Rs 15 The Emerson Efficiency Plan The main feature of this incentive plan is the availability of guaranteed minimum wages for the employees irrespective of their output in a day. Another uniqueness of this method is the presence of a provision for rewarding the employees according to a graduated scale of improvement in production.13 In the Emerson efficiency plan, a standard time is set for each job and then the hourly rate is determined. Finally, incentives are decided in the form of a bonus for different degrees of efficiency. As per this incentive plan, each employee is eligible for an hourly rate based on the actual working hours and also for the bonus calculated on the basis of his efficiency. This method has wide acceptance among both the employees and the employers. The employees prefer it because they are assured of minimum day wages and also get a bonus depending upon their efficiency. It is preferred by the employers because it encourages the employees to increase efficiency and achieves better employee cooperation. However, its main limitation is that it may not be very effective in inducing the employees to work hard as they are assured of their daily wages. Its incentives may not be sufficient to induce the employees to offer their best to the job. An Emerson plan classification is listed in Table 15.3. Table 15.3 The Classification Based on the Emerson Efficiency Plan

Hourly Rate

Output

Only the hourly rate (guaranteed day wages) is paid.

Below 66 2/3% efficiency

The hourly rate and step bonus rates (20% of basic wages) are paid. From 66 2/3% to 100% efficiency The hourly rate and step bonus rate (20% of the basic wages) are paid along with an additional bonus of 1% of the hourly rate for every 1% increase in efficiency above 100%.

Above 100% efficiency

INCENTIVES AND BENEFITS

Example 15.3 Standard output = 120 units Daily wage rate = Rs 80 Piece rate = Re 0.20 Case (i): Output = 70 units Case (ii): Output = 120 units Case (iii): Output = 140 units Case (i): Output = 70 units Level of efficiency = (70/120) × 100 = 58.33% Since the output is below the 662/3% efficiency, the daily wage rate of Rs 80 would be paid. Case (ii): Output = 120 units Level of efficiency = (120/120) × 100 = 100% Since the output is ‘from the 66 2/3% to 100% efficiency’, a daily wage rate of Rs 80 + a 20% bonus would be paid. Earnings = Rs 80 + 20% of Rs 80 = Rs 96 Case (iii) Output = 140 units Level of efficiency = (140/120) × 100 = 116.67% Since the output is ‘above 100% efficiency’, the daily wage rate of Rs 80 + 20% bonus + 1% additional bonus for every additional unit produced above standard would be paid. Earnings = Rs 80 + (20% of Rs 80 +20% of Rs 80) = Rs 80 + 40% of Rs 80 = Rs 112 The Gnatt Task and Bonus System The basic feature of this system is that the employees are eligible to get the specific reward if they are able to perform the job within the standard time and then get an additional bonus if they are able to better that time. Like the other schemes, the basic necessity in this system is the accurate assessment of the time required for performing the job. This system takes into consideration the hourly rate, piece rate, and the bonus plan for deciding the wage earnings of the employees. This method guarantees the payment of minimum wages to employees irrespective of whether they reach the standard time. Table 15.4 presents a classification based on the Gnatt system.

Table 15.4 The Classification Based on the Gnatt Task and Bonus System

Remuneration Payable

Output

Minimum guaranteed time rate

The actual output is below the standard output (100%).

Time rate (100%) and bonus at the rate of 20% of the time rate

The actual output is equal to the standard output.

Higher piece rate (120% of the piece rate)

The actual output is more than the standard output.

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Example 15.4 In a factory, a standard time allowed for completing a task (50 units) is 8 hours. The guaranteed time wages is Rs 20 per hour. If a task is completed in less than the standard time, a high rate of Rs 4 per unit is payable. We shall now compute the wages of the employees and the rate of earning per hour if the task is completed by employee A in 8 hours and by employee B in 6 hours. In the case of employee A, the work is completed in 8 hours and thus both the time rate and bonus are applicable. Earnings for A = (8 hours × Rs 20) + (20/100 × 160) = 160 + 32 = Rs 192 Effective rate of earning per hour = 192/8 = Rs 24 In the case of employee B, the work is completed in 6 hours and, therefore, the high piece rate is applied. Earnings for B = 50 units × Rs 4 = Rs 200 Effective rate of earnings per hour = 200/6 = Rs 33.33 The Bedeaux System The first step in the Bedeaux system is the determination of the standard time for various jobs. The standard time fixed in the Bedeaux system is usually expressed in terms of minutes, popularly called Bedeaux points (B points). Each B point is equal to one minute and each job has a standard number of B points. This can be explained numerically in this way. The standard time for completing job X is 4 hours, which should be expressed as 240 B points (minutes). Now, employee A completes the job X in 3 hours and 30 minutes, which is equivalent to 210 B points. Employee A saves 30 B points by completing job X within the standard time. Now, the B points are converted back into hours by dividing these B points by 60. As per the Bedeaux system, 75 per cent of the earnings from the time saved should go to the employee concerned and 25 per cent should go to the foreman who supervised the performance of the job. Thus, the employee gets final earnings as per the following formula: Earnings = actual time taken × time rate + (75/100) × ( B points saved /60) × hourly rate Example 15.5 The standard time for a job is 480 B points and the actual number of points earned in eight hours is 560 B points. The rate of pay is Rs 8 per hour. As per the Bedeaux system, the earnings will be calculated as follows: [The B points in this example are 80 (560 – 480)] Earnings = (8 × 8) + [75% × (80/60) × 8] = Rs 64 + 0.75 × (80/60) × Rs 8 = Rs 64 + 8 = Rs 72 The merit of this method is that the employees are eligible for guaranteed minimum wages regardless of whether they are able to reach the standard time or not. The limitation of this method is the difficulty in the conversion of minutes into B points and vice versa. Though it attempts to promote team unity by enabling the foreman to get a share in the employees’ bonus, the attitude of the employees towards such an arrangement is critical. They may not be keen to share their rewards with their superiors if they are aware of the working of the incentive scheme.

INCENTIVES AND BENEFITS

The Barth Variable Incentive Plan The distinguishing feature of the Barth plan is the absence of any guaranteed time rate for the employees. As per the Barth scheme, the rise in employee earnings need not be proportionate to the output. Empirically, this scheme is found to be better suited for trainees or learners. The merit of this method is that this method provides more earnings than the straight piece rate does for lower-level jobs and less earnings for the higher-level jobs. In this method, the employee earnings are calculated by multiplying the rate per hour with the square root of the product of standard hour and actual hour. Earnings = Rate per hour × (standard hour × actual hour) Let us see the illustration of this plan in an example. Example 15.6 The standard time allowed for a job is 8 hours and the hourly rate is Rs 10. Employee A took 6 hours to complete the job while employee B took 10 hours. We shall now see the earnings of these employees under the Barth plan. Earnings of employee A = Rs 10× (8×6) = Rs 69.28 Earnings per hour for A = Rs 69.28/6 = Rs 11.55 Earnings of employee B = Rs 10× (8×10) = Rs 89.44 Earnings per hour for B = Rs 89.44/10 = Rs 8.95 The Halsey Premium Plan In the Halsey premium plan, the employee is entitled to get the incentive for the time saved by him in a certain proportion. Thus, the employees are induced to complete the work well ahead of the standard time. Besides, minimum wages are assured for the employees even if they fail to complete the job within the standard time. Thus, an efficient employee gets time wages for the actual work done and a bonus in certain percentage for the difference between the actual time and the standard time, i.e., the time saved. Although the bonus is normally fixed as 50 per cent of the time saved, the organization can also fix higher or lower ceilings for the bonus percentage. The merit of this method is its simplicity as it can be easily installed and operated. It encourages the efficient employees but never penalizes any employee on account of poor performance. It guarantees hourly wage rates even for the employees who are unable to meet the standard time. The limitation of this method is that the incentive available in it is not very attractive to induce the efficient employee to work hard on a continuous basis. The formula for this method is Earnings = actual time taken × time rate + 50% of (time saved × time rate) Time saved = difference between the actual time and standard time Example 15.7 In a factory, the standard time allowed for producing 80 pieces of a product is eight hours. Employee A produced 80 pieces of that product in eight hours while Employee B produced 80 pieces of it in six hours. The hourly rate is Rs 4.

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We shall now calculate the earnings of the employees under the Halsey plan. A’s earnings = 8 hours × Rs 4 + 50/100 × [(8 − 8) × 4] = Rs 32 B’s earnings = 8 hours × Rs 4 + 50/100 × [(8 − 6) × 4] = Rs 32 + 4 = Rs 36 Rowan Incentive Plan In this method, an employee gets the time rate for the actual worked hours and also a bonus for the time saved if he completes the job within the standard time. On the other hand, the employee who is unable to complete the job within the standard time gets the time rate for the actual worked time. In this method, the bonus is computed as a proportion of the time rate. This proportion is arrived at by dividing the actual time worked by the standard time. The merit of this method is that it guarantees the time rate for all the employees for the hours worked by them no matter whether they meet the standard time or not. It helps in eliminating excessive speeding in the job performance as the time saved beyond 50 per cent fetches a decreased bonus. The limitation of this method is that it discourages the employees with exceptional skills by slowing down the rate of growth in earnings beyond 50 per cent of the time saved. It involves a complex computation procedure for determining the earnings of the employees. The equation for calculating the earnings is: ⎛ actual time worked ⎞⎟ Earnings = actual hours worked × time rate + ⎜⎜ ⎟× time saved × time rate ⎜⎝ standard time ⎟⎠ We shall now apply the Rowan incentive plan in Example 15.8. Example 15.8 In a factory, the standard time allowed for producing 80 pieces of a product is eight hours. Employee A produced 80 pieces of that product while Employee B produced 80 pieces of it in six hours. The time rate is Rs 4 per hour. A’s earnings = (8 hours × Rs 4) + 8/8 × (8 − 8) × Rs 4 = Rs 32 B’s earnings = (8 hours × Rs 4) + 6/8 × (8 − 6) × Rs 4 = Rs 32 + 6 = Rs 38 Hayne’s Incentive Plan This plan is similar to the Bedeaux system, where time is converted into B points. In the Haynes system, the standard time is expressed in terms of man-minutes called MANT. As per this system, an employee gets the time rate for the actual time worked and also a bonus for the time saved, which is computed in man-minutes. Depending upon the nature of work, the employees and the foreman divide the earnings from the time saved in the ratio of 5:1 in the Hayne’s incentive plan.

INCENTIVES AND BENEFITS

Group Incentive Schemes Organizations offer group incentive schemes for their employees to avoid the problems of inter-personal rivalry resulting in the mutual blocking of performance by the employees. Similarly, when the individual job performance cannot be measured with a fair amount of accuracy, the organizations may opt for group incentive schemes. Thus, the organizations aim at achieving the twin goals of increased employee efficiency and teamwork. Many jobs in modern organizations require collective efforts from many persons and any individualistic attitude might hamper the successful performance of those jobs. Thus, individual success becomes dependent on the group effort and success. In such a situation, it becomes imperative for the organization to offer group incentive programmes to accomplish the organizational and performance goals. The essence of group incentive is gain sharing by the members through cost reduction measures. The two major factors influencing the group incentive scheme decisions are the size of the group and the nature of the activities. It is preferable to have small groups so that the members are aware of one another and develop group cohesiveness. Similarly, it is better to have a common product or service for the entire group so that there is better coordination among the group members. In any group incentive scheme, the total bonus payable to a group is determined on the basis of its overall performance. This total bonus is then divided among the group members either equally or on the basis of certain predetermined factors like individual time rates and skill levels. Some of the important group incentive schemes are the cost efficiency bonus plan, the Priestman bonus plan, the Rucker incentive plan, Towne’s incentive plan, Scanlon incentive plan, and the Improshare incentive plan. We shall now discuss these group incentive plans. Cost Efficiency Bonus Plan Under this plan, the organization first determines the standard cost for the various elements of cost. These may be material cost, labour cost and overheads associated with production. Of course, an organization may also decide the standard cost for the total cost of all these elements. Next, it measures the actual cost incurred by the group in accomplishing the production goals or targets. Finally, the actual cost incurred by the group and the standard cost are compared to determine the savings in the cost achieved by the group. As per the cost efficiency plan, a predetermined percentage of the savings is distributed in the form of bonus to the employees. Suppose the standard cost for production of 1,000 units of product X is fixed at Rs 300,000 for a group and the actual cost incurred by that group for producing 1,000 units is Rs 270,000. This can be summarized as follows: Standard production cost = Rs 300000 Less actual production cost = Rs 270000 Savings in production cost = Rs 30000 If the group is eligible for a 60 per cent bonus in cost saved, it would get a bonus of Rs 18,000 (60% of 30,000). If there are 10 members in the group, each one would get Rs 1, 800 (Rs 18000/10). Priestman Bonus Plan In this plan, a group of experts set the standard performance in terms of the number of units for the whole work to be carried out by a group within a specific period. Then, the actual performance of the group is measured and this performance is compared with the standard performance. When the actual performance exceeds the standard

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performance, the group members are entitled to a bonus computed on the basis of the excess production achieved by them. However, when the group’s performance is below the standard performance, they are paid on the basis of time rate without any bonus. This method is suitable for developing collective effort and team spirit among the members of the group. However, it may affect the motivation and efficiency of the individuals as all of them would be sharing the bonus equally. Example 15.9 A factory has 400 employees in its metal works division. The standard production fixed for a normal month is 12,000 points and the actual production during that month is 15,000 points. The compensation policy of the company permits the transfer of 75% of the increase in the efficiency to the employees in the metal division as a bonus. In this context, we shall now see the group bonus under the Priestman plan. Actual production achieved for the month = 15,000 points Standard production fixed for that month = 12,000 points Efficiency achieved = 3,000 points Increase in efficiency = (3000/12000) × 100 = 25% Bonus = 75% of 25 = 18.75% Rucker Incentive Plan Unlike other incentive schemes, the Rucker plan aims at achieving cost saving not only on the labour cost but also on overheads. The reward for the group is determined on the basis of the difference between the labour cost and the sales value of production. In fact, the total reward available to a group depends upon the savings achieved in terms of the value of production as a result of efficient utilization of machinery, material and other equipment. The ratio in the Rucker plan is calculated in such a way that it expresses the value of production required for each rupee in the overall labour cost. The value of production means the aggregate of labour cost, overhead and profit. As per this system, any saving achieved by the group in the value of production is used as the basis for determining group incentive. Let us see an example. Suppose the standard ratio of the labour cost to the value of production is fixed at 55 per cent of the total value of production. Now, the members of the group restrict the labour cost to 52 per cent of the total value of production and thus save three per cent in labour cost. The group is now entitled to get a proportion of the saving as a bonus. The organization may distribute half of the savings to the group and divert one-fourth of the savings to a reserve account payable later to the group on occasions when the group fails to meet the standard cost, while the remaining onefourth of the savings might be taken over by the organization as its own share in the savings.14 In the same way, the group may also get a share in the savings achieved in the ratio of the overhead cost to the total value of production. Towne’s Incentive Plan This method considers the savings in labour cost alone for determining the rewards payable to the group. In the first step, the standard labour cost for the entire work is determined in advance. Then the actual labour cost for that work is measured and compared with the standard labour cost. Now, the saving in the labour cost is computed and a proportion of the saving in monetary terms is distributed to the group members. However, a part of the saving is usually given to the supervisors as a recognition of their role in cost saving. Of course, the organization may get a share in the saving achieved in labour

INCENTIVES AND BENEFITS

cost. The merit of this system is its ability to develop collective interest among the group members in cost reduction initiatives. However, its limitation is the small amount of reward available to the members and the absence of individual initiative in goal accomplishment. Scanlon Incentive Plan The Scanlon incentive plan focuses on achieving savings in the labour cost alone. Yet, this method is different from the Towne’s plan in the sense that it focuses on the total labour cost instead of direct labour cost alone. In this method, the bonus is decided on the basis of the difference between the total labour cost and the sales value, including the closing stock of goods. For example, in the Rucker incentive plan, a portion of the saving in labour cost is retained for payment during lean seasons when the group is unable to achieve any cost reduction. This method can be explained through a simple example. The average annual sales of an organization for the past four years is: Rs 440,000. The average annual labour cost for the same period is: Rs 110,000. The sales achieved during the current year is: Rs 140,000. The actual total labour cost during the current year is: Rs 30,000. Now, the ratio (in percentage) for the fixing the bonus is = 110000/440000 × 100 = 25% The bonus is computed as follows: Standard labour cost based on average bonus (140,000 × 25%) = Rs 35,000 Actual labour cost during the current year = Rs 30,000 Bonus payable to the group = Rs 5,000 Improshare In this method, an organization seeks to achieve savings by producing predetermined quantity of goods within the standard time. The time and motion study of F. W. Taylor usually forms the basis for deciding the standard time. This method considers the relationship between the targeted output and the standard time (one of the inputs) for deciding the group bonus. A proportion of the time saved as a result of efficient and fast production is used to fix the incentives payable for groups. This plan ignores the factors like selling price and volume, and technology, while determining the bonus payable to the groups. Suppose the targeted production and the standard time for production per day are 32 units and 8 hours, respectively. Now, if a group completes the production of 32 units in seven hours, it would be eligible to get a share in the time saved (i.e., one hour in the present case). The driving force behind group incentive schemes is their ability to foster team spirit, which leads to increased understanding and cooperation among the members. They can also improve the involvement of members in the group decision-making processes and thus enhance the quality of the decisions. However, group rewards may act as a disincentive for the top performers, who may wish to get special attention and honours.

Organization-wide Incentive Plans Through organization-wide incentive plans, the organization aims at inducing and motivating all its employees to work hard for it and also for their own interests. The incentives available to the employees under organization-wide plans normally depend upon the overall performance of the organization for a specific period. The primary aim of this method is to develop employees’ unity, cooperation and eventually an ownership interest in the organization. The organization can also avoid competing and conflicting claims of different departments on its resources. The important methods of organization-wide incentive plans are

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(i) the profit-sharing plan, (ii) the employee stock option scheme and (iii) the stock option. We shall now see these methods in detail. Profit-sharing Plan This is a method adopted by many organizations to motivate their employees and create among them a personal interest in the affairs of the organization. The crux of the profit-sharing plan is to give out a portion of the organizational profit to the employees. It generally aims at fostering co-partnership among the employees. In this method, the organization first determines the target profit, i.e., the standard profit for the entire organization. At the end of a specific period (maybe a year), it ascertains the actual profit of the organization. Then it compares the actual profit with the standard profit in order to determine the excess profit. Understandably, the employees get a share in the excess profit of the organization. The organization may distribute the profits either on the basis of the base salary or just equally among all its employees. However, it is often guided by the length of service of its employees in determining the quantum of bonus payable to them. The compensation policy of the organization usually determines the percentage of profit payable as bonus and also the mode of payment. Some organizations may provide the bonus out of the profit in the same year in which the profit is earned or at least in the succeeding year. A few others may defer the payment of bonus by keeping it in a pooled account. These accounts remain locked up for a predetermined period and the bonus amount is distributed to the employees after the expiry of the lock-in period. Sometimes, the organizations may even distribute such profits as one of the retirement benefits. The purpose of such lock-in periods is to use the profit-sharing scheme to retain the employees. Even though many HR objectives like improved employee motivation, satisfaction, productivity and efficiency can be achieved through the profit-sharing plans, there are a few major problems in their implementation. These are as follows: • Over a period of time, the employees begin to view bonuses as their basic right and expect the same to be provided even when the organization is going through a distress situation. • Employees may seek a continuous increase in the quantum of bonus with disregard to the performance of the organization. • When the organization discontinues the plan for any reason, the move may affect the motivation, morale and efficiency levels of the employees severely. • The organization may rob the bonus of its real monetary value if it defers its payment for a long period of time, like in offering the bonus as part of retirement benefits. The Employee Stock Ownership Plan (ESOP) This is another style of profit sharing in which organizations distribute the profit in an indirect form. They aim to accomplish several objectives through ESOP schemes. An ESOP scheme develops a sense of ownership among the employees and thus enhances their involvement in the decision-making process. It enables the employees to understand the problems faced by the organization in the market. It also helps the employees invest their hard-earned money in productive assets like shares. Thus, it prevents wasteful spending of the bonus amount by the employees. Usually, the organization determines the number of shares to be issued to the employees on the basis of the length of their services and the position they occupy in the organizational structure. Generally, the organization buys the shares from the capital market, keeps them in a pool called the employee stock ownership trust (ESOT), and issues the shares to the

INCENTIVES AND BENEFITS

employees on some predetermined basis. The employees can sell their shares back to the trust when they want to do so. Certainly, the ESOP schemes are well-regulated by the government through several laws and notifications. For instance, a government order stipulates that any promoter employee already holding more than 10 per cent of the equity shares cannot be given any more shares under the ESOP scheme. The major limitation of this method is the likely fluctuation in the prices of the shares due to market-driven factors. Besides, when the company performs badly due to some reasons, the employee would suffer in more than one way. On the one hand, their job in the company would be at stake and, on the other hand, their investment value in the form of equity stocks of that company would also be eroded. Stock Option Plan The stock option plan is another type of an organization-wide profitsharing plan. It is a slightly different version of ESOP schemes. In a stock option plan, employees are given the right to buy the stocks of their company in specific numbers during a specific period at predetermined rates. The employees can treat stock option as another investment alternative available to them at the time of choosing their investment options. They normally dispose of their stocks when the market conditions are favourable for selling.

Evaluation of Wage Incentive Schemes There is no doubt that the incentive schemes play a major role in accomplishing several organizational and HR objectives of the organization. They also help the organization in developing a unity of purpose among the employees and make them share the concerns of the management in the areas of productivity, profitability and progress of the organization. Many organizations see these schemes as a way to improve the economic conditions of the employees without losing their profitability and price advantage. All this is possible because the earnings of the employees are directly and formally linked to their productivity. Certainly, the incentive schemes often end up as a win-win formula since not only do they satisfy the employees but also protect the interests of the organization. The oldest dispute in the world is said to be the dispute between the labour and the management since both have a competing claim over the same resources of the organization, i.e., the profit. When the organization pays less to the employees, it gets more in terms of profit but loses their goodwill. In contrast, if it pays them what they ask for, it can make the employees happy but its own profitability and future could be lost. No wonder then that the labour and the management have remained at war since time immemorial. In such a scenario, incentive schemes have come as a godsend for both of them. They have facilitated the adoption of a mutually beneficial accommodative approach in place of a competing one. The major merits of incentive schemes are: • Direct link with performance: Since the pay is directly linked to performance, both should move only in the same direction. The employees can claim higher pay only when there is a significant increase in their performance and productivity. • No permanent financial commitment: Unlike a fixed compensation scheme like base salary, incentive schemes impose no permanent financial burden on the organization. This is because the wages are a function of employee performance and ability. Thus, the cost of compensation is commensurate with the output and the revenue.

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• Sense of responsibility: Incentive programmes have many in-built provisions to improve the efficiency, motivation and morale of the employees. When the employees earn poorly, they have none to blame except their own performance. As a result, the employees identify the reason for their dismal performance rationally and seek the appropriate remedy. • Optimum utilization of production capacity: Incentive schemes ensure the optimum utilization of the available production capacity of the organization. Any underutilization of the resources of the organization like equipment, plant and material would affect the earnings of both the employees and the employers in the performance-related pay method. • Low employee attrition: Since employees have control over their own earnings, they may not need to leave the organization on account of poor earnings. They themselves determine how much they should earn. Thus, the organization is able to limit labour turnover and absenteeism among the employees through incentive programmes. • Better labour–management relations: The organization can avoid strain in the relationship between the labour and the management on account of pay fixation and revision since the earning decisions are left to the employees. This also avoids loss of man-days due to strikes and lock-outs in the event of the failure of salary negotiations since incentive schemes simply link the pay to the performance and leave the rest to the decision of the system. However, incentive schemes come under fire from the labour and the management alike on account of a few major defects. We shall now see the limitations of incentive schemes: • Quality concerns: When the organizations fail to monitor the quality of the goods produced, the first casualty in any incentive scheme could be the quality of the product. In their eagerness to speed up the process of production, employees often make quality compromises. Poor quality of products can defeat the very purpose of the incentive schemes as the cost of production would shoot up when the rejection rate is high. • Employee attitude: Since the pay is related to the performance, pay determination often becomes too sensitive an exercise for the organization. Once employees get used to the earnings from the incentive schemes, they may not accept any drop in their earnings as this may amount to accepting inefficiency in their performance. In such a situation, they may even blame the incentive system as being defective and biased instead of accepting their own poor performance. • Exploitation by management: The organization may tend to set high standards deliberately to avoid paying high incentives to the employees even if they really deserve them. In most cases, subjective methods are adopted for fixing the standard performance or time. As such, there remains a wide scope for the management to underpay its employees without attracting any criticisms. • Internal dissensions: The individual incentive schemes often create unhealthy rivalry among the employees. They also develop enmity between the good performers and the bad ones due to jealousy over an uneven distribution of incentives, even if such a distribution is valid. • Burnout problems: The employees may find it difficult to work against stiff targets continuously as they may exhaust themselves quickly both mentally and physically.

INCENTIVES AND BENEFITS

Box 15.3

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Performance-related incentive is an essential element to improve the organizational performance and productivity through the employees’ cooperation and satisfaction. In fact, it brings in a lot of benefits for the organization like avoidance of permanent salary commitment, moving financial risk from the organization to the employees, letting the employees decide their own earnings through their work, and, of course, attracting best talents to the organization and then retaining them by encouraging meritocracy at all levels. In contrast, it also brings in several problems for the organization. For instance, incentive programmes are criticized as techniques for fulfilling the short-term goals of the organizations with the least regard for the long-term and overall interest of the company. There is also a complaint that the performance-linked incentives are mostly decided through subjective assessment and, as such, the senior managers often have an upper hand in determining the beneficiaries and also the quantum of benefits. They may misuse

their authority to gain more incentives even during difficult circumstances of the company like economic recession. A management should therefore be guided only by organizational interest while fixing the incentive. Recently, AIG (American Insurance Group) provided $165 million in bonuses to its top executives at a time when the company was in deep financial troubles and on a bailout package of the government. This gesture of the management providing bonuses to 400 of its employees attracted widespread criticism from the public. Bowing to the public pressures, several of its top managers returned the incentives to the company. In fact, nearly nine of the ten top executives who had received the largest rewards agreed to return their awards to the company. This is exactly the danger associated with bonuses for executives as they usually have a disturbing influence on the incentive determination process. Adapted from: “Top AIG Executives to Return Bonuses,” The Hindu, 25 March 2009, p. 21.

The stress generated by frequent deadlines in the performance may impact their health, forcing them to abstain from work on health grounds or even quitting their jobs. Certainly, the incentive schemes can produce harmful side reactions for the employees and the organization. • Unethical practices: Incentive programmes provide ground for an unscrupulous management to indulge in unethical practices by fixing higher rate of incentives and benefits for the executives in total disregard of the future financial security of the organization. They also allow the senior executives to exploit the resources of the organization legally by influencing the committees in charge for fixing the incentives and fringe benefits. Box 15.3 delineates one of the weaknesses of wage incentives programmes.

Fringe Benefits Fringe benefits are a kind of compensation available to employees over and above the usual fixed basic pay and variable wage incentives. The primary purpose of fringe benefits is to enhance the general well-being of the employees of an organization. These fringe benefits are mostly paid in kind in the form of perquisites. Such benefits include, among others, health and accident insurance, contribution to superannuation funds, leave facilities, education facilities, housing facilities, and free or concessional ticket to travel. Fringe benefits are usually available to all the employees of the organization. The length of service and the position of the employee in the organization normally determine the fringe benefits available to them. Fringe benefits are usually computed as a percentage of base salary payable to the employees. In many countries, including India, fringe benefits are subjected to tax deduction. As far as India is concerned, the government introduced the fringe benefit tax

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(FBT) in the year 2005 to regulate the payment of fringe benefits to the employees. The fringe benefits provided to employees are subject to 30 per cent tax. Section 115WB (1) of the Income Tax Act 1961 pertaining to income tax on fringe benefit considers the following as the components of fringe benefits: • Privilege or facility to employees • Free or concessional ticket for travel • Contribution to superannuation fund • Security or sweat equity to employee Section 115WB (2) of the Income Tax Act 1961 considers the following as the elements of deemed fringe benefits: • Entertainment • Provision of hospitality • Conferences • Sales promotion including publicity • Employees’ welfare • Conveyance • Hotel and lodging • Repair and maintenance of motor cars • Repair, running (including fuel) and maintenance of aircraft • Telephones • Maintenance of any accommodation in the nature of guest house • Festival celebrations • Use of health club and similar facilities • Use of any other club facilities • Scholarships • Tour and travel, including foreign travel • Gifts The essence of the definitions of fringe benefits is the payment of indirect compensation to the employees for their welfare. Box 15.4 lists some of the important definitions. We may define fringe benefits as benefits payable to the employees over and above the direct compensation and usually without any reference to their performance. Box 15.4

Definitions

Fringe benefits is defined as “indirect financial and nonfinancial payments employees receive for continuing their employment with the company.”15 —Gary Dessler

“Fringe benefits embrace a broad range of benefits and services that employees receive as part of their total compensation packages.”16 —William B. Werther et al.

INCENTIVES AND BENEFITS

Objectives of Fringe Benefits The primary purpose of fringe benefits is to demonstrate the commitment of the organization in the general welfare of its employees. Certainly, it costs a lot to the organization as these benefits are not linked to its performance or productivity. However, a study revealed that the employees enjoying good fringe benefits, especially health benefits, accepted comparatively lower wages than the wages offered by the organization without such facilities.17 We shall now see the specific objectives of fringe benefits. • Attracting the best talents: Fringe benefits vastly enhance the ability of the organization to attract the best employees. This is because they create goodwill for the organization in the labour market. • Tax free for the employees: They are normally a non-taxable form of earnings available to the employees. As such, they enable the employees to get the real value of the compensation due to them. • Improving employee morale: Fringe benefits are often viewed by the organization as an effective technique to improve the morale and motivation of the employees. They facilitate better retention of the employees by limiting employee dissatisfaction and labour turnover. • Achieving the desired unity: They improve unity among the employees as these benefits are available to all the employees, irrespective of their work performance. They indeed eliminate and prevent envious and other resentful feelings among the employees. • Improving industrial relations: They are efficient means to improve the industrial relations of the organization. The irritants relating to the basic wages and incentives can be removed through fringe benefits. • Concern for employee well-being: Fringe benefits are a sure way of expressing the resolve of the organization to improve the health and safety of the employees. They make the employees believe that their management really cares for them. • Reducing HR cost: Since the fringe benefits are offered to all the employees, the cost of benefits would be less. The cost of some benefits (like transportation and canteen) would come down drastically when they are offered to a large number of persons.

Forms of Fringe Benefits Financial and non-financial rewards not included in the direct compensation payable to the employees are called fringe benefits. Organizations generally pay most of these rewards voluntarily but some others (like provident fund) are given due to legal requirements. These benefits are usually made available to the employees in different forms. Organizations choose the form which is most suitable for accomplishing the needs of its employees. These needs may differ from one employee to another and also from time to time. Organizations offer a variety of benefits so that the employees can make use of them, depending upon their need and environment. We shall now discuss the important fringe benefits. Payment without Work Payment without work refers to different kinds of leave facilities offered to the employees. The purpose of providing pay without work is to enable the employees to take rest and refresh themselves. It facilitates the employees to sustain the same level of productivity and interest in the job. It also helps the organization retain

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the employees for long by keeping them happy and satisfied. This is one of the most important benefits available to the employees. It is also one of the costliest forms of benefits as employees get a lot of time off and there is absolutely no productivity during this period. Employees receive various types of leave with pay, for example, casual leave, medical leave, earned leave, maternity leave, holidays, vacations, and sabbatical leave as part of the pay-without-work scheme. Health and Safety Care Many organizations are providing insurance benefits to their employees in the form of health insurance and accident insurance in order to help them protect their health and safety. This is also the most expensive form of fringe benefit offered by the organization to its employees. In many countries, health insurance has clearly emerged as number one fringe benefit expenses for the company.18 In addition to the voluntary benefits, the relevant laws of the country also require the institution and maintenance of funds for meeting the expenses arising out of the accidents happening to the employees. For instance, the Accident Compensation Fund facilitates the payment of benefits and income to the employees without any delay. Retirement Benefits Retirement benefits are those benefits that are made available to the employees after their retirement from the organization. The purpose of providing retirement benefit is to enable the employees to maintain a decent and independent life after their retirement. Retirement benefits assist the employees in setting aside their worries about the future and keeping themselves focused on their job and productivity. In this way, these benefits help the organization achieve the desired level of productivity and efficiency among the employees. The retirement benefits may include gratuity and pension benefits. In India, the Employee Provident Fund and Gratuity are compulsory schemes while supplementary superannuation is a voluntary scheme for the organizations in India. However, hardly 10 per cent of the labour force in India works in the organized sector and is covered under any of the retirement schemes. The important Indian laws and provisions dealing with retirement funds are • The Employees’ Provident Fund (EPF) Scheme, 1952 • The Employees’ Deposit Linked Insurance (EDLI) Scheme, 1976 • The Employees’ Pension Scheme (EPS), 1995 Housing Facilities An organization may provide housing facilities as part of fringe benefits to its employees. It may provide them housing accommodation or house rent allowance. Of late, the housing facilities under fringe benefits attract tax under the fringe benefits tax. Usually, the fringe benefits tax is payable by the employers. It should be paid even if the fringe benefits are not paid by the employers directly but by third parties or agencies on behalf of the employers. Other Facilities In addition to these fringe benefits, an organization may also provide other benefits like educational facilities, canteen facilities, transport facilities, party reimbursement facilities, child care facilities like crèche, and relocation benefits. In recent times, organizations are offering customized fringe benefits plans which allow the employees to choose their fringe benefits.19 The employees may choose to receive ready cash or non-cash fringe benefits.

INCENTIVES AND BENEFITS

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Summary 1.

Wage incentives are any form of performancebased financial and/or non-financial rewards payable to attract and retain the best talents without any permanent financial commitment for the organization.

incentive plan, Halsey premium plan, Rowan incentive plan and Hayne’s incentive plan. 7.

The group incentive schemes are cost-efficiency bonus plan, Priestman bonus plan, Rucker incentive plan, Towne’s incentive plan, Scanlon incentive plan, and the Improshare plan.

8.

The organization-wide incentive plans are the profit-sharing plan, the employee stock option (ESOP) scheme, and the stock option plan.

9.

3. The steps in a wage incentive planning process are (i) setting the objectives, (ii) determining the nature of reward and the mode of payment, (iii) sharing goals with the employees, (iv) evaluating the actual performance, (v) application of incentive plans, and (vi) feedback.

The merits of incentive schemes are direct link with performance, no permanent financial commitment, self-responsibility, optimum utilization of the production capacity, low employee attrition, and better labour–management relations.

10.

The limitations of incentive schemes are quality concerns, employee attitude, exploitation by management, internal dissensions, burnout problems, and unethical practices.

4. The prerequisites of a good incentive scheme are transparency, objectivity, measurability, attainability, flexibility, comprehensiveness, costeffectiveness and instantaneous feedback.

11. Fringe benefits are benefits payable to the employees over and above the direct compensation and usually without any reference to their performance.

2. The objectives of wage incentives are (i) developing ownership interest, (ii) enhancing employee motivation, (iii) improving employee retention, (iv) facilitating a greater role for employees in pay determination, (v) increasing performance and productivity, (vi) reducing the labour cost, and (vii) reducing the time and cost of supervision.

5. Incentive schemes can be broadly classified as straight piece rate, differential piece rate, task and time bonuses, and merit rating. 6. The individual incentive programmes are Taylor’s differential piece rate plan, Merrick multiple piece rate plan, Emerson efficiency plan, Gnatt task and bonus system, Bedeaux system, Barth variable

12. The objectives of fringe benefits are attracting the best talents, being tax-free for the employees, improving employee morale, achieving the desired unity, improving industrial relations, concern for employee well-being, and reducing the HR cost. 13.

The forms of fringe benefits are payment without work, health and safety care, retirement benefits, housing facilities, and other facilities.

5.

Evaluate critically the wage incentive planning process with examples.

Write detailed notes on the (a) Barth variable incentive plan and (b) Bedeaux system.

6.

2. Discuss in detail the prerequisites for an effective wage incentive plan.

Critically evaluate the merits and limitations of the Rowan incentive plan with numerical examples.

7.

3. Enumerate any four individual wage incentive plans with numerical examples.

Describe the Halsey incentive plan with numerical examples.

8.

Evaluate the different group incentive plans with numerical illustrations.

9.

Enumerate the organization-wide incentive plans with examples.

Review Questions Essay-type questions 1.

4. How far is the Merrick plan superior to Taylor’s differential piece plan? State your arguments with numerical examples.

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10. “The aim of ESOPs is to create ownership interest.” In the light of this statement, describe the merits of the employee stock ownership scheme. 11.

Evaluate critically the wage incentive plans with examples.

12.

Describe the different forms of fringe benefits in detail.

13.

Explain the various individual and group incentive plans with relevant examples.

14. Compare and contrast gain sharing and profit sharing. 15. Discuss the role of wage incentive plans in employee retention programmes.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop wage incentives programmes for an organization with the objective of developing ownership interest for the employees. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two union representatives, and (4) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them. Situation Ashland is a private sector insurance company engaged in the general insurance business for the past several decades. This company had a good business performance record till a few years ago. In recent times, however, the turnover and profitability of the company has dropped considerably due to the entry of several new insurance companies in the business. These companies began to offer their insurance products at cheaper rates as their operating cost was much less. Ashland’s labour cost always remained high due to the presence of a large proportion of employee remuneration of fixed nature, for example, the basic salary. The management was unhappy about the compensation policy

which offered more of a fixed pay and less of a variable pay like wage incentives schemes. It wanted the HR department to rework its compensation packages and make them more performance-based. It also instructed the HR people to develop gain- and profit-sharing plans with the aim of increasing the performance of the employees and the profitability of the business. Steps in the exercise There are three steps to the exercise: Step 1: The HR manager meets the union representatives (or select workers in a non-unionized firm) to ascertain their views on the proposed changes to the existing compensation policies. Step 2: The HR manager convenes a meeting attended by the two HR team members to finalize the changes to be incorporated in the compensation polices. The updated compensation policy will subsequently be sent to the top management for approval. Step 3: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Natco Car Limited is a popular company in the passenger car segment of the automobile industry. It has a significant market share. It offers five popular brands of cars to its customers. The major philosophy of this company is “customer satisfaction through employee satisfaction”. It strongly believes in the HR principle of “happy employees are productive employees”. This company offers one of the best and most friendly environments for the employees to grow in their organizational and personal lives.

It has many novel incentive schemes and attractive fringe benefit schemes to attract and retain the best talents. This company’s incentives and fringe benefits package alone accounted for nearly 7.6 per cent of its cost of production. In fact, the excellent cordiality in labour–management relations and the high employee productivity coupled with high product quality were viewed by the company as an outcome of this generous incentive and benefits schemes.

INCENTIVES AND BENEFITS

However, recent developments in the economy and the industry in particular suddenly made the company vulnerable in the market. These developments are (i) recessionary conditions gripping the economy, (ii) the entry of low-cost budget cars in the market, and (iii) its high health-care cost due to the recent spurt in the reimbursement requests for medical and hospital expenses. Recessionary trends led to a free fall of the prices in the market and automobile goods, being a luxury item, were obviously the worst affected. Besides, the introduction of low-cost cars by the competitors compelled the company to think seriously about cost-cutting measures. To add to its woes, in the recent past, the company received an unusually high number of medical reimbursement bills as more and more employees reported major health problems. This apparently pushed up the HR cost and caused anxiety in the company about the deteriorating conditions of the general health of the employees. As a combined effect of all these developments, the company began to lose its price advantage fast and its market share began to shrink gradually.

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However, the HR department was ranged against such moves. It insisted on continuing with the health-care schemes, perhaps with some minor modifications. Interestingly, it came up with an alternative proposal which suggested that the employees must be educated continuously and made aware about the health problems affecting them. It also proposed periodic medical tests at the factory premises to diagnose their health problems at an early stage. This preventive approach, the HR people believed, could help the employees attend to their health problems at the right time and avoid major health crisis and the resultant huge medical bills for the organization. The HR department emphasized that any drastic measures, like the withdrawal of health benefits, could discourage the employees, thereby jeopardizing the employee retention strategies of the organization. The suggestions of the HR department were forwarded to the top management and its response was awaited.

Questions for discussion The top management of the company insisted on reviewing its HR cost in order to withdraw some of the benefits offered to its employees. Understandably, the fringe benefits, particularly the health-care benefits, received top priority for cost reduction after the reviews. The management was now determined to impose stiff restrictions on the reimbursement of medical bills, thereby making it virtually impossible for the employees to get any medical benefits.

1. How do you assess the situation of Natco Car Limited from the HR perspective? 2. What will be likely response of the top management to the suggestions made by the HR department? 3. If you were to be in charge of the HR department, what would your suggestions be to solve the problems of the company?

Notes 1. Mary Jo Ducharme and Mark Podolsky, “Variable Pay: Its Impact on Motivation and Organisation Performance,” International Journal of Human Resources Development and Management, 6, no. 1 (9 May, 2006), p. 68. 2. Milton L. Rock (ed.), Handbook of Wage and Salary Administration (New York: McGraw-Hill, 1972), p. 74. 3.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page), p. 677.

4.

P. C. Tulsian, Cost Accounting McGraw-Hill, 2006), p. 3.37.

(Delhi:Tata

5.

Government of India, “Report of the Study Group on Productivity and Incentives,” The National Commission on Labour, 1969, p. 39.

6.

International Labour Office Staff, Wages: A Workers’ Education Manual (Geneva: International Labour Organization, 1992), p. 45.

7.

Edwin A. Locke and Gary P. Latham, A Theory of Goal Setting and Task Performance (Englewood Cliffs, NJ: Prentice-Hall, 1990) and Edwin A. Locke, “Toward a Theory of Task Motivation and Incentives,” Organizational Behaviour and Human Performance, 3 (1968): 157–189.

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8. Benjamin W. Niebel and Andris Freivalds, Methods, Standards, and Work Design 11th ed. (Boston: McGraw-Hill Professional, 2002), p. 630. 9.

International Labour Office Staff, Wages: A Workers’ Education Manual, (Geneva: International Labour Organization, 1992), p. 44.

10. John Shields, Managing Employee Performance and Reward: Concepts, Practices, Strategies (New York: Cambridge University Press, 2007), p. 402. 11.

International Labour Office Staff, Wages: A Workers’ Education Manual, (Geneva: International Labour Organization, 1992), p. 50.

12. J. M. Clerc (ed.), Introduction to Working Conditions and Environment (Geneva: International Labour Organization, 1985), pp. 178–179. 13.

Ronald R. Sims, Organizational Success Through Effective Human Resources Management (Westport, CT: Greenwood Publishing Group, 2002), p. 278.

14.

Salvador Garcia, Ariadna Romero, and Hector Diaz, “Incentive Plans for Mexican Construction Workers,” pp. 530–531; available at http://www.iglc2006.cl/ iglc2006/doc/pres_IGLC/CAPITULO%209/9-2Paper.pdf.

15.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 476.

16.

William B. Werther and Keith Davis, Human Resources and Personnel Management, 4th ed. (New York: McGraw-Hill, 1993), p. 465.

17. Craig Olson, “Will Workers Accept Lower Wages in Exchange for Health Benefits?” Journal of Labor Economics, 20, no. 2 (April 2002): S91–S114. 18.

“Top Trends Cited by HR Pros: Competition, Health Care, Staffing,” HR Focus, 83 (August 2006): 8.

19. Nancy Hatch Woodward, “Helping Workers Pay College Costs,” HR Magazine, 50 (August 2005): 74–82.

PART V:

HR Maintenance and Motivation

CHAPTER

16

Employee Well-Being

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the essential steps in an employee safety programme 2 List the statutory provisions about employee safety and health 3 Enumerate the causes and types of industrial accidents 4 Explain the role of accident prevention and management 5 Explain the measures that reduce industrial accidents 6 Understand the types and causes of stress 7 Explain the role of stress management

Johnson & Johnson is an internationally renowned manufacturer of health-care products with over 120 years of experience and Johnson & Johnson India Limited, the Indian subsidiary of Johnson & Johnson, came into existence in 1957. It attributes its success to its staunch commitment to care for and cater to the needs of its employees and customers. Johnson & Johnson runs several programmes to enable its employees to live healthier and safer lives. It also has programmes for the dependents of the employees. For instance, it has the employee assistance programme (EAP) at the international level, which provides employees access to counselling, assessment, intervention and training on sources of stress. It also provides resilience training to facilitate employees in managing stress before it shows itself in negative forms. In 2007, nearly 15 per cent of the global workforce of Johnson & Johnson participated in this training.

To improve the physical health of its employees, Johnson & Johnson has a unique campaign called “Move and Make it Matter”. To maintain a healthy work environment, it has an occupational toxicology programme, through which it measures, evaluates and generates data pertaining to the likely health hazards at the workplace. To ensure the workplace safety of the employees, Johnson & Johnson has an ergonomics injuries prevention programme, which prevents injuries or strains caused by repetitive work or over-exertion. It also has a programme called ERGO to reduce ergonomics injuries and set ergonomics standards for all its companies engaged in its worldwide operations. These safety and health programmes of Johnson & Johnson clearly demonstrate the role of these programmes in the overall development of the company and the employees in particular. We shall now discuss the various aspects of employee safety and health in detail.

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Introduction Guaranteeing employee safety is one of the paramount challenges facing the organizations. This is especially important for employees who work in unsafe conditions. In fact, it is a non-transferable duty of the employers to maintain a safe workplace for their workforce.1 Organizations that compromise on employee safety may have to face a potentially higher number of industrial accidents and the resultant increase in compensation cost. Occupational accidents due to safety negligence can also demoralize employees and undermine their productivity, performance and motivation. Further, accidents would force organizations to focus on non-productive activities like accident- related legal proceedings and resource diversions for compensation payment. Obviously, HR managers are often entrusted with the important responsibility of ensuring the safety of workplace and also educating the employees about the safety aspects. In this regard, the main task of the HR managers is to make safety an integral part of the job performance and conduct up-to-date safety orientation and training sessions for its employees. In many organizations, the primary objective of providing employees safety is to prevent industrial accidents. This is because organizations are forced to pay huge compensations, besides facing several HR-related problems in the event of any industrial accident. In fact, the earliest safety measures can be traced back to the Industrial Revolution era, during which employees were working in terrible conditions with dangerous machineries.2 Further, employees in those days had to work for long hours with poor and inadequate diet, often exposing themselves to potentially harmful and sub-human employment conditions. Over a period of time, employers learnt that the safety measures help not only in accident prevention but also in improving productivity, product quality and industrial relations, besides controlling the HR cost. In general, ensuring physical, mental and emotional safeties of the employees in their occupation is the essence of many of the definitions of employee safety. We shall now see a few definitions of the term employee safety in Box 16.1. We may define employee safety as a process of controlling or removing hazards present in the occupational environment so that the employees are protected from work-related accidents.

Objectives for Providing Employee Safety The primary objective for providing employee safety is to protect the employees from all forms of physical dangers while performing their jobs. However, an organization can accomplish several other objectives through employee safety. We shall now see these objectives.

Accident Avoidance Employee safety reduces the possibility of industrial accidents by installing the necessary safety devices properly and educating the employees about the safety aspects. Box 16.1

Definitions

“Employee safety involves protecting employees from injuries caused by work-related accidents.”3 —R. Wayne Mondy

“Safety is both physical and psychological and safety is present when people are free from being bodily harmed.”4 —Jana M. Kemp

EMPLOYEE WELL-BEING

Cost Prevention It reduces and then prevents direct and indirect costs incurred by the organization due to serious industrial accidents. The amount payable to the employees in the form of compensation for disability or death constitutes the direct cost of accident while the cost incurred towards hospitalization and treatment forms the indirect cost.

Improved Employee Satisfaction and Commitment Employee safety promotes an occupational environment that provides adequate employee satisfaction and motivation. In general, employees have the expectation that their employers would offer them a safer environment for doing their jobs. The fulfilment of these expectations often provides the employees with job satisfaction and motivation.

Legal Compliance Employee safety complies with all the laws governing the safety and health of the employees at the workplace. Organizations undertake employee safety measures not only to provide employee satisfaction and HR cost reduction but also to fulfil statutory requirements. For instance, employers adopt safety measures to fulfil the safety requirements specified in the provisions of different employment laws like the Factories Act, 1948, Apprentices Act, 1961, Employee State Insurance Act, 1948, and the Industrial Disputes Act, 1947.

Better Industrial Relations Employee safety brings cordiality and harmony in the labour–management relations. Employers provide safety measures to create a healthy and accident-free work environment for the employees to work, and this, in turn, facilitates the development of positive feelings among the employees for the organization. In the long run, the absence of serious accidents can help organizations achieve harmonious industrial relationship in the organization.

Formalizing the Safety Process and Programme The introduction of employee safety educates the employees to accept safety as a system and culture through a sustained awareness programme.

Steps in an Employee Safety Programme Organizations can develop and install their own safety programmes depending upon their requirements. However, the safety programme mentioned in Figure 16.1 can be adopted by any organization with necessary modifications. The steps in this employee safety programme are: (i) assessment of dangers, (ii) review of existing safety measures, (iii) safety devices installation, (iv) safety training, (v) safety compliance and verification, and (vi) periodic review of safety standards. We shall now see these steps in detail.

Assessment of Dangers As a first step in the employee safety programme, the organization must first assess the hazards associated with the various jobs performed in it. The purpose of this assessment is to determine the nature and level of safety measures required for creating a safe occupational

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Step 1

Assessment of dangers

Step 2

Review of existing safety measures

Step 3

Safety devices installation

Step 4

Safety training

Step 5

Safety compliance and verification

Step 6

Periodic review of safety standards

Figure 16.1 The Steps in an Employee Safety Programme

environment for the employees. As part of this step, the hazards involved in the routine operations of machines, for example, starting, operating and stopping the machines, are screened. In this regard, the proximity of the operators to the machines as well as the nature and frequency of interaction between the machine and the operator is identified. Similarly, the actions of the machine operators that expose them to the hazards are studied and the likely nature of injuries arising from such exposures is studied.

Review of the Existing Safety Measures When new machines are installed, fresh safety arrangements are made either as per the manufacturer’s specification or as per the safety policy of the organization. On the other hand, if safety regulations are already available in the organization for the existing machines, their efficacy should be reviewed. The experts would conduct the safety review to determine whether any additional safety devices need to be installed. Similarly, the safety experts should also decide whether the employees who work in the vicinity where hazardous machines are located require any special safety training and orientation.

Safety Devices Installation Once the safety experts have assessed the risk involved in the occupation and the adequacy of the existing safety measures, the next step is the installation of new or enhanced safety

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devices and processes. However, if the existing safety measures are adequate, there is no need for any further action by the organization on the safety front.

Safety Training Safety is the joint responsibility of both the employers and the employees who work in the hazardous environment. The success of safety measures depends on the strict observance of safety regulations and on the usage of safety apparatus by the employees while performing the job. They must also follow the standard safety procedures while dealing with machines. However, the employers have the major responsibility in educating the employees about the importance of adhering to the safety regulations. They should conduct orientation and periodic training programmes to brief the employees about the dos and don’ts of operating the machines. There are two ways in which an organization can provide training to the employees. An organization can conduct its own training programme to educate the employees about the safety regulations. Alternatively, it may let the machine manufacturer conduct the training programmes for its employees when the new machines are bought.

Safety Compliance and Verification No amount of training can help the organization in making itself safe and accident-free unless its employees comply with all the safety regulations at all times. In a nutshell, safety must become a culture and way of living for all the employees. Organizations can conduct safety audits to verify the safety compliance by the employees and can initiate the necessary action against indifferent units and individuals for ensuring better compliance in the future. They may use safety checklists for gathering information about the efficacy of their existing safety regulations.

Periodic Review of Safety Standards Safety is a continuous process of an organization and, thus, requires periodic evaluation by the experts. Based on their evaluation, necessary changes need to be made in the safety regulations and equipment. In this regard, the organization must ensure that its safety processes are not only reliable but also adequately flexible. It must believe consistently that employees get a sense of satisfaction and motivation to work only in a safe and secure occupational environment. Finally, the safety programme of an organization must be sufficiently dynamic to permit the introduction of new and emerging safety techniques, tools and practices rapidly and effectively.

Need for Employee Safety Properly addressing the employees’ concern for physical, mental and psychological wellbeing has become an important prerequisite for a successful human resource management. Organizations should be firm and consistent in dealing with their own safety aspects as human life is precious both to them and to society. In this regard, an organization can choose to have either an external agency or internal committees to inspect the completeness and efficacy of its safety initiatives. There are a few basic factors which compel the organizations to undertake adequate employee safety measures. These are:

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Loss of Human Lives Without doubt, life is precious for everyone and, certainly, it becomes the non-delegable right of the employers to protect the lives of the employees at all cost. Moreover, an injured employee not only suffers physical pain but also undergoes mental agony due to sudden uncertainty about his future. In the event of an employee’s death, the whole family of the deceased employee undergoes the trauma of a sudden loss of emotional and financial support.

Financial Cost of the Disability and Death of Employees When the organization loses the services of its employees due to an industrial accident, it costs the organization directly in the form of financial compensation payable to the injured employees if those employees were not insured. It also costs the organization indirectly in the form of production disturbances and the hiring and training cost of new employees, who would substitute the injured or deceased ones.

Corporate Social Responsibility (CSR) Prevention of accidents and caring for the safety and health of the employee is one of the foremost social responsibilities of the organization. This is because each employee is a member of society. In fact, many organizations have undertaken safety initiatives on their own just to fulfil their social commitment towards the employees and their family members. Organizations with high social responsibility normally move beyond the statutory safety requirements to provide foolproof safety measures for their employees.

Insurance Premium Costs Insurance premiums payable by an organization are usually decided on the basis of the past insurance claims made by it for the injury or death of the employees. When the organizations report a higher number of accidents and, as a result, make high compensation claims, the general insurance company would increase the insurance premium proportionately for the future period. In contrast, when the organization reports no accident during the insured period, it gets a substantial reduction in the insurance premium payable for the future period. Such a reduction in insurance premium is usually known as the no-claim bonus. It is, therefore, necessary for the organization to keep the organization free of accidents.

Fine or Imprisonment for Safety Lapses The Factories Act 1948 provides for the imposition of fine or imprisonment or both for the employers who provide inadequate safety measures in the occupational environment, which result in serious industrial accidents. Once an industrial accident is reported, the appropriate authorities like the chief inspector for factories can issue orders for prosecuting the management for gross negligence if the initial enquiries point to lapses on the part of the management in safety aspects.

Essentials of an Effective Safety Programme The employees’ voluntary compliance with the safety regulations is the best indicator of the effectiveness of the safety procedure. This may warrant sustained efforts from the

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management in the form of safety training, and safety programmes like safety weeks, safety posters and slogans. An effective safety procedure must have the following features.

Clarity in Terms of Safety Goals An organization should set clear safety goals before deciding its safety programmes. For instance, it can have a continual reduction in the incidence of work-related accidents as its safety goal. Similarly, it may also have total compliance with the statutory safety provisions as its goal. Or, it may aim to achieve full-fledged cooperation from employees and trade unions for its safety management programmes. An organization may have one or more safety goals at a time but these goals must be clear, practical and in agreement with the organizational policies.

Proper Safety Strategies The safety strategies required for the accomplishment of safety goals must be properly designed. They may involve development of mechanism for effective achievement of safety goals. This may include fixation of realistic performance targets, determination of financial incentive for accident-free performance, enforcing reporting and accountability, developing new safety methods through researches, devising techniques for identifying and acknowledging the best practices that reduce accidents and injuries, and, finally, formulating strategies for seeking the cooperation of the employees and the trade union on safety matters.

Well-defined Responsibilities and Accountabilities Teamwork is important for developing a safe working environment. Still, it is necessary to make persons specifically responsible for the creation and maintenance of a safe occupational environment. There must be clear and direct lines of responsibility and accountability for the maintenance of safety arrangements and for security lapses.

Safety Awareness Campaigns and Training Organizations must periodically conduct safety training for their employees on the basis of their safety goals and requirements. They may choose a specific topic for discussion in training programmes. The suitable topics may be accident prevention, eye and face safety, hand safety, respiratory safety, fall protections, fire preventions, first aid, risk identification, electrical safety, chemical hazard, off-the-job safety, skin protection, ultraviolet protection, emergency-readiness, process safety, safety orientation, and safety accountability and responsibility. The performance records and the safety records of the employees are vital documents in determining the safety needs of the employees. Interviews may also be conducted to ascertain the safety requirements of the employees.

Safety Revisions and Upgradation The introduction of new safety legislations by the government or the installation of new machinery by the organization often necessitates revisions in the safety regulations. For instance, new provisions in the law may necessitate a stricter adherence to the safety codes and the installation of safety devices. Similarly, the cause of the latest accidents and the possible solutions may also compel the organization to introduce new safety regulations

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to prevent the occurrence of such accidents in the future. In this regard, the organization may undertake periodic revisions of safety measures to determine the safety gaps and the necessary upgradation required.

Statutory Provisions Concerning Employee Safety and Health The Factories Act of 1948 has several sections which deal with employee safety and health. The primary purpose of this act is to regulate safety, health and welfare of the employees working in factories located anywhere in India. It is a central act enforced by the state governments. According to this act, “factory” means any premises where ten or more workers are working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried out with the aid of power (twenty or more workers must work in places where operations are carried out without the aid of power). The different sections which deal with employee safety are: • Section 9(b)—Power of Inspectors: This section empowers the factory inspectors to visit the factory to examine the premises, plant and machinery. • Sections 9(c) to 9(h): These sections enable the factory inspectors to enquire into the accidents or dangerous events which caused bodily injuries or disabilities to the employees and seize relevant documents like records and photographs. • Section 12—Wastes Disposal: Organizations must make effective arrangements for treatment and disposal of wastes and effluents. • Section 13—Proper Ventilation and Temperature: The employer must make the necessary efforts for the maintenance of proper ventilation and reasonable temperature within the room, which should prevent any injury to employees normally arising out of excessive temperatures. • Section 14—Dust, Fume and Other Impurities: Necessary measures must be taken in the factory premises to prevent the inhaling of dust, fumes and other impurities which might cause injuries to the employees. • Section 15—Standards of Humidification: The employers must make suitable arrangements for increasing humidity of the air artificially to protect the health and ensure the safety of the employees. • Section 16—Avoidance of Overcrowding: The employers must prevent any overcrowding inside any of the rooms in the factory premises which might cause injury to the employees. • Section 17—Proper Lighting: Each part of the factory premises must be provided with adequate lighting for the employees. This lighting may be natural or artificial. • Section 24—Striking Gear and Devices to Disconnect Power: A suitable striking gear or other appropriate appliances must be available in the factory for cutting off power in the case of an emergency. • Section 29—Lifting Machine, Chain and Rope: Each lifting machine, chain and rope used for moving persons and materials up and down should be of good-quality construction, sound material and sufficiently strong and free from defects.

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• Section 32: Floors, steps, stairs, passages and gangways must be made from quality material, properly maintained and free from any obstruction. • Section 35—Protection of Eyes: There must be adequate availability of screens or suitable goggles in the factory for employee usage whenever required. • Section 36—Flames, Fumes and Gases: Organizations must take adequate precautions against the dangerous flames, fumes and gases. • Section 38—Fire Prevention: All possible measures must be taken to prevent the outbreak of fire in the factory premises. In the event of fire, adequate escape routes must be available. • Section 40B—Safety Officers: In every factory with a thousand or more employees, an adequate number of safety officers must be employed. • Section 41G—Safety Committee: In every factory where hazardous activities are undertaken, a safety committee must be constituted with an equal representation from both the management and the employees. • Section 90: Under this section, the state government is empowered to appoint persons to conduct enquiry into the cause of accident. The person appointed will have all the powers of civil court vested under the Code of Civil Procedure 1908. Similar to the Factories Act 1948, the Mines Act of 1952, and the Dock Workers (Safety, Health and Welfare) Act of 1986, also have specific provisions that deal with employee safety and health.

Behaviour-based Safety Management and Approach The fact that safety gets attention only after an accident occurs is the general complaint of the employees. On the other hand, the general opinion of the employers is that the attitude of the employees towards safety is the key factor in safety management. Many behavioural scientists are of the opinion that there are three critical factors which largely determine the behaviour of the employees towards safety management: organizational culture, individual attitude and behavioural outcomes.5 We shall now discuss these influencing factors briefly.

Organizational Culture The organizational culture reveals the personality of an organization. It is usually made up of the practices, values, beliefs and assumptions held by the members of an organization. Although the organizational culture is difficult to explain, it can be felt by every member of the organization. In fact, a member of the organization who has joined recently can sense the prevailing culture when he observes the behaviour of other members. When the members adopt a specific form of behaviour, the new employee tends to view it as acceptable and adopts it. In the case of safety precautions, the new employee usually follows the behaviour of the other members. The safety perception of the members forms the safety culture, which, in turn, influences the behaviour of all the members. When the existing culture is indifferent to safety regulations, the new member also remains indifferent to safety management.

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Individual Attitude The attitude of the employees greatly determines their views about the different aspects of their job, including safety. Attitude is normally individualistic in nature and cannot be influenced by group behaviour easily. Each employee may have his own personal opinion about the importance of safety, and this decides his attitude towards safety management. The past incidents, education and societal influence may facilitate the formation of a specific attitude in a person, which is hard to change. These attitudes can be classified broadly into positive and negative attitude. However, through effective and sustained programmes, an organization can change the attitudes of its members slowly.

Behavioural Outcomes The outcomes of past behaviour have a lot of relevance for future behaviour. When the consequences of the past behaviour are positive, the employee tends to continue such behaviour in the future. In contrast, when the past behaviour has a bitter outcome, the employee avoids such behaviour. For instance, when an employee is faced with criticism and punishment for crossing the speed limits while operating the machine, he will resist his temptation to cross the speed limits in the future. On the other hand, when he is appreciated for completing the job ahead of time even at the cost of operating the machine at a dangerous speed, he is bound to do this again and again, bothering little for safety norms.

Industrial Accidents Accidents are inversely related to the safety measures. When the rate of accidents is high, it is an indicator of inefficiency of safety management. An industrial accident normally occurs when safety provisions are compromised by the employees at work. The industrial accident may cause temporary or permanent disability to the employees and it may also result in the death of an employee. The Factories Act of 1948 describes an industrial accident as “an occurrence in an industrial establishment causing bodily injury to a person which makes him unfit to resume his duties in the next forty-eight hours”. The accident may result in partial or complete disability of a person. A serious industrial accident may cause, among others, head injury, brain injury, back injury, burn injury and neck injury. As per a survey, on an average, 120 million industrial accidents, including 210,000 fatal accidents, are reported every year across the world. However, these accidents range from very minor ones like the small bruises of an individual employee to major disasters resulting in the death of several employees at a time. Among all the industries which employ people for performing jobs, a large number of accidents are reported from mining, construction and transportation, with construction alone accounting for 50 per cent of all accidents followed by factories, which account for nearly 30 per cent of all accidents.6 Basically, the causes of industrial accidents can be classified into unsafe actions and unsafe conditions. We shall now see them briefly. Unsafe Actions An unsafe action refers to any act performed by the employee during the course of his job without observing the necessary safety provisions which ultimately results in an accident. In such cases, a disregard for safety rules and regulations often becomes the reason for the accident. The employee may overlook the safety norms wilfully or ignorantly while performing the job. These cases may involve machinery failure, wrong operations,

EMPLOYEE WELL-BEING

non-compliance with safety procedures, improper handling of safety devices due to lack of safety training, and a wilful neglect of the superiors’ instruction. Occasionally, the employers, the management, the supervisor or the co-workers may also become responsible for the accident that occurs. Unsafe Conditions The unsafe conditions may mean security lapses in the environment which may be beyond the employees’ control. Unsafe conditions leading to accidents may be caused by factors like faulty machines, inadequate workspace ventilation and lighting, too much noise, uneven or unstable flooring, excessive room temperature, lack of adequate protection, hazardous machinery, uneven and unbalanced structures, and electrical failure. Accidents may also occur due to unconnected fire in the working environment, gas emission, system failure and power failure. Further, depending upon their actual cause, accidents may be classified into the ones having external causes and those having internal causes.7 The external causes of accident refer to the role of factors which are not directly under the control of the job holder. The internal causes refer to failure of the factors directly under the control of the job holder, including failure in judging the situation.

Accident Prevention and Management An organization should first identify the accident-prone areas in the organization before determining the responses for accident prevention. Organizations usually keep records for accidents, and these records provide information about the frequency, severity and incidence of accidents. In fact, organizations adopt three important methods for determining the accident-prone areas of the factory: the spot map method, the accident frequency method and the accident rate method.8 We shall now discuss these methods briefly. Spot Map Method In this method, a map prepared by the organization shows the places which have reported the highest numbers of accidents. This helps the organization in identifying the hazardous sites in the factory premises easily. Since the information about accidents is presented in a visual form, it is easy to understand the frequency of accidents in a particular location and also the effectiveness of safety management. Accident Frequency Method In this method, a ranking of the locations is done on the basis of the number of accidents reported from each spot in the organization. The spot that has recorded the highest number of accidents is ranked first followed by the next location that has recorded the second-highest number of accidents, and so on. In this way, all the accident-prone locations are ranked. This method enables the organization to prioritize the locations for implementing safety measures on an emergency basis. Obviously, the spot that has reported the maximum number of accidents would be accorded the top-most priority in terms of safety training, installation of safety devices, and implementation of stringent safety regulations. Accident Rate Method In this method, the number of accidents at a specific location is compared with the employee exposure hours in that location. The employee exposure hours refers to the number of hours spent by all the employees at a specific location as part of the job performance process. This comparison produces the rate of accident in a specific spot during a specific period. Finally, based on the accidents rate reported from different spots, a

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ranking is done to identify the accident-prone areas in the factory premises. There are two important ratios, namely, incidence rate and severity rate. We shall now see the ratios for measuring accident rates. Incidence rate method: This is the first method used for the calculation of accidents. The incidence rate is obtained by the following equation: Incidence rate =

accidents ×1 million exposure

where Accidents = the number of injuries recorded out of accidents Exposure = the total number of employee exposure hours in the location This ratio can be understood easily with the help of a numerical illustration. In an organization, the number of accidents reported during a period of one year is 30 while the total working hours is 2,000 hours per year. The number of employees working in that spot is 1,000. Now the accident rate will be 30 (accidents)×1,000,000 = 15 accidents per year 1000 employees ×2000 hours Severity rate method: Another method used for the calculation of accidents is known as the severity rate method, which calculates accidents in terms of their severity. In this ratio, the severity of the injury is measured through the productive time lost due to the accident. When the accident is serious, obviously the number of man-days lost would be more. The ratio for measuring the severity of accidents is Severity rate =

total number of man − days lost due to accident ×1 million exposure

Measures to Reduce Industrial Accidents Accidents affect an organization in multiple ways. They may extract financial, social and psychological costs from it. For instance, an organization may have to incur huge hospitalization and treatment expenses for its injured employees. Similarly, it would have to pay a heavy price in terms of reduced employee cooperation and strained employer–employee relationship. Further, it may also suffer from low employee motivation and morale, and decreased productivity and performance. Thus, it is absolutely essential for the organization to prevent accidents in order to save its precious human and physical resources. An organization may take the following steps to improve employee safety by reducing industrial accidents: Ensuring Support of the Top Management The role of the top management is crucial in any safety management as it is only the management that provides the necessary resources for achieving safety goals. Therefore, it must be totally convinced of the need to have a foolproof safety arrangement in the organization. It must also be aware of the financial cost of each accident and the need to avoid such unnecessary expenses. The top management must encourage the development of safety goals and safety policies to make the entire organization a safe place to work. The management must also make the employees aware of

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their strong commitment to the safety of the employees through its actions. It should provide the necessary financial support to all the efforts of the organization in making the work spots safe and accident-free. Safety Policy, Philosophy and Plan Each organization should have its own safety and health plan and the plan must be publicized well among the employees. The safety policy normally indicates the commitment of the organization towards the safety of its employees, machines and materials. The responsibility of each employee with respect to maintaining safety must be defined clearly and mentioned in the policy. The safety policy and plan would spell out the accident prevention programme of the organization. It must provide information about safety orientation, emergency evacuation plans, accident-reporting procedure and safety problem reporting. It must also provide information about safety officers, safety equipment and safety training. The organization must have a safety policy handbook which should specify the safety philosophy and safety policies concerning the people employed in it. Safety Committee Every organization must constitute an appropriate number of safety committees to assist the employees on matters pertaining to safety and other related aspects. The committees must have representation from both the employees and the management. The number of members in each committee will depend on the number of employees covered by it. Usually, such a committee is headed by the safety officer or an equivalent authority. Though an organization can assign any safety-related duties to the safety committees, they usually perform the following activities: • To meet periodically (say, once in a month) to discuss the safety-related matters • To conduct safety inspection in the assigned work premises at regular intervals and in a need-based manner • To develop and establish hazard identification and accident investigation procedures • To develop and establish a system at the workplace level for the employees to report safety problems to the higher authorities and to the safety committee • To review the records and monthly reports periodically to study the safety compliance by the employees • To communicate the safety committee’s decisions to the employees and decide their safety training requirements Safety Education and Training Safety training aims at teaching the employees about the importance of observing safety rules and regulations while performing the job. The training should develop safe behaviour among the employees which should lead to the establishment of an appropriate safety culture. The training must enable the employees to know the dos and don’ts in their jobs. The employees must also be taught about the need to comply with statutory provisions concerning safety. Safety training must also provide essential skills and techniques to the employees to navigate the hazardous situations safely. Last but not the least, the training programmes must tell the employees about what they should do at the time of emergency, like in the case of accidents. Safety Campaigns Safety campaigns play an important role in getting the support of the employees, the supervisors and the management for the safety initiatives of the organization. The purpose of a safety campaign is to engage the attention of the employees to create safer

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work spots. The safety campaign may involve competition and quiz programmes for the employees on safety issues and sticking of safety posters and distribution of handouts listing the importance of observing safety regulations. Organizations can also make arrangements to write safety slogans in all the places frequently visited by the employees. They can celebrate safety weeks for creating safety awareness. They can also present safety awards to the individuals and units maintaining excellent safety records. Safety Engineering Safety engineering normally involves the redesigning of equipment, machinery and material, and the development of new and improved techniques, processes and procedures for performing the jobs safely. The main purposes of safety engineering are hazard prevention and accident elimination. Safety engineering helps an organization in identifying the hazards present in the occupational environment. Organizations may even have a separate safety engineering division to administer the laws relating to employee safety and working conditions. The division can also provide safety engineering support to the top management in relation to the safety aspects of the organization. It may also be entrusted with the responsibility of conducting safety inspection in the factory premises and suggesting measures for improving the safety of work environment. Safety engineering assists the management in creating, maintaining and conducting effective safety programmes and periodic risk assessments. Box 16.2 outlines the common employee safety practices of an organization.

Box 16.2

Safety Engineering at GlaxoSmithKline

The natural expectation of the employees from their organizations is the provision of a safe occupational environment, no matter whether there is any statutory requirement or not. No organization should make any compromise on safety regulations just because having those pushes up its cost and affects its competitive advantage. In fact, the mental and the physical wellbeing of the employees are the essential requirements for the success of any organization in the long term. In practice, the importance of safety regulations is realized by many organizations only after a tragedy strikes its work spot and disturbs the production schedule. But there are a few companies which have made safety their way of life and a high priority area. GlaxoSmithKline is a case in point. GlaxoSmithKline considers the minimization of process hazards as an ongoing process. It makes optimum use of expert engineering design and good manufacturing processes to keep the dangers associated with the manufacturing process under control. It has “Green Chemistry and Green Technology” programmes to reduce and then eliminate the use of these hazardous materials. In fact, the process safety management of GlaxoSmithKline involves detection of hazards, assessment of risk, and

development and implementation of remedial action, if required. It also has a Failure Mode and Effects Analysis (FMEA) system to develop a safe mode of performing the operations. GlaxoSmithKline has an excellent safety engineering programme for protecting the employees from operational hazards. This programme focuses on construction and plant safety and emergency response activities of the organization. It also has an intranet-based Safety Engineering Programme for developing engineered solutions to fire, explosion, electrical, machine-guarding and other operational risks. The team responsible for Safety Engineering Programme is continuously engaged in the preparation and distribution of safety guides and alerts relating to engineering operations. Finally, GlaxoSmithKline has unique programmes like risk assessment and control processes, construction contractor safety programme, and capital project EHS review process to deal with the safety aspects of different sections of people connected with its manufacturing operations. Adapted from: http://www.gsk.com/investors/reps03/ EHS03/GSKehs-28.htm.

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Legal Compliance An organization should comply with all the statutory provisions concerning employee safety and health without fail. In India, the central government has enacted several laws to ensure the safety of employees in the occupational environment. As mentioned earlier, the Factories Act of 1948, the Mines Act of 1952 and the Dock Workers (Safety, Health and Welfare) Act of 1986, deal with employee safety in different types of organization. When an organization disregards the safety provisions mentioned in the laws, it would be held responsible for the accidents occurring in the factory premises and may also be charged for criminal negligence under the Factories Act and other relevant acts.

Employee Health When the employee is free from any form of physical or emotional illness, it is referred to as employee health.9 The maintenance of employee health is the joint responsibility of both the employer and the employees. This is because any problem in the health of the employee affects not only his ability to perform the job with normal capacity but also the capacity of the organization to achieve production and performance targets. In fact, a study on an employee fitness programme revealed that an organization reported four per cent increase in its productivity after it started an employee fitness programme. Besides, nearly 47 per cent of the employees who participated in the programme reported greater alertness, better rapport and more interest in work.10 We shall now see the importance of the health of the employees from the physical and mental health points of view.

Physical Health Physical health refers to the physical well-being of the employees. A worker with good health is indeed an asset to the organization. When the health of the employee is affected by occupational diseases or injuries, it may lead to increased absenteeism, labour turnover and employee dissatisfaction. Besides, it would also affect employee productivity, performance and motivational levels. Thus, the organization should preserve the health of the employees by removing or controlling the factors that affect the physical health of the employees. Factors like high noise levels, poor visibility, extreme temperatures, and uneven floor surfaces can affect the physical health of the employees in the long run. Similarly, flying dust, chemical fumes, radiations, emissions and asbestos can also cause serious illness to the employees. When an organization fails to recognize the presence of harmful factors or ignores them, it would be forced to suffer in the long term with a depleted workforce efficiency and motivation. When there is a health crisis, a good organization would assess the magnitude of the problem and, without any delay, it would initiate health promotion programmes that should help it in reducing such problems. Organizations should periodically conduct health education programme to improve the health awareness of the employees. They must also realize that preventive health care is better and cheaper than curative care expenses, which includes hospitalization and treatment expenses.

Mental Health Traditionally, organizations were focused more on the physical health of the employees than on their mental health. It was only in recent times that employers began to focus more on the mental health problems after realizing their devastating impact on the productivity,

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performance and general behaviour of the employees. However, mental health problems cannot be recognized easily by the organization and they also take time to manifest themselves in some form like absenteeism, irritability, hostile attitude and lack of interest in the job. In extreme cases, an employee with mental health problems like depression may take to alcoholism and drug addiction. In many organizations, stress has become the major factor causing mental health problems. Realizing the gravity of the problems and their effect on the entire organization, organizations began to undertake employee assistance programmes to facilitate the employees in managing their stress and burnouts. Certainly, these employee assistance programmes help the employees overcome their stress-, grief-, family- and job-related problems.11 Several organizations have resorted to internal and external psychiatric counselling to employees in order to deal with the problems of stress, burnout, tension, anxiety, alcoholism and all other forms of irrational behaviour. The focus of such counselling is on attending to the personal psychological problems that adversely affect employee performance, productivity and behaviour within the organization. Many organizations have started to treat the anxiety-related emotional problems on par with physical health problems. To overcome all forms of health problems, they are providing general health plans, sports events, gyms and regular counselling by psychologists.

Stress Stress is nothing but a person’s normal response to a situation or stimulus. As such, it is not a situation but a response based on the perception of a situation. In fact, the presence or absence of stress in a situation is decided by the way a person perceives, interprets and evaluates that situation. Naturally, an environmental factor that causes stress to one person may not cause any stress to another, although both interact with the same environment. However, there are certain environmental factors which by and large cause stress to a vast majority of employees. These may be tight work schedules, incessant travelling, a higher pace of work, frequent deadlines, and the absence of job security. Stress need not be viewed as an entirely negative factor as it can also be positive at times.12 When the stress produces positive results, it is known as eustress. For instance, when stress increases the performance and productivity level of the employees, it can be described as a positive stress or eustress. A few examples of positive stress are promotion opportunities for improved performance and holiday trips for accomplishing targets. On the other hand, when the stress affects the routine activities of a person, including his usual performance, it is called negative stress or distress. It is a bad kind of stress. For instance, unbearable workload and strict supervision, which cause excessive worries, anxieties, depression, high blood pressure, irritability, headaches, fatigue, agitation and mood swings, are certainly negative stress. We shall now see a few definitions of stress. The response of a person to a situation is the basis of many definitions of stress. Box 16.3 lists a few of these definitions.

Types of Stress Based on its nature, intensity and duration, stress can be classified into different categories. We shall now see the difference types of stress listed in Figure 16.2. Time Stress, Anticipatory Stress, Situational Stress and Encounter Stress Stress can be classified into four categories based on the emotions induced: 1) time stress,

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Box 16.3

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Definitions

“Stress is an adoptive response to an external situation which reveals itself in physical, psychological and/or behavioural deviations for organizational participants.”13 —Fred Luthans “Stress is a psychological and physical reaction to prolonged internal and/or environmental conditions

in which an individual’s adaptive capabilities are overextended.”14 —J. C. Williams and G. P. Huber “Stress is defined as the reactions of individuals to new or threatening factors in their work environment.”15 —H. J. Arnold and D. C. Feldman

Types of Stress

Based on Emotions

Based on Intensity

Based on Causes

Time stress Anticipatory stress Situational stress Encounter stress

High stress level Moderate stress level Low stress level

Short-term response Long-term response

Figure 16.2 Types of Stress

2) anticipatory stress, 3) situational stress, and 4) encounter stress.16 Time stress refers to the stress created by time pressures like working against deadlines. Anticipatory stress refers to the anticipation of some negative developments in the future. This is basically a perceptual factor and the people involved in the process comprehend dislikable results from their interaction with the environment. Situational stress refers to a situation which remains unclear and uncertain and the individual fears the outcome of the situation. Encounter stress means the fear created in individuals about the likely outcome of their interaction with other individuals. The outcome could be positive or negative for the individual. High Stress Levels, Moderate Stress Levels and Low Stress Levels Based on its intensity, stress can be divided into three categories: high stress levels, moderate stress levels and low stress levels (too little). When the stress levels are too high, the employee may not be able to cope with such stress, and this impairs the performance and productivity levels of the employees ultimately. On the other hand, low stress levels will be too little to motivate the employee and improve his performance. A moderate level of stress, which is neither too high nor too low, stirs up the employees to improve the performance to the required levels. Short-Term Response and Long-Term Response Based on its causes, stress can be classified into two categories: short-term response stress and long-term response stress.

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In the case of short-term response stress, the effect of the stress remains till the person involved passes through the stressful situation. For instance, inspections by superiors and interviews for promotions belong to this category of stress. In contrast, some factors causing stress remain for a long period of time, for example, differences with one’s immediate superiors, environmental conditions like extreme temperature, and the inadequacy of financial benefits. These factors cause stress to the employees for a comparatively longer period of time.

Sources of Stress Stressors, or the factors causing stress, can be classified broadly as internal and external. The internal stressor emanates from within an individual while the external one arises from the environment. The external stressor may further be classified into group-level stressors, organizational stressors and extra-organizational stressors. We shall now examine these stressors in detail. Internal Stressors (Individual Level) The internal sources of stress arise from the perception of an individual about the environment. The environment may or may not be present with threat, but the individual perceives the situation as threatening and responds on the basis of that perception. The internal problems of an individual like role conflict, role ambiguity, and non-specific fears like the fear of future and that of inadequacy can cause stress to an individual. However, the internal sources of stress depend primarily on the personality characteristics of an individual. Basically, the personality of people can be classified into Type A personality and Type B personality. The persons with Type A personality suffer more from internal sources of stress due to the inherent characteristics of their personality. Compared to those with Type A personality, the persons with Type B personality are less exposed to internal stresses, again due to their basic nature of personality. We shall now see the characteristics of each type of personality. Type A personality—Prone to a feeling of urgency and impatience; aggressive in behaviour; strong achievement orientation; high level of competitiveness; multi-tasking tendencies; prone to hide true emotions; and perfectionist but with low self-esteem. Type B personality—Patient and relaxed; moderately ambitious; accommodating attitude; take-it-easy policy; mild-mannered; free of hostility and aggression; free of any compulsion to meet deadlines. In recent times, the psychologists have identified a third type of personality called Type C personality.17 People with this type of personality are introverted in nature. The Type C personality normally reacts to job stress with a feeling of helplessness and hopelessness. The chances of depression are more in this type. The important characteristics of Type C personality are as follows: Type C personality—Tends to be introverted; courteous and considerate; conformist (traditional); well-mannered and submissive; please-everyone attitude. External Stressors The external sources of stress called environmental stressors are normally not within the control of the individuals. These kinds of stressor are caused by lapses in factors like organizational structure, authority and responsibility, superiors’ attitude, job

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characteristics and career opportunities. Basically, the external stressors are classified into group-level stressors, organizational stressors and extra-organizational stressors. These have been explained as follows. Group-level stressors—Group-level stressors are the factors present in the environment that result in individual stress perceptions due to group influence.18 They are often caused by a lack of group cohesiveness, intra-group conflict and the superior’s attitude. Among these factors, the superior’s attitude often produces more stress for the employees. For instance, the superior’s unpredictable behaviour, lack of warmth in the relationship, demanding nature, the absence of empathy, and fault-finding attitude are prime source of group stressors. Organizational stressors—Organizational stressors are present at the organizationallevel environment and usually create stress for a majority of the employees in the organization. Organizational culture is one of the important organizational-level stressors in many organizations. For instance, the leadership style and the nature of organizational structure can produce stress for the employees. The organization may adopt autocratic, democratic or a laissez faire leadership style to manage its employees. Among these, the autocratic style generally produces greater stress for employees. Similarly, value conflicts, job monotony, excessive workloads and responsibilities, improper working conditions, organizational politics, underutilization of skills, and ambiguous orders from the management can also act as organizational stressors. Further, improper ventilation and lighting, dust and fumes, and the absence of hygiene and health facilities can also act as organizational stressors. Extra-organizational stressors—These refer to those factors that are outside the purview of the organization and more personal to the employees. Factors like family disturbances, lifestyle changes, technological changes, unpleasant developments in the personal and social life like death and sickness of near and dear ones are examples of extra-organizational stressors. Similarly, sociological factors like gender, ethnicity, race and religion can also cause stress to the employees. Burnout—Burnout is a factor closely associated with job stress. It is the exhaustion suffered by an individual due to a continuous exposure to a stress-causing situation. It is a symptom of extreme tiredness arising out of depletion in the physical and mental energy of persons. Usually, the employees suffering burnout are committed people who suffer due to impracticable goals and deadlines set by the organization. Generally, burnout manifests itself in the form of irritability, discouragement, entrapment, and resentment.19 However, burnout build-up is a long and gradual process and manifests itself only at the extreme stages. In fact, in many cases burnout happens in the mid-life or mid-career of an individual. The major symptoms of employee burnout are declining productivity, increased labour turnover and absenteeism, and a general despondency in the behaviour of the individual. The employees with burnout problems usually feel lazy, tend to postpone work and rarely perceive the job as interesting and challenging. These employees become quarrelsome, disagreeable, cynical and paranoid. Employees can avoid or get rid of burnout by changing their work and personal lifestyles. Job-related measures like the reassessment and reduction of performance goals, assigning adequate time for relaxation, and pattern-breaking like avoiding repetitions in work can also help the employees avoid burnout problems.

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Stress Management Stress can cause unpredictable and immeasurable problems to an individual and also to the organization. It can cause job-related problems like negating safety norms, indifferent job performance, quality compromises, not caring for others and surroundings, forgetfulness, uncharacteristic clumsiness, defying authority, defensiveness and violent behaviour. It can also cause numerous health problems like sleeping disturbances, chest pain, ulcers, brain haemorrhage, high blood pressure, bad temper, emotional outbursts, headaches, anxiety, depression, nervousness and agitation. Thus, it is absolutely essential for both the organization and the individual to tackle stress effectively and safely. As explained in Figure 16.3, stress can be handled with a two-pronged strategy: individual and organizational.

Individual Strategies The primary responsibility for stress management lies with the individual who suffers from stress. An individual may adopt different strategies to cope with stress. In any case, the individual must first recognize the stress-causing factors and then, if possible, avoid them. This would enable him to eliminate the stress altogether. However, in many occasions it is not possible to avoid stress in job and personal life. In such a situation, the second best strategy is to devise ways and means to cope with the stress-causing situation. We shall now see some of the individual level strategies to overcome stress. Meditation Mediation is a technique to reprogramme an individual’s thinking process. In fact, it produces an effect in the body which is just opposite to that produced by stress. The focus of meditation is on activities that relax the body, calm the mind, and improve attention. Certainly, meditation serves more than just coping with the stress. It helps the employees increase their longevity and quality of life, and reduce anxiety, high blood pressure and serum cholesterol level. Yoga is viewed as the best meditation technique in India for relaxing the body and the mind. Organizational strategies • Time-out • Job redesigning

Individual strategies

• Counselling and mentoring

• Meditation • Deep muscle relaxation • Time management • Role-playing

Stress Management Strategies

• Employee empowerment • Recreation • Training and orientation • Team-building exercises • Employee assistance programme (EAP)

Figure 16.3 Stress Management Strategies

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Deep Muscle Relaxation The purpose of relaxation technique is to help the employees with the means of alleviating fear and anxiety, the symptoms of stress.20 Deep muscle relaxation is a basic but effective relaxation technique for coping with stress. In muscle relaxation, the physical environment is crucial for achieving the desired result. The basic requirements for a proper environment are low noise level, comfortable furniture, reduced lights and sufficient ventilation. Time Management Time can cause a lot of stress, especially when the employees have to work against tight work schedules and frequent deadlines. Through effective planning, individuals can make optimum use of their time, and this can proportionately reduce their time stress. A few guidelines for effective time management are: (i) identifying the activities to be done in the next 24 hours, (ii) classifying them into two categories and then listing them (the first list will have activities which must be completed within the specified time and the second list will include activities which can be postponed to the next 24 hours), and (iii) completing the activities according to their respective priorities. Role-Playing This is emerging as an important technique to cope with stress at the individual level. In this method, employees prepare for a stressful situation when they are not under any form of pressure or anxiety.21 The individual visualizes the stressful situation and role-plays that situation to determine the best way to handle it. This process enables the individual to prepare for the situation actively and to handle that situation in a stress-free manner effectively.

Organizational Strategies Maintaining a stress-free environment for the employees is an important task for every organization. This is because the effect of stress is equal for both the employees and the employers. As a matter of fact, organizations suffer more from reduced productivity, low employee morale and increased employee attrition and absenteeism. Many organizations are now according the topmost priority to reducing, if possible eliminating, the stress levels of the employees. An organization may adopt the following techniques to help the employees cope with organizational stressors. Time-Out Organizations must provide adequate time-outs to the employees to relax themselves while engaged in a busy work schedule. This time-out taken by the employees can help in relaxing their muscles, calming tension and anxieties, and reducing pressure levels. Thus, time-out helps in reducing job-related stress and preserving the health of the employees. Job Redesigning Job redesign is a scientific and systematic effort to modify the characteristics of an employee’s job.22 When the employees suffer from work overload problems, the best way to tackle these is to redesign the job. When the employees complain frequently about their inability to achieve the targets within the time and resources allotted to them, express difficulty in availing vacation time, or are required to attend to work during nonwork time, they are clearly suffering from work overload problems. In such a situation, the management must redesign the job in such a way that the job has a high degree of autonomy, reasonable workload, task variety, and clarity. Counselling and Mentoring Many organizations engage professional counsellors and mentors for helping the employees handle their job-related stress. The counsellors help the

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employees learn the skills of handling inter-personal, emotional and personal problems. The ultimate purpose of counselling and mentoring is to create the desired changes in the behaviour of the employee to improve his ability to cope with stress. Employee Empowerment Employee empowerment enables the employees to play more active role in their job. The empowered employees take more responsibility for their actions in the job. Besides, they make independent decisions as part of their job without relying too much on their superiors. Thus, employee empowerment considerably reduces the stress arising out of the frictions in the relationship between the superior and the subordinates due to reduced interaction and dependence. Recreation Several organizations have now begun to realize that recreation is an effective stress-buster. It enables the employees to develop informal and comfortable relationships with other employees in the organization. It also relaxes the body and the mind of the employees. The purpose of employee recreation is to improve the health and well-being of the employees, which in turn improves their stress-coping ability. Training and Orientation Organizations are developing well-designed training programmes for educating the employees about the techniques to be adopted for handling stressful situations. Employee orientation helps the new employees understand the factors that could cause stress in the organization and learn the strategies for tackling the stressful situations effectively. The purpose of many stress management training programmes is to help the employees in (i) identifying the work-related stresses, (ii) understanding their effects on the individuals, (iii) evaluating stress-related risks, (iv) learning measures to avoid workrelated stress, (v) resolving the existing work–stress problems, (vi) taking preventive actions to manage work-related stress in the future, and (vii) preserving the physical and mental well-being at work irrespective of stress. Team-Building Exercise A lot of organizations are employing team-building exercise to improve group cohesiveness and employee motivation, and to help the employees handle stress-related problems as a group. Team-building exercises help the employees avoid stress caused by intra-team conflicts. Employee Assistance Programme (EAP) Many organizations are now developing employee assistance programmes to deal with the problems relating to stress, burnout, alcoholism, drug abuse and job-related violence. As part of the assistance programme, organizations can conduct health screening to find out the health-related problems of the employees. The programme then helps the employees overcome these health problems, including stress.

Summary 1.

Employee safety is a process of controlling or removing hazards present in the occupational environment so that the employees are protected from work-related accidents.

2. The objectives of employee safety are accident avoidance, cost prevention, high employee satisfaction and commitment, legal compliance, better

industrial relations, and formalizing the safety process and programme. 3. The steps in an employee safety programme are: (i) assessment of dangers, (ii) review of the existing safety measures, (iii) safety devices installation, (iv) safety training, (v) safety compliance and verification, and (vi) periodic review of safety standards.

EMPLOYEE WELL-BEING

4.

Employee safety is needed to avoid the loss of human lives, reduce the financial cost of disability and death of employees, discharge corporate social responsibility (CSR), reduce insurance premium and avoid fine or imprisonment for safety lapses.

5.

The essentials of an effective safety programme are clarity in safety goals, proper safety strategies, well-defined responsibilities and accountability, safety awareness campaigns and trainings, and safety revisions and upgradation.

6.

As per behaviour-based safety management and approach, the employees’ behaviour is influenced by organizational culture, individual attitude and behavioural outcomes.

7. The measures to reduce industrial accidents are: ensuring the top management’s support, safety policy, philosophy and plan, safety committee,

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safety education and training, safety campaigns, safety engineering and legal compliance. 8. The types of stresses are time stress, anticipatory stress, situational stress, and encounter stress. Stress can also be classified as high-stress levels, moderate-stress levels and low-stress levels. 9. The sources of stress (stressors) are internal (individual level) and external. The latter include group-level stressors, organizational stressors and extra-organizational stressors. 10. Stress management can take place at the individual and organizational level. The individual strategies are meditation, deep muscle relaxation, time management, and role-playing. The organizational strategies are time-outs, job redesigning, counselling and mentoring, employee empowerment, recreation, training and orientation, team-building exercise and employee assistance programme (EAP).

Review Questions Essay-type questions 1.

Evaluate critically the attitude of Indian companies towards employee safety and health with relevant examples.

4. Discuss in detail the various sections pertaining to employee health and safety in the Factories Act, 1948. 5.

Enunciate the meaning and causes of industrial accidents and also suggest measures to reduce the industrial accidents in organizations.

7.

Examine critically the importance of employee health to the long-term well-being of the organization.

8.

Describe the different sources of stress to an employee in an organization.

9.

Identify and explain the different strategies used by individuals and organizations to manage stress.

10.

“Stress can make or break an individual.” Do you agree with the statement? Substantiate your views.

Evaluate critically the various steps in an employee safety programme with relevant examples.

2. Enumerate the meaning, objectives and needs for employee safety in Indian industrial organizations. 3.

6.

Explain behaviour-based safety management and approach with examples.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop strategies that would reduce and then eliminate the stress-related problems of employees in an organization.

the observer is to observe the various aspects of the roleplaying sessions and report on them.

Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) an external counsellor, (4) two office-bearers of a trade union, and (5) two observers of the meetings. The role of

Chinthia Software Private Ltd is one of the leading software companies in the country. It is a global provider of business solutions and information technology (IT) services. The company is well-known for its high-quality

Situation

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IT solutions to several leading manufacturing companies. However, in recent times, the HR-related problems of the company increased and caused anxieties to the management. For instance, unscheduled absence by the employees rose by nearly 15 per cent. Besides, the company reported a higher level of conflicts in the relations between the superiors and the subordinates. Moreover, the employees were frequently complaining about the tiredness, exhaustion and declining interest in the jobs. They also began to feel their jobs as highly demanding and the performance goals as unrealistic. The superiors too observed an increased level of unsafe behaviour among the employees. All these developments led the company to conduct a survey among the employees to know the cause of their deviant behaviour. Analysing the survey data, the management sensed an increased level of stress among the employees due to a combination of factors like increased workload, tight schedules and, above all, the absence of organizational and individual-level strategies to cope with stress. Finally, the management instructed the HR department to develop

strategies for stress prevention and management. It also permitted the HR manager to avail of the services of external counsellors to deal with stress-related issues. Steps in the exercise There are four steps to the exercise: Step 1: The HR manager meets the office-bearers of the trade union to know the employees’ views and expectations about stress-coping programmes. Step 2: He consults the external counsellor regarding the development of tailor-made stress management strategies for the company. Step 3: He convenes a meeting of his HR team to finalize the stress management strategies and programmes after due consideration of the views of the trade unions and the external counsellor. Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Aravind Engineering Company is one of the largest engineering and manufacturing enterprises in India. It is engaged in the production of heavy electrical equipment like heavy boilers, and power generation and transmission equipment. This company is well-known for its high-quality products and it exports a significant portion of its production. The workforce strength of this company is 12,500, of which nearly 60 per cent of the employees are in the age group of 40 and above. The company has a strong union presence as nearly 80 per cent of its workforce is unionized. The HR department of the company is headed by Mr Mithun, a postgraduate in HR with a law degree. This company has an appreciable HR policy that offers the best compensation packages for the employees. It also offers adequate training and development and career opportunities to its workforce. However, the only sore point among the otherwise excellent HR practices of this company is the slightly high level of industrial accidents occurring in the factory premises. The company has reported an average injury and illness rate of 6.2 per 100 employees, while the industry average remains at 4.8. Based on this criterion, the safety management policy of the company is deemed to be inadequate and ineffective. Obviously, the management wants the HR department to adopt rigorous safety practices to scale down the injury and

illness rate to a level that is less than the industry average in a cost-effective manner. Although the HR department is more than willing to introduce a comprehensive safety regulation by introducing new safety devices, apparatus and procedure, it faces several problems. The unionized employees are bent on opposing the new safety provisions for several reasons. In fact, the earlier safety initiatives by the HR department failed miserably due to the non-cooperation of the employees and their trade unions. The unions feel that any compliance with the new safety regulations would force them to spend 10 minutes extra time. These employees are not prepared to spend any extra time for safety matters. They also feel that the handling of safety devices could slow down their productivity and performance, which, in turn, could affect their earning capacity. The traditional work culture of this company, which accords top priority to productivity over safety, is also making matters difficult for the HR department to introduce changes in the safety regulation. The safety training programmes conducted by the HR department in the past did not serve any purpose as the employees continued to exhibit an intransigent attitude towards safety regulations and flouted safety norms. Ironically, the employees are satisfied with the existing norms and apparatus and do not mind the injury rate and record of the company.

EMPLOYEE WELL-BEING

Quite understandably, the HR manager is perplexed over the strange situation. He is at a loss to know what needs to be done in the future to convince the employees, especially the union members, to accept the additional safety features. With the deadline, fixed by the management, for introducing the revised safety regulation fast approaching, the HR manager is in a real tight spot.

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Questions for discussion 1. How do you assess the safety problems of Aravind Engineering? 2. Who should be blamed for the present state of affairs of this company—the trade union or the HR department? 3. Had you been the HR manager, how would you have handled the situation?

Notes 1. Nancy J. Brent, Nurses and the Law: A Guide to Principles and Applications 2nd edition (Philadelphia, PA: Saunders, 2001), p. 414. 2. John Bratton and Jeffrey Gold, Human Resource Management: Theory and Practice (London: Routledge, 2001), p. 135. 3. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ: Pearson Education, 2007), p. 352. 4. Jana M. Kemp and Ken Baker, Building Community in Buildings: The Design and Culture of Dynamic Workplaces (Westport, CT: Greenwood Publishing Group, 2007), p. 140. 5.

6.

7.

John W. Jones, Brian D. Steffy and Douglas W. Bray, Applying Psychology in Business: The Handbook for Managers and Human Resource Professionals (Lexington, MA: Lexington Books, 1991), pp. 813–820. “Causes of Industrial Accidents,” Online Lawyer Source, available at http://www.onlinelawyersource. com/personal_injury/ia/causes.html. “Causes of Industrial Accidents,” Online Lawyer Source, available at http://www.onlinelawyersource. com/personal_injury/ia/causes.html.

8. “Analysis of Accident Statistics,” Permit Writers Workshop, pp.3–5; available at http://kiewit.oregonstate.edu/pdf/pw_accid.pdf. 9. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ : Pearson Education, 2007), p. 352. 10. Nidhi Srivastava, “Employee Health Is Company’s Wealth,” Express Health Care Management, May 2003. 11. Kelley M. Butler, “Mending Mind and Body,” Employee Benefit News, 20 (September 2006): 26–29.

12.

Anthony Urbaniak, “Managing Stress,” Supervision, 67 (August 2006): 7–9.

13.

Fred Luthans, Organizational Behaviour (New York: McGraw-Hill, 1998), p. 330.

14.

J. C. Williams and G. P. Huber, Human Behavior in Organizations (Cincinnati, OH: South-Western Publishing, 1986), p. 243.

15. H. J. Arnold and D. C. Feldman, Organizational Behavior (New York: McGraw-Hill, 1986), p. 459. 16. K. Albrecht, Stress and the Manager (Englewood Cliffs, NJ: Prentice-Hall, 1979), p. 83. 17. “Personality types A, B and C and Disease,” St. Louis Psychologists and Counselling Information and Referral, available at http://www.psychtreatment.com/ personality_type_and_disease.htm. 18.

James E. Driskell and Eduardo Salas (eds.), Stress and Human Performance (Mahwah, NJ: Lawrence Erlbaum Associates, 1996), p. 180.

19. Madan Mohan Tripathy, “Burnout Stress Syndrome in Managers,” Management and Labor Studies, 27, no. 2 (April 2002): 89–111. 20.

Edna B. Foa and Barbara Olasov Rothbaum, Treating the Trauma of Rape: Cognitive-Behavioral Therapy for PTSD (New York: Guilford Press, 2001), p. 208.

21. Susan Anne Capel, Marilyn Leask and Tony Turner (eds.), Learning to Teach in the Secondary School: A Companion to School Experience, (London: Taylor & Francis, 2005), pp. 40–42. 22. Carl Merle Johnson, William K. Redmon and Thomas C. Mawhinney, Handbook of Organizational Performance: Behavior Analysis and Management (New York: Haworth Press, 2001), p. 238.

CHAPTER

17

Employee Welfare and Social Security

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the features and objectives of employee welfare 2 List the types of welfare measures 3 Understand the various employee welfare theories 4 Enumerate the features of social security 5 Classify social security benefits 6 List the types of social security schemes in India 7 Explain the issues faced by social security schemes

Bajaj Electricals is a division of the Rs 200,000 million Bajaj group of companies and has a turnover of Rs 14,040 million and over 250,000 retail outlets. Its work culture is based on the five core principles of earning, innovation, perfection, speed and transparency. The company considers its human resources as reliable assets and an excellent source of competitive advantage and has won several awards for its HR-related activities. Some of these awards are the National Safety Council’s Certificate of Excellence and the Confederation of Indian Industry (CII)’s Best Safety Performance award. The compensation policy of this company is to offer the best salary to its employees. Although a significant portion of its compensation package is in the form of individual and organizational performance-based pay, it also offers several welfare schemes and facilities to its employees. Some of the notable welfare facilities offered by Bajaj are: (i) the

Long Service Awards: The company classifies all its long-serving employees into various categories and honours them appropriately on its founder’s day; (ii) the Welfare Trust: It offers reimbursements of medical expenses for the employees and their dependents, and helps them meet their loan requirements; (iii) the Social Responsibility of Business Fund: It offers scholarships both to the employees and to their children for pursuing higher education and provides medical assistance to the dependents of the employees; (iv) Emergency assistance: The company provides financial assistance to the family of the deceased employees to tide over the immediate financial crisis. The role of employee welfare measures in the development of the company highlights their relevance for all the organizations. Given this context, we shall discuss the various aspects of employee welfare activities in this chapter.

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Introduction Employee welfare measures are one of the key inputs to bring about the desired level of employee satisfaction, motivation and productivity in the organization. The basic objective of welfare measures is to ensure the physical and mental well-being of the employee. An organization must view employee welfare measures as an investment rather than an expense. This is because the profitability of an organization is directly linked to the productivity of its workforce. In turn, the employees’ productivity is decided to a considerable extent by the motivational environment created by the employee welfare measures undertaken by the organization. The primary purpose of undertaking employee welfare measures is to earn and retain the goodwill and loyalty of the employees and their unions. Thus, employee welfare measure is not a one-time activity; it is an ongoing process of the organization. Organizations often use it as an effective means to control employee attrition and the related HR cost. Although the cost of welfare measures are usually met out of the profits of the organizations, employeefriendly organizations maintain these facilities even during periods of economic crises like recession just to show their genuine concern for the well-being of their employees. Many of the definitions of employee welfare focus on creating a motivational working environment. We shall now see some of these definitions in Box 17.1. We may define employee welfare as the facilities provided to the employees in excess of the statutory requirements and with the intention of enhancing their general well-being.

Features of Employee Welfare From a broad perspective, employee welfare includes all the activities carried out by employers, central and state governments, trade unions and any other agencies with the aim of enhancing the personal and work life of the employees. From a narrow perspective, the activities undertaken on its own by an organization to improve the working environment of the employees may be described as a welfare measure. We shall now see the features of employee welfare on the basis of the definitions. Box 17.1

Definitions

“Employee labour welfare means anything done for the comfort and improvement, intellectual or social, of the employees over and above the wages paid which is not a necessity of the industry.”1 —Arthur James Todd

inside the vicinity of undertakings to enable the persons employed therein to perform their work in healthy, congenial surroundings, and to provide them with amenities conducive to good health and high morale.”3 —ILO at ARC

“Labour welfare covers all the efforts which employers make for the benefits of their employees over and above the minimum standard of working conditions fixed by the factories act and over and above the provision of the social legislation providing against accident, old age, unemployment and sickness.”2 —N. M. Joshi

“Labour welfare means anything done for the intellectual, physical, moral, economic betterment of the workers, whether by employers, by the government or by other agencies over and above what is laid down by the law or what is normally expected as part of the contractual benefits for which the workers may have bargained.”4 —Labour Investigation Committee

“Labour welfare is understood to include such services, facilities, and amenities as may be established in or

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• Employee welfare is provided voluntarily by the organization to express its interest in the general well-being of the employees. • It is usually provided over and above the statutory and contractual obligations of the organization towards workforce compensation. • The objectives and strategies of the organization provide a broad outline for determining its employee welfare policies. • Since employee welfare measures are not linked to the performance of the employees, they have a direct and proportionate impact on the profits of the organization. • Employee welfare measures look to enhance the mental, physical, intellectual and moral well-being of the employees. • They extend beyond the job and organization to take care of even the personal life of the employees. • Employee welfare is an ongoing process and not a one-time activity of the organization. • Employee welfare measures are normally started during the good times of the organization. • Employees, employers, trade unions and the government are the stakeholders of employee welfare measures.

Objectives of Employee Welfare The primary purpose of employee welfare measures is to improve the employer–employee relationship within an organization. However, an organization can also have multiple objectives while developing employee welfare measures.5 Typically, an organization aims at accomplishing both the long-term and short-term objectives through employee welfare measures. We shall now discuss these objectives of employee welfare. • Employee welfare aims at creating a motivational environment, which facilitates better cooperation from the employee for the plans and proposals of the organization. • It focuses on retaining the talented employees within the organization for a long time. • Organizations look to obtain high employee involvement, commitment and satisfaction through welfare measures. • The long-term aim of welfare measures is to achieve a desired level of productivity, performance and efficiency among the employees. • Organizations attempt to create goodwill for themselves in the labour market through welfare measures, which would, in turn, help them attract the best talents with ease. • Employee welfare strives to create a strong bond between the organization and the employees. This bonding, based on real loyalty, should enable the organization to meet the tough situations confidently with the help and support of its workforce. • Employee welfare helps the organization avoid jealousy and fault-finding among the employees and facilitates the development of team spirit and cooperation among them. • By dispelling the anxieties of the employees about their future through relevant welfare measures, an organization aims to get their complete attention and devotion towards their jobs.

EMPLOYEE WELFARE AND SOCIAL SECURITY

Types of Welfare Measures The welfare measures undertaken to improve the well-being of the employees can be classified broadly into two categories. These are statutory and non-statutory welfare facilities. When welfare facilities are undertaken as per the requirements of the laws, they are called statutory facilities. On the other hand, welfare facilities undertaken voluntarily by the employers, trade unions or by any other voluntary agencies are called non-statutory welfare facilities. We shall first discuss the statutory welfare facilities offered by the organizations and then the nonstatutory ones.

Statutory Welfare Facilities These are facilities offered by the organizations in compliance with the central and state government regulations. The central government has enacted several acts to protect the interests of the employees. We shall now see the relevant provisions of the various acts that deal with employee welfare measures. Factories Act, 1948 The Factories Act of 1948 is a central act enforced by the state governments and is applicable to all the factories engaged in manufacturing activities, including those run by the state and central governments. It is the responsibility of the organization to comply with the provisions of this act. The Factories Act is applicable to the premises where (i) 10 or more workers are employed along with the use of electricity; (ii) 20 or more workers are employed without the use of electricity (Section 2(m)); and (iii) less than 10 workers are employed, but the activity is notified by the state government. The important sections governing employee welfare measures are: • Section 7A: The employers shall ensure the welfare, including health and safety, of the employees. • Section 11: The working place should be kept clean and tidy; there must be daily sweeping of the factory premises. • Section 18: The employers must make suitable and effective arrangement to provide drinking (wholesome) water to the employees. • Section 19: There must be an adequate number of toilet facilities of the prescribed types available and accessible to workers at all times inside the factory. • Section 20: There should be adequate spittoon facilities available within the factory for the employees. These facilities should be kept clean and hygienic. • Section 42: There must be sufficient and proper washing facilities available for the employees within the factories. These should be available separately for male and female employees. • Section 43: The employers should make available facilities for storing and drying of clothes. • Section 44: In case of jobs which require long hours of standing for the employees, the organization should provide sitting facilities for taking the necessary rest. • Section 45: Every factory must have readily accessible first-aid boxes with not less than one for every 150 employees. • Section 46: Canteen facilities must be available in every factory wherein more than 250 persons are employed.

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• Section 47: A sufficient number of shelters, restrooms and lunch rooms with water facilities must be available in factories where more than 150 persons are employed. • Section 48: Factories with more than 30 women employees must have rooms (crèches) for use by their children of age group of less than 6 years. • Section 49: Factories with 500 or more employees must have an adequate number of welfare officers to supervise employee welfare activities. • Section 79: Employees fulfilling the required conditions must be provided with leave facilities for an appropriate number of days. • Section 81: Advance payment must be made available, if required, to employees, who avail leave for not less than four days. Contract Labour (Regulation and Abolition) Act, 1970 The provisions of welfare facilities prescribed by the Contract Labour Act, 1970 that deal with employee welfare have been discussed as follows. • Section 16: Contractors employing 100 or more contract employees must provide one or more canteen facilities in the premises. • Section 17: In factories where work-related night-staying by contract employees is necessary, restroom facilities must be provided. • Section 18: The contractor must provide a sufficient number of drinking water, toilet and washing facilities. • Section 19: The contractor must make first-aid facilities quickly accessible available to the contract employees.

Non-Statutory Welfare Facilities Non-statutory facilities may include the facilities offered by the employers voluntarily and also those created by the employees themselves through their unions and other agencies. As mentioned earlier, these are the facilities provided voluntarily by the employers with the sole intention of improving the general well-being of the employees and to improve their cooperation for the present and future activities of the organization. These facilities are provided by the employers if they are well within the capacity of the organization in terms of time, cost and physical requirements. Some of these facilities would be provided to the employees within the factory premises and the rest outside the premises. However, the objectives of providing such facilities remain the same, irrespective of how, where and when these facilities are provided. We shall now see the important welfare facilities provided by the organizations to their employees. Transport Facilities Transport facilities are provided by an organization to carry its employees to and from their homes. For this, the organization may use its own transport vehicles. It may also hire the services of the public transport companies for transporting the employees. These facilities are made available to the employees either free of cost or at a subsidized rate. In fact, the problem of distance is easily overcome with the help of transport facilities. Transport facilities help the employees save time and energy and avoid inconvenience. As far as the organization is concerned, these facilities help it locate its factories in an ideal place without worrying about distance. Some organizations provide vehicle loan facilities and/or petrol allowance to their employees to facilitate them in commuting in their own vehicles.

EMPLOYEE WELFARE AND SOCIAL SECURITY

Housing Facilities The purpose of offering housing facilities is to improve the standard of living of the employees. Of course, providing houses nearer the workplace enables the employers to get the services of their employees quickly and reliably. The employees can also be punctual in attending to duty. Organizations offer these facilities in two forms: (i) allotting houses to the employees on a rental basis and (ii) sanctioning housing loans to them to buy their own houses or flats. Although there are a few acts which deal with the provision of housing facilities, many organizations provide such facilities voluntarily to their employees. Education Facilities Many organizations encourage their employees to pursue their studies in different forms. This may be in the form of skill development through training programmes or sponsoring formal education in external educational institutes. Organizations usually provide reading room facilities, libraries, news bulletins, and literary discussion facilities to their employees. Education facilities help the employees execute their career goals and plans with improved skills and knowledge. They enable the employees to participate in the organizational and societal activities. They also facilitate the employees understanding and learning health and safety aspects of the job quickly and effectively. Education facilities are provided to the children of the employees also in different forms. Organizations may have their own educational institutes to impart quality education to the children of the employees at subsidized rates. Or else, they may provide different forms of educational assistance like scholarships to employees’ children to help them pursue their studies successfully. Recreation Facilities Recreational facilities, including indoor and outdoor games, music, art, gymnasium and club membership, may also be provided to the employees to keep them physically and mentally strong. Many organizations view sports and games as an effective tool in stress reduction and management. However, an organization should be careful in choosing the games as some forms of games can cause grievous injuries to the employees. Canteen Facilities Many organizations provide subsidized food to their employees through canteen facilities. These canteens may be located inside or outside the factory premises. The organizations may directly handle the canteen activities or they may allow a third party to run the canteens on a contract basis. They enable the employees to preserve their health by getting hygienically prepared quality food for a reasonable price. Although there is a statutory requirement for providing canteens inside the factories, the facilities offered by the employers in this regard usually exceed the legal requirements. Insurance Facilities Several organizations provide insurance facilities to the employees to cover their medical expenses and to compensate for the loss arising out of the death of the insured employees. The expenses relating to the hospitalization and treatment of employees for accident, sickness and diseases are usually indemnified by the insurance company for the small premium paid by the employers at periodic intervals. E-Commuting and Flexi-Time Facilities Modern organizations offer e-commuting facilities that allow the employees to attend to their office duties from their homes. This enables the employees to avoid taxing trips to and from their offices. Similarly, organizations also offer employees flexible timings to complete their job assignments conveniently. Box 17.2 outlines the relevance of employee welfare facilities in organizations.

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Employee Welfare Facilities: ACC Shows the Way

The primary purpose of employee welfare measures is normally two-fold. One, it benefits the employees by providing them improved employee satisfaction, motivation and morale. And two, organizations stand to gain through increased employee efficiency, productivity and performance resulting from the enhanced employee satisfaction and motivation. An organization should, therefore, view employee welfare measures as a future investment. It should continue the basic welfare measures, irrespective of the economic situation and temporary financial setbacks. This is essential to achieve unwavering employee loyalty and involvement. Let us see the welfare measures of ACC Limited. ACC accords the top-most priority to employee welfare measures. It has several general welfare schemes like education, health care, retirement benefits, loans and financial assistance, and recreation facilities. For instance, ACC Township runs schools where the children of the ACC employees are offered education at subsidized rates. ACC offers various financial assistance to the wards of its employees like merit

scholarship, higher educational financial assistance and special scholarship for children staying in hostel away from their parents. ACC offers assorted medical benefits for its employees and their dependents. It has its own well-equipped health-care centres with qualified medical staff and facilities, ambulances, and referrals and tie-ups with reputed hospitals for specialized treatment. Similarly, it also organizes regular health check-ups, camps and programmes as preventive measures. Its medical benefits include reimbursements towards normal medical treatment, domiciliary treatments, and special sanctions for serious illnesses of the employees and their family members. There are other welfare facilities too. The employees are provided with furnished or unfurnished accommodation, free electricity, free water supply and free bus facility for nearby places and schools as per their entitlements and location. Adapted from: http://www.acclimited.com/newsite/ hr.asp.

On the basis of the nature and location of the welfare facilities offered by the employers, these facilities can further be classified into intra-mural facilities and extra-mural facilities. We shall now see these facilities in a little detail. Intra-Mural Facilities Intra-mural facilities refer to the welfare facilities which are made available to the employees within the factory premises. The examples of intra-mural activities are (i) drinking water facilities, (ii) washing facilities, (iii) latrines and urinals, (iv) bathing facilities, (v) canteen facilities, (vi) first aid and medical facilities, (vii) restrooms, (viii) crèches, (ix) protective clothes and raincoat, (x) reading room facilities, (xi) e-commuting, and (xii) flexi hours. Extra-Mural Facilities The facilities provided by the employers outside the factory premises are usually called extra-mural facilities. These facilities may include, among others, (i) insurance facilities, (ii) transport facilities, (iii) games and sports, (iv) education facilities for the employees’ children, (v) housing facilities, (vi) guest-room facilities, (vii) club membership, (viii) leave travel concessions (LTC), (ix) cooperative societies, and (x) maternity benefits.

Employee Welfare Responsibility In India, the responsibility for employee welfare facilities rests not only with the employers but also with the central and state governments, trade unions and other voluntary agencies. We shall now see the role of different agencies in relation to employee welfare facilities.

EMPLOYEE WELFARE AND SOCIAL SECURITY

Employers Employers have the first and direct responsibility to provide welfare facilities to the employees. Their active involvement in the employee welfare facilities is crucial to the success of the welfare programmes. They usually provide these facilities to attract and retain the talented employees. In fact, the welfare of the employees is one of the comprehensive responsibilities of the employers. It should not be confined only to Welfare Associations, death donations and similar activities; rather, it must move from a working environment focus to the employees’ living conditions.6 The employee welfare facilities are usually divided into statutory, voluntary and mutual facilities. Employers provide certain welfare facilities in conformity with the provisions of the relevant laws in practice. In addition to the statutory requirements, the employers may also offer certain facilities voluntarily to improve the well-being and motivational levels of the employees. Organizations usually appoint labour welfare officers to supervise the welfare activities carried out in the organization.

Central Government The central government is empowered to make rules to protect the health, safety and welfare of the employees working in factory premises. It enacts and amends laws from time to time to ensure that the employees are provided with the basic welfare facilities in their work spot. The laws that govern the welfare facilities are the Factories Act, 1948; the Contract Labour (Regulation and Abolition) Act, 1970; the Employees’ State Insurance Act, 1948; the Mines Act, 1952; the Motor Transport Workers Act, 1961; and the Plantation Labour Act, 1951. These laws provide for facilities like washing facilities, canteen facilities, crèche, restrooms, first-aid facilities, and leave with wage facilities. Besides, the central government may offer welfare facilities for its employees directly. For instance, the central government employee welfare housing organization offers housing schemes to the employees of the central government.

State Government The state governments are normally the enforcing authority for the laws enacted by the central government from time to time. They can also create their own laws to regulate the conditions of employment and protect the welfare of the employees working in various employments. Some of the central acts enforced by the state governments are the Beedi and Cigar Workers (Conditions of Employment) Act, 1966 and Rules, 1968; the Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981 and Rules, 1984, the Contract Labour (Regulation and Abolition) Act 1970 and Rules, 1975; the Motor Transport Workers Act, 1961 and Rules, 1965; the Plantation Labour Act, 1951 and Rules, 1955; the Sales Promotion Employees (Conditions of Service) Act, 1976; and the Working Journalists and Other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955. The state governments and union territories may also offer welfare facilities in the form of hospitals, educational centres, vocational guidance, and training centres exclusively for their employees.

Trade Unions In recent times, trade unions have taken an active role in offering welfare facilities to the employees in order to improve their well-being. In a few organizations, the unions, as

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representatives of the employees, undertake employee welfare activities to improve the health and safety of their members. These facilities may be offered by the unions independently or in collaboration with the employers. For instance, some railway unions have their own engineering colleges to help the children of the members of those unions to study engineering at an affordable cost. Some unions also undertake social activities, form cooperative societies, and provide legal and psychological counselling and hospital facilities.

Theories of Employee Welfare The history of employee welfare activities has witnessed the emergence of several theories during different periods of time. In each period of time, a specific approach was dominant and, based on that approach, a new theory was developed. Each theory reflects the belief held by the employers about their employees at that point of time. In the initial stage of the Industrial Revolution, the employers had a highly negative attitude about their workforce. This was reflected in their approach towards the employees and also in the welfare facilities offered to them. Over a period of time, the employers began to refine their attitude and behaviour regarding the employees and the role of welfare facilities. In fact, research in human and organizational behaviours like the Hawthorne studies facilitated a better understanding of the importance of people in the organization. They also helped the employers realize the need for welfare facilities in motivating and retaining the employees. Defying the prevailing practices of the time, some of the employers adopted a novel and humane approach towards their employees and this got reflected in the welfare facilities they offered to their employees. An outstanding example of this was Robert Owen (1771–1858), an industrialist and philanthropist who offered education and other welfare facilities to his employees as early as 1812–17. Just about this period, Owen set up a model factory and also a model village for the employees of his textile factory New Lanark Mills. The workers at New Lanark were successfully persuaded to follow new living, working, sanitary and educational standards. Owen provided rewards for the employees who exhibited cleanliness and good behaviour in the factory premises. These measures were aimed at keeping the factory clean and hygienic. For the individual employees, Owen offered decent houses, sanitation, and shops for a decent living. Differing from the widespread practice of the time, he prohibited the employment of children below the age of ten in his factory. Finally, Owen used his influence among the workers to instil in them the values and virtues of thrift, personal hygiene, and order in life. In India, eminent personalities like Jamsetji Tata and Ardeshir Godrej provided several welfare facilities to the employees at a time when the concept of welfare facilities was yet to take roots in the country. However, these were exceptional cases. The majority of the employers followed the prevailing practices of their time in determining welfare facilities. Based on the attitude of the employers towards employee welfare schemes, a few theories have been developed (see Figure 17.1). These are (i) the policing theory, (ii) the religious theory, (iii) the benevolence theory, (iv) the appeasement theory, (v) the goodwill theory and (vi) the efficiency theory.

Policing Theory This theory is based on the employers’ negative approach towards their employees. As per this theory, in the absence of statutory requirements, the employers may not provide even basic facilities like drinking water, latrines and urinals, and even emergency facilities within

EMPLOYEE WELFARE AND SOCIAL SECURITY

Policing theory

Religious theory

Efficiency theory

Employee Welfare Theories Goodwill theory

Benevolence theory

Appeasement theory Figure 17.1 The Employee Welfare Theories

the organization. Similarly, the employees would be forced to work for unreasonably long hours. This kind of situation prevailed during the Industrial Revolution era as the employees were made to remain in the factory for more than 12 hours. This theory warrants an active intervention and policing by the government in the affairs of the organization. In fact, the employers’ inhumane attitudes provoked the state to bring in several legislative measures to protect the interests of the employees in the organizations. As far as India is concerned, the government introduced several specific provisions in the relevant laws to make it mandatory for the employers to provide certain basic welfare facilities. For instance, Sections 11, 18, 19, 20, 42 and 43 of the Factories Act, 1948, and Sections 16–19 of the Contract Labour (Regulation and Abolition) Act, 1970 are the specific sections which made it compulsory for the employers to provide basic necessities to the employees.

Religious Theory Religion provided another dimension to the concept of labour welfare. The religious theory viewed the relationship among God, service and labour from different perspectives and concluded that faith in God and religion influenced the behaviour of employers in deciding the employee welfare measures. This theory is based on the assumption that Service to the poor is service to God. As such, this theory proclaims that helping the employees in any form is a noble act, and the money spent on them would be an investment and not a mere expense. According to the employers who agreed with this theory, such an investment on employee welfare would multiply and return to them in some other forms. This theory influenced the employers to act on their own to provide such facilities as food at subsidized rates, festival allowances, gifts in cash or kind to the employees, crèche and education facilities to the children of the employees.

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Benevolence Theory An inclination to do something good for others can also influence the employers to undertake welfare facilities. Influenced by charity motives, employers provided welfare facilities like housing facilities, canteen facilities, hygienic work environment and educational facilities to the employees. A philanthropic attitude also influenced the employers to relax the recruitment policies to accommodate a larger number of physically challenged persons and to provide special welfare facilities like a ramp for them.

Appeasement Theory Appeasement refers to settlement through compromises. It means making peace with the employees by fulfilling all their needs without any resistance. Obviously, welfare facilities would be provided to the employees on the basis of their requirements with the intentions of keeping them happy and the organization peaceful. Organizations with a strong presence of trade unions may try this theory to ensure smooth labour–management relationship. Provision of well-furnished rooms for the unions, quality food for the employees, liberal leave and credit facilities, and privileged travelling facilities like passes (free tickets) for transport for the employees are some of the facilities that are provided to appease the employees and their trade unions.

Goodwill Theory As per this theory, the aim of the employers providing welfare facilities is to earn the goodwill of the employees. As such, the employers have no intention other than gaining the confidence and cooperation of the employees through welfare facilities. For instance, the employers may deliberately sell the eatables in the canteen for less than their cost price with the intention of creating a positive image among the employees.

Efficiency Theory This theory remains valid for all times as employers, directly or indirectly, link the welfare facilities with productivity and performance. They expect to achieve improved efficiency through welfare facilities, and such expectations influence them to provide adequate welfare facilities to the employees. In a nutshell, the employers create a positive and enabling environment through welfare facilities in order to achieve optimum efficiency.

Merits of Welfare Measures Employee welfare schemes are closely associated with the factory form of organizations. In fact, the pathetic conditions of the employees in the factories during the industrial revolution era influenced a few individual employers to undertake a few basic welfare measures on their own initiatives. These facilities gradually grew in number and today, organizations are providing full-fledged facilities to their workforce after realizing its importance as an efficient tool in human resource management. We shall now see the merits of employee welfare facilities.

High Employee Retention Welfare facilities enable an organization to create a positive environment for its employees, which, in turn, creates high job satisfaction among them. In the absence of any serious dissatisfaction,

EMPLOYEE WELFARE AND SOCIAL SECURITY

the employees may not feel the need for quitting the organization and remain with it for long time. Thus, employee welfare facilities reduce labour turnover and improve employee retention.

Improve Productivity and Efficiency Happy employees are productive employees is a dictum and employee welfare measures are a step in this direction. In fact, welfare facilities enable an organization to improve the involvement and commitment of its employees by fulfilling their needs and keeping them satisfied. Understandably, high involvement and commitment leads to increased productivity and efficiency.

Better Focus on Job Employees are often distracted by their personal problems like the non-availability of proper accommodation, education facility for children and crèche for their younger ones. Similarly, they are weighed down by everyday problems like the non-availability of quality food at affordable prices and commutation facilities. Once these problems are taken care of by the employers, the employees would be able to focus completely on their profession and achieve performance standards.

Preserve Physical and Mental Health Health care and insurance facilities enable the employees to attend to their health problems properly without bothering about the cost unduly. Periodic medical checkups undertaken by the organization facilitate early diagnosis of the employees’ health problems and attending to them promptly and properly. The presence of gyms, games and sports facilities helps the employees actively in several ways like in stress reduction and management and also in keeping the body and mind sound.

Improve the Standard of Living By providing facilities like housing, education, cooperative stores and loans, organizations help the employees improve their standard of living and comforts of life over a period of time.

Cordiality in Labour–Management Relations An important prerequisite for effective goal accomplishment is the presence of warmth in the employer–employee relationship. In fact, the smoothness in industrial relations is an index of the level of cooperation existing between the management and the workers. Employee welfare facilities certainly help the organization in developing mutual trust and harmony in the labour–management relations and in ensuring effective goal accomplishment.

Limitations of Welfare Measures Though employee welfare facilities have several merits, they also have a few major defects. These have been explained below.

High Labour Cost Since employee welfare facilities are made available to all the employees without any discrimination, they impose a major financial burden on the organization. Invariably, they push up the labour cost and the total cost of production.

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Absence of Measurement Tool As employee welfare facilities are not linked to the performance or productivity of the employees directly, it is difficult to measure their efficiency in achieving the intended goals. The management may hesitate to spend too much money on these facilities without knowing their actual effect on the performance.

Lack of Justification for Expenditure Sometimes, neither the organizations nor the employees are able to justify the spending of a huge amount on welfare facilities since these may benefit only a few employees. For instance, a recreation centre constructed for the employees may eventually be used only by a handful of them. The situation may become even worse when the primary needs of the majority are something else.

Risk of Executing Statutory Welfare Facilities under Duress Sometimes, an organization may be financially too weak to execute the welfare facilities as required by the provisions of law. Despite this, if it is compelled to provide such facilities just to fulfil the statutory requirements, its financial position may be further weakened, posing a threat to the very survival of the organization.

Social Security Social security is one of the principal components of employee welfare schemes. It is indeed an economic protection provided to the employees and their dependents by the government through a series of programmes. This protection is usually available to the employees against a loss of earnings caused by old age, sickness, unemployment, disability and death. The driving force behind social security measures is to safeguard the employees against all forms of social risks that affect the employees’ ability to fulfil their basic requirements. The purpose of providing such security is to help the employees and their dependents lead a dignified life in any situation and achieve social justice and equality. Social security to the employees was by and large ensured through legislations passed by the central and state authorities. In fact, the first social security act was passed in the United States in 1934 as part of social reforms to protect the life of workers and their families against all forms of misfortunes that cannot be eliminated from the world totally. In fact, the agonies of the workers the world over during the economic crisis of the Great Depression was an immediate reason for the development of a social security net for the employees. Further, the quest for establishing socio-economic equality acted as a driving force for many countries to bring in appropriate legislative measures to offer social security to the employees. In India, social security is included in the Constitution under the Directive Principles of the State Policy. The need for social security to the employees has been recognized duly by the United Nations in its Universal Declaration of Human Rights, 1948,7 which has specific articles that deal with the relevance and importance of the social security of the employees and their dependents. These are: • Article 22: Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each state, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.

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• Article 23: Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. • Article 25: Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. Providing financial assistance to the employees and their dependents during crisis situations is the primary motive behind social security. This aspect has been mentioned in many of the definitions of social security that are listed in Box 17.3.

Features of Social Security We shall now see the features of social security based on these definitions. • In general, social security is provided by the state authorities through the appropriate policy and legislative measures. • It is usually administered by a public or semi-public autonomous body founded by legislation. • Social security makes it compulsory for the organization to protect not only the employees but also their dependents through financial security. • Broadly, social security looks to provide better healthcare facilities and income security to the employees during a crisis. • Social security schemes normally cover and compensate events like (1) old age, (2) death, (3) invalidity, (4) employment injury, (5) sickness and health crisis, (6) unemployment, (7) reduction in earnings, and (8) maternity. • Social security attempts to ensure justice and equality for all the members of the society and to help them lead a dignified life. • It endeavours to ensure a minimum standard of living to all the employees, irrespective of their levels of earnings. • It is normally provided in cash to the beneficiaries to compensate for the loss arising out of specific contingencies. Box 17.3

Definitions

“Social security is defined as a series of connected programmes, each with its own set of rules and payment of schedules. All the programmes have one thing in common: benefits are paid—to a retired or disabled worker, or to the worker’s dependent or surviving family—based on the worker’s average wages, salary, or self-employment income from work covered by social security.”8 — J. L. Matthews

“Social security is the protection which society provides for its members through a series of public measures, against the economic and social distress that otherwise would be caused by the stoppage or substantial reduction of earnings resulting from sickness, maternity, employment injury, unemployment, invalidity, old age, and death.”9 —ILO

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Classification of Social Security Benefits The social security benefits offered by state authorities through employers and other appropriate agencies can be classified into two categories: (i) medical and compensation facilities and (ii) retirement benefits. We shall now discuss these facilities briefly. Medical and Compensation Facilities Medical and compensation facilities in social security benefits include insurance facilities, healthcare facilities and compensation benefits. Insurance facilities are actually preventive measures undertaken to protect the employees from the likely financial loss arising out of a possible health crisis. Medical and health-care facilities aim at the prevention and management of diseases. The intent of compensation facilities is to compensate the financial loss arising out of the occurrence of unforeseen events like death, disability and other employment injury. The Workmen’s Compensation Act, 1923; the Employees’ State Insurance Act, 1948; and the Maternity Benefit Act, 1961 provide medical and compensation facilities to the employees and their dependents. Retirement Benefits The purpose of providing retirement facilities is to protect the employees from economic miseries arising out of events like old age and unemployment. These benefits also preserve the standard of living and the dignity of life of the retired employees and the dependents of the deceased or retired employees. Retirement facilities in social security include Provident Fund and Gratuity Fund. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Payment of Gratuity Act, 1972 deal with retirement benefits.

Social Security Schemes in India As far as India is concerned, ensuring social security for the employees has become an important responsibility of the central government. Thus, the government enacts appropriate legislations and develops a proper system to administer various schemes to protect the interests of the employees. The Government of India has vested the responsibility of social security with the Ministry of Labour and Employment. This ministry is in charge of development and administration of social security schemes. Over a period of time, the government has enacted several legislative measures to protect the interests of the employees. Of these, there are five legislations which impact the development and maintenance of social security schemes directly: the Employees’ State Insurance Act, 1948; the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; including the Employees’ Deposit Linked Insurance Scheme, 1976; and the Employees’ Pension Scheme, 1995; the Workmen’s Compensation Act, 1923; the Maternity Benefit Act, 1961; and the Payment of Gratuity Act, 1972. We shall now discuss in detail the relevance and implications of these acts in ensuring social security. Employees’ State Insurance Act (ESI), 1948 The purpose of this act is to offer certain benefits like medical care and cash benefits to employees in factories at times of sickness, maternity and employment injury. Coverage—It is applicable to all factories employing 20 or more employees located anywhere in the whole of India. Normally, this act is implemented on an area-wise basis in a phased manner. Administration—This act is administered by the Employees’ State Insurance Corporation (ESIC). This corporation has members representing central and state governments, the

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medical profession, Parliament, employers and employees. The union minister of labour and employment is its ex officio chairman. It has 248 inspection offices for conducting inspection in the factories. Funding of the schemes—The schemes in ESI are financed through contributions from employers, employees and the state government. The rate of employer contribution is 4.75 per cent while the employees’ contribution is 1.75 per cent. The state government contributes 12.5 per cent as its share to meet the expenditure on the provisions of medical care. The contributions collected from these parties are usually kept as investment in the special deposit account with the central government and also with the nationalized banks and financial institutions as fixed deposits. Operation of the scheme—The employees insured under the ESI Act are eligible to get the following benefits for themselves and their dependents: Medical benefits—Under the medical scheme, the employee is entitled to get treatment ranging from primary healthcare centre to even specialty treatment. The medical benefit provided is usually classified into three categories: (i) restricted medical care in which the employee is treated as an outpatient of a dispensary or clinic; (ii) expanded medical care in which the employee is eligible to get treatment from a specialist; and (ii) complete medical care in which hospitalization is allowed for the employee. Sickness benefits—Under the sickness benefit scheme, a sick employee gets half of his average daily wage as sickness benefit for a maximum period of 91 days. Thus, this scheme provides for periodic payments to any insured person in case of his sickness being certified by a duly appointed medical practitioner. Maternity benefits—Under the maternity benefit scheme, the insured woman is eligible to get periodic payments in case of confinement, miscarriage or sickness arising out of pregnancy confinement, premature birth of child or miscarriage, for a period of 12 months, of which a maximum of six months should precede the expected date of confinement. Disablement benefits—Under this scheme, the insured employee is eligible to get disablement benefits for the employment injury sustained by an employee which lasts for not less than three years. In case of permanent disability, the employee is eligible for life-long benefits. This scheme also includes periodic payment to the dependents of the employee who dies out of employment injuries. Funeral benefits—Under this scheme, the eldest surviving member of the family of the deceased employee is eligible to get reimbursement for the expenditure incurred towards the funeral of the deceased employee. However, the amount must be obtained within three months. Maternity Benefit Act, 1961 The purpose of this act is to regulate the employment of women in certain establishments for certain specified periods before and after childbirth. This act disallows the working of pregnant women during a specific period. It also provides for maternity and certain other benefits. Coverage—This act is applicable to the whole of India and is applied to the factories, mines, plantations and other establishments.

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Operation—Under this scheme, the woman employee is eligible to get maternity benefits at the rate of the average daily wage, for the period of her actual absence and any period preceding the date of delivery, which includes the actual date of delivery. Further, the woman is also entitled to get a medical benefit of Rs 250 per day if the employer is not providing free medical treatment. However, the woman is entitled to maternity benefit only if she has actually worked in the place of the employer for a period of not less then 80 days in the 12 months immediately preceding the date of her expected delivery. Payment of Gratuity Act, 1972 This scheme provides for payment of gratuity to employees in establishments in which more than 10 persons are employed or were employed on any day of the preceding 12 months. However, the central government is empowered to extend this act to any other establishment. Coverage—This act covers all the employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops and other establishments. It is enforced by both central and state governments. Operation—Gratuity is usually payable to employees (other than apprentices) who put in five years of continuous service and are covered under this scheme in the event of death, retirement or disability. Usually, the gratuity is payable to the employees at the rate of 15 days’ wage for every completed year of service, subject to a maximum of Rs 350,000 or 20 months’ wages, whichever is less. In case of death of an employee, the gratuity is payable either to the nominee or, in the absence of nominees, to the legal heir. Workmen’s Compensation Act, 1923 This act provides for payment of compensation to employees for injury by accident. Under this act, the employer is under an obligation to compensate the employees for the personal injury suffered during the course of employment. Coverage—This act is applicable to the whole of India. It covers all employees working in railways, factories, mines, plantations, mechanically propelled vehicles, loading and unloading work on a ship, construction, maintenance and repairs of roads and bridges, electricity generation, cinemas, circus, and other hazardous occupations as per schedule-II of this act. Under Section 2(3) of this act, the state government is empowered to extend this act to any other occupation which it deems fit. Operation—In the event of death of the employee resulting from employment injury, the employer is obliged to pay an amount equal to 50 per cent of the monthly wages of the expired employee multiplied by an appropriate factor; or an amount of 80 thousand rupees, whichever is more. In the event of permanent disability suffered by the employees from employment injury, the employer is obliged to pay an amount equal to 60 per cent of the monthly wages of the injured workman multiplied by an appropriate factor, or an amount of 90 thousand rupees, whichever is more. This act also considers pre-specified occupational disease suffered by an employee as employment injury. However, the employers need not pay any compensation for any disability which does not continue for more than three days. Similarly, the employer is not liable for payment of any compensation in case the injury is suffered due to wilful negligence or disobedience by the employee or wilful removal of safety devices by him or if the employee was under the influence of alcohol.

EMPLOYEE WELFARE AND SOCIAL SECURITY

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 This act provides for establishment of provident funds, family pension funds and depositlinked insurance funds for employees working in factories. The purpose of this act is to protect the standard of living of the employees and/or their dependents in the event of old age, disablement and death. Three schemes are covered under this act: Provident Fund Scheme, 1952, Employees’ Deposit Linked Insurance Scheme, 1976 and Employees’ Pension Scheme, 1995. Coverage—The act covers the whole of India, excluding the state of Jammu and Kashmir. It is applicable to all factories in specific industries employing more than 20 employees. The membership of this fund is compulsory for all the employees drawing a salary which is not more than Rs 4,500 per month. However, this act does not apply to the employees of Central or State or local government. Similarly, it is not applicable to cooperative societies employing less than 50 persons. It is also not applicable to any establishment which is less than three years from the date of establishment. Provident Fund Scheme, 1952 Under the Provident Fund Scheme, 1952, each employee should contribute a specified amount from his salary to the provident fund (PF) account and the employer will contribute an equivalent amount towards that fund. The entire contribution should be deposited with the PF account administered by the PF Commissioner. The PF amount carries a specific interest which is decided by the Central board of trustees comprising employers, employees and the government. The PF subscriber is eligible for advance from the account from time to time. However, permanent withdrawal from the fund is allowed only after completing 15 years of service. In case of resignation, retirement or death of employees, the entire balance along with interest would be returned to the account holders or to their legal heir. Employees’ Deposit Linked Insurance Scheme, 1976 The Employees’ Deposit Linked Insurance Scheme came into force in 1976. It applies to employees of all factories and establishments in India, except for those of tea estates in Assam, where certain provisions of this act are not applicable. Operation—All the employees who are the subscribers of the PF scheme would become the members of the Employees’ Deposit Linked Insurance Scheme. Employers should contribute 0.5 per cent of the basic pay of employees as their contribution to the scheme subject to a ceiling of Rs. 6,500 per month. The basic pay of an employee would include the basic salary, dearness allowance, retaining allowance, and the value of food concession, if any. Under this scheme, the deceased employee’s legal heir would be entitled to an amount which is equal to the average balance in the employee’s account during the preceding 12 months or during the period of his membership, whichever is less. However, when the average balance exceeds Rs 35,000, the amount payable shall be Rs 35,000 plus 25 per cent of the amount in excess of Rs 35,000, subject to a maximum of Rs 65,000. Employees’ Pension Scheme, 1995 The purpose of this scheme is to provide long-term financial sustenance to the employees. This scheme came into existence as a replacement for the earlier scheme called the Family Pension Scheme of 1971. It is compulsory for all the members of the PF scheme. No separate contribution is required from the employees for this scheme and the contribution to the PF scheme is sufficient for this scheme. The contributions to PF scheme are partially diverted to the employee pension

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scheme. The central government contributes at the rate of 1.16 per cent of the total wages at the end of the year. Out of the employer’s share of Provident Fund contributions, 8.33% of the total wages, limited to Rs. 6500 per month, is segregated and credited to the Employees’ Pension Fund . Operation—The employees who are the members of this scheme would in normal circumstances start getting their pension from 58 years onwards. They would also get pension for permanent invalidation. Besides, they are eligible to get early pension once they complete 10 years of pensionable service, but at a reduced rate. Basically, pensions are classified into superannuation pension, early pension and family pension for dependents. The beneficiaries are the spouse, children or, in the event of the employee remaining unmarried or without eligible family members, nominees.

Issues Faced by Social Security Schemes Social security schemes contribute immensely to maintaining the standard of living of employees and their dependents as these schemes protect them from all possible crises in life including death and permanent invalidation. They enable the employees to focus on the job completely without any anxiety about their future. With the active involvement of the government, the role and responsibility of the employers also gets reduced to that of a contributor and not an administrator. However, in practice, this scheme faces a lot of challenges, most of which remain beyond the control of the administrators of the schemes. These challenges are: Longer Life Span of Employees The major challenge affecting the viability of the social security schemes in India is the increasing life span of the employees, particularly the pensioners. Innovations in the field of medicine have gradually raised the average living age of the people. This has put a lot of strain on the resources of the social security schemes as they now have to provide financial sustenance for a longer period of time. As retirement and pension schemes are non-productivity expenses, the administrators of the social security schemes find it difficult to make available necessary resources to continue the schemes. Obviously, the government is forced to shift the burden on the present employees and also on the tax-paying public. Rising Cost of Living The growing cost of living compels the administrators of the social security schemes to periodically revise the benefits payable to the subscribers of the scheme. Whenever there is an increase in the cost of living, there is a demand for increase in the rate of interest payable to the subscribers. In such a situation, the administrators have to augment the resources available to the scheme to meet the additional commitment, and this is normally a difficult task. Population Explosion The increase in population necessitates the creation of more jobs in the society, which, in turn, requires the employment of more people in these jobs. All these developments lead to an expansion in the subscriber base of the social security schemes. This situation warrants increased financial support from the central government and other agencies for the maintenance of the schemes. Union Attitude Although the rate of interest payable on the social security schemes is decided on the basis of the cost of living, it is very difficult to reduce the rate of interest on the PF and gratuity funds due to strong opposition from the trade unions. This is due to the strong presence of trade unions in the country and their influence on politics.

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Summary 1.

and efficiency, better focus on the job, preserving physical and mental health, improving the standard of living, and cordiality in labour–management relations.

Employee welfare means the facilities provided to the employees in addition to the statutory requirements and with the intention of enhancing the general well-being of the employees.

2. Welfare measures can be classified into statutory and non-statutory welfare facilities. Welfare facilities provided as per the requirements of the laws are called statutory facilities. Welfare facilities other than the statutory welfare facilities are called nonstatutory welfare facilities.

7.

The limitations of employee welfare measures are high labour cost, the absence of measurement tool, lack of justification for expenditure, and the risk of executing statutory welfare facilities under duress.

3. Non-statutory welfare facilities include transport, housing, education, recreation, canteen, insurance, e-commuting and flexi-time facilities.

8.

Social security is defined as a series of connected programmes, each with its own set of rules and payment schedules.

4. The responsibility for employee welfare rests with employers, central and state governments, trade unions and other voluntary agencies.

9.

Social security benefits are broadly classified into medical and compensation facilities, and retirement benefits.

10.

The various social security acts in India include the Employees’ State Insurance Act, 1948; the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; including the Employees’ Deposit Linked Insurance Scheme, 1976; and the Employees’ Pension Scheme, 1995; the Workmen’s Compensation Act, 1923; the Maternity Benefit Act,1961; and the Payment of Gratuity Act, 1972.

5.

Evaluate the relevance of the Employees’ State Insurance Act (ESI), 1948 in the maintenance of social security critically.

6.

Examine the contribution of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 to social security.

7.

Evaluate the challenges facing the social security schemes and substantiate your evaluation with relevant examples critically.

5.

Based on the attitude of the employers towards employee welfare schemes, theories on employee welfare are classified into (i) the policing theory, (ii) the religious theory, (iii) the philanthropic theory, (iv) the appeasement theory, (v) the goodwill theory and (vi) the efficiency theory.

6. The merits of employee welfare measures are: high employee retention, improvement in productivity

Review Questions Essay-type questions 1.

Evaluate the various types of employee welfare schemes with examples.

2. Describe the role of different agencies in employee welfare schemes. 3.

Discuss the theories on employee welfare with suitable examples.

4.

Examine the merits and limitations of employee welfare.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop employee welfare schemes to improve employee loyalty, commitment, and job satisfaction.

Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two members of the trade union, and (4) two observers of

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the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them. Situation Ayur Foods Ltd is a major FMCG company in India with five manufacturing units in different regions of the country. It is engaged in the manufacturing and distribution of food and personal care products. It had an average turnover of Rs 85 billion for the past six years. The company views its human resources as its most important asset and a sure competitive advantage. Its compensation package focuses on encouraging efficiency and emphasizes on linking pay with performance. It has been successful in achieving an optimum level of efficiency and productivity. However, this company faces problems of employee retention as labour turnover is slightly higher than the industry average. Through employee survey and other sources, the management has identified the inadequacies in the employee

welfare schemes as the primary reason for the existing problem. Hence, it has decided to revamp its existing welfare schemes thoroughly to make them more comprehensive and attractive. It has asked the HR department to develop new employee welfare schemes. Steps in the exercise There are three steps to the exercise: Step 1: The HR manager meets the leaders of the union to ascertain their needs and solicit their suggestions for new welfare schemes. Step 2: The HR manager convenes a meeting of his HR team to finalize the new employee welfare schemes after due consideration of the relevant reports and guidelines. The revised welfare scheme will be sent to the top management for approval. Step 3: The observers analyse the performance of the members in the role-playing session and give their feed back.

Case Study United Alliances Limited is a major cement producer in the country with its subsidiaries located in different regions of the country. The current products of this company are 43 and 53 grade cements, bulk cement and ready-mix concrete. It has an annual turnover of Rs 65 billion and enjoys a significant market share in the industry. This company has a diverse workforce numbering about 7,500 employees and is known for its discipline. The HR department of United Alliances Limited is managed by Mr Suresh Kumar, who is well-known for his acumen and foresightedness. The company believes strongly in identifying, recognizing and encouraging efficiency. Its compensation policy is predominantly a performance-based one. Consequently, it accords minimum importance to fixed compensations, be it a direct compensation like basic salary or an indirect one like in employee welfare schemes. Recently, the management of United Alliances Limited has drawn up an ambitious diversification plan to enter into the fields of chemical, metal and machine tool production. Since the chemical industry is poised for a sharp growth within a decade, United Alliances decided to concentrate first on the chemical industry in its diversification bid. As a start, it has taken over Vijay Chemicals, one of the leading chemical units in the country. Vijay

Chemicals is engaged in the production of various chemicals like coal tar, creosote, pitch, anthracene, naphthalene and coat enamel. It has a workforce of 3,200 employees and state-of-the-art tar distillation plants in three places. The compensation plan of this company is unique and different from that of United Alliances. While United Alliance focuses more on performance-linked pay, the compensation package of Vijay Chemicals has fixed compensation with items such as basic salary and welfare schemes as its major component. In fact, the latter has been very liberal in employee welfare schemes. This is because the founders of this company strongly believed that its employees must not have any worry on the back of their mind while performing the job. According to them, provision of adequate welfare facilities is an essential prerequisite for achieving the required level of employee efficiency, quality and loyalty. The important welfare facilities of this company are transport, education, recreation and insurance facilities. However, the management of United Alliance Ltd views the employee welfare facilities of Vijay Chemicals differently and deems it to be a big financial burden. It also views it as a stumbling block to the process of achieving cost efficiency in production. It wants to streamline the compensation package of Vijay Chemicals in order to make it identical to its own compensation package.

EMPLOYEE WELFARE AND SOCIAL SECURITY

However, its HR manager, Mr Suresh Kumar differs with the contention of his management and has suggested to the management to continue with the compensation policy of Vijay Chemicals. He has long believed that welfare facilities alone can create long-term commitment and involvement among the employees. In fact, he has gone a step further and recommended Vijay Chemicals’ compensation model for his company. However, the management of United Alliance remains unconvinced by its HR manager’s suggestions.

419

Questions for discussion 1.

What is your opinion of the compensation and welfare packages of both United Alliance and Vijay Chemicals?

2. How do you look at Mr Suresh Kumar’s suggestion and the response of his management? 3.

If you were to be the HR manager of United Alliance Ltd, what would be your suggestions?

Notes 1. Arthur James Todd, Industry and Society: A Sociological Appraisal of Modern Industrialism (New York: Holt, Rinehart and Winston, 1933), p. 250. 2. N. M. Joshi, Trade Union Movement in India, Bombay, 1927, p. 26 referred by Vinayak Chaturvedi (ed.), Mapping Subaltern Studies and the Postcolonial (London: Verso, 2000), pp. 50–51. 3.

“Report on the Provision of Facilities for the Promotion of Workers’ Welfare,” ILO, (Asian Regional Conference, 1950), p. 3.

4.

“Report of the Labour Investigation Committee,” Main Report, 1946, pp. 336–345.

5. Deakin University, Faculty of Commerce, Open Campus Program, Institute of Distance Education, Industrial Relations, (Delhi: Tata McGraw-Hill, 1992), p. 244.

6. “Labour Issues in the Textile and Clothing Industry: A Sri Lankan Perspective— Part 5,” Workshop Background Paper, International Labour Organization (ILO); available at http://www.ilo. org/public/english/dialogue/sector/papers/tclabor/ tclabor5.htm. 7.

United Nations Universal Declaration of Human Rights, 10 December 1948; available at http://www. un.org/Overview/rights.html.

8.

Joseph Matthews, Dorothy Matthews Berman and J. L. Matthews, Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement and Medical Benefits (Berkeley, CA: Nolo, 2008), pp. 16–17.

9. International Labour Organization: “Approaches to Social Security: An Introductory Survey,” 1942, p. 80.

CHAPTER

18

Workers’ Participation and Empowerment

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Enumerate the objectives, features and levels of workers’ participation in management 2 List the essential prerequisites for an effective workers’ participation in management 3 Explain the obstacles faced by effective workers’ participation in management 4 List the steps in the employee empowerment process 5 Explain the importance of employee empowerment 6 Understand the barriers to employee empowerment

Western Coalfield Limited is one of the subsidiaries of Coal India limited and is classified as a mini-ratna category-one public sector company in the coal industry. It has a workforce of over 66,000 employees and accounted for nearly 9.5 per cent of the total coal production in the country during 2007–08. It keeps all-round employee welfare measures as one of its mission. As a unique practice, the company prepares a revenue welfare budget every year to provide welfare facilities to the employees. This budget focuses, among others, on medical services, school and education, residential or colony maintenance, upkeep, sports, recreation and cultural activities, Mahila Mandal, water supply, canteen, and community development. The welfare activities of the company are monitored by a welfare board comprising representatives from different unions and management. Besides, welfare committees are established on similar lines at the local levels for suitably monitoring and smoothly executing the welfare plans of

the company. In addition, the company also has a steering committee at the top level of the organization comprising senior leaders of central trade unions and management representatives. The company conducts a unique programme called samanvay sammelan (community gatherings) to popularize the concept of participative management in the organization. These meetings are conducted every year and 100 delegates from different areas participate and deliberate on the rationalization of manpower, the gainful engagement of employees and the ways to improve production, productivity and safety. In the course of the deliberations, both the problem and the solution are identified, and the participants accept the responsibility for the implementation of the decisions. These practices illustrate the relevance of workers’ participation and employee empowerment for effective management and we shall discuss various aspects of these in detail in this chapter.

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Introduction Workers’ participation in management (WPM) is an attempt to make use of workers’ creativity and skill in the managerial decision-making process. It helps in improving the efficiency, quality and competitiveness of the organization. The workers can understand the problems of the organization better and play their role in solving its problems. Their participation may involve periodic meetings of a committee comprising the employees or their representatives and management. They may review matters relating to production, safety, health, welfare, environment, and employee motivation. An organization may constitute participative forums at its different levels. For instance, it may constitute an apex committee at the organizational level. Additionally, it may constitute committees at lower levels like those of the shop floor and plant. The Constitution of India favours WPM strongly as Section 43A of the Constitution stipulates that “the State shall take steps, by suitable legislation or in any other way, to secure the participation of workers in the management of undertakings, establishments or other organizations engaged in any industry.” Similarly, the Industrial Disputes Act of 1947 speaks about the constitution of works committees in organizations and the Fifteenth Indian Labour Conference in 1957 refers to the formation of joint management councils. In fact, the concept of WPM has become so useful for the organizations that they no longer discuss about its relevance (whether required or not) but only about its implementation (how).1 Box 18.1 lists some of the definitions of the term workers’ participation. We may define workers’ participation in management as a practice that facilitates workers’ contribution and influence in the decisions of the organization at various levels.

Features of WPM Based on these definitions, the following features of WPM have been derived:

Formal Involvement of Members WPM involves official and proper involvement of workers in the managerial activity.

Participation in Decision Making Participation in management actually refers to involving the employees in the decisionmaking process that usually affects them. Participative decision involves deciding the future course of action in consultation with the employees.

Box 18.1

Definitions

“Workers’ participation in management is defined as organized ‘non-doing activity’ or more specifically, as managing activity carried on by blue-collar workers in conjunction with management.”2 —Richard D. Rosenberg and Eliezer Rosenstein “Workers’ participation is described as the influence in decision making exerted through (the) process of

interaction between workers and managers and based upon information sharing.”3 —T. D. Wall and J. A. Lischeron “Workers’ participation in management refers to those processes whereby subordinates are able to display an upward exertion and control.”4 —David Guest

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Consequence Sharing When employees participate in the decision-making process, it means that they agree to bear the consequence of the decision reached in the participative management jointly.

Application of Upward Control The concept of WPM is a process of allowing the employees exert upward control over the actions of the organization.

Joint and Continuous Process WPM is a not a one-time activity but a continuous process whereby the employees or their representatives and the management take a decision jointly on a sustained basis. Unlike collective bargaining, participative management operates inside the organization and avoids the subjects normally covered by the collective bargaining process.

Objectives of WPM The primary objective of WPM is to broaden the decision-making process of the organization by including the employees or their representatives in that process. Several other objectives are also served by participative management. We shall now see these objectives.

Greater Employee Satisfaction Participative management aims at enhancing the satisfaction of the employees by fulfilling their desire for participation in the decision-making process, especially on the matters affecting them.

Greater Responsibility Making the employees accept a greater responsibility for the decisions of the organization is another objective of participative management. The aim of the organization is to improve the involvement of the employees in its affairs.

Enhanced Cooperation WPM strives to achieve mutually beneficial cooperation between the employees and the management in improving organizational efficiency and employee productivity. It also aims at achieving cordiality in labour–management relations prevailing in the organization.

Enhanced Democracy Ensuring democracy at every level of the organization is another objective of WPM. The purpose of democracy is to involve everyone in the decision-making process, which, in turn, ensures equal rights for everyone in the organization.

Developing a Communication System Through participative management, organizations aim at developing an upward communication channel through which the management can get to know the opinions, ideas and suggestions of the employees on different matters.

WORKERS’ PARTICIPATION AND EMPOWERMENT

Facilitating Changes Organizations look to improve the efficiency of change management process through continuous information sharing and a collective decision-making process. When the employees are aware of the real situation and the true intent of the organization in introducing changes, they accept the changes without much resistance and cooperate better in their implementation.

Levels of WPM Depending upon the purpose for which participative management is introduced, it can be classified within different categories. For instance, the workers’ participation may be introduced for power sharing or information sharing. In case of power-sharing participation, the employees are involved in the decision-making process on matters relevant to them. On the other hand, the information-sharing participation provides for just information sharing and nothing more. Based on the degree of information and power shared by the management with the employees, participative management can be classified into three levels: lowest level, medium level and highest level.5 These levels have been explained here briefly.

Lowest Level of Participative Management At this level, the management does not usually share any information with the employees. It makes decisions regarding changes and schemes without involving the workers even if the decisions affect their interest. As such, the management does not encourage WPM.

Medium Level of Participative Management At this level, the employees are provided with necessary information about the plans of the organization but their opinions are not considered seriously. For instance, the management may use corporate policies, HR policies, circulars, formal or informal discussions, briefings, meetings and in-house journals to share information with the employees. At this level, the management looks for general ideas and responses only and not any specific or concrete suggestions from the workers.

Highest Level of Participative Management At this level, the management not only provides information to the employees about the situation and change required but also consults them in the decision-making process. In fact, in this type of participation, the management and the employees work as a group, make collective decisions and accept joint responsibility for the decisions.

WPM Methods WPM can be achieved in two ways. These are: direct participation and indirect participation. We shall now discuss these two methods

Direct Participation This method provides for the direct participation of employees in the committees established to facilitate WPM. In this method, the employees get involved directly in the activities of the committees functioning normally at the shop-floor levels of the organization. Direct

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participation can be ensured through autonomous work groups, suggestion-box schemes, open-door policy, performance evaluation interviews, petitions, and satisfaction or opinion surveys. This method is usually adopted when the decisions are related to the work to be performed by the employees. However, the involvement of all employees in the decision-making process is practically impossible.6

Indirect Participation In this method, organizations look to achieve WPM through the more practical way of indirect participation by the employees through their representatives in the board, committees and councils. The employees are usually represented in the participative management by their trade unions or elected representatives. As far as India is concerned, the constitution of joint consultative committees in the form of work committees with representation from employees is a statutory requirement. The Industrial Dispute Act of 1947 makes it compulsory for organizations employing 100 or more workers to form work committees comprising the representatives of workers and the management.

Achieving WPM Forming joint consultation committees is a popular form of WPM. In this form of participation, the management and the trade unions, which represent the employees, work together and decide on matters pertaining to working conditions, tasks, labour rights and other worker-centred issues. These committees work along with the collective bargaining system and are not its replacement. However, the major difference between collective bargaining and joint consultation committees is that there is no bargaining as such on any matters discussed in the consultative committees. Besides, the decisions of the consultative committees are not binding on the management under any circumstances. Depending upon the size and policies of the organization, the consultative committees can be established at different levels. In case of large organizations, committees are largely formed at corporate and workshop levels. As illustrated in Figure 18.1, corporate-level committees that function at the top levels of the management facilitate the indirect participation by workers in decision making. In contrast, direct participation in management is achieved through workshop-level committees that are normally formed at the lower levels of the organizational structure. We shall now discuss the different forms of WPM.

Corporate-level Committees The corporate-level committee usually consists of top leaders representing the management and the trade unions. The purpose of forming this committee is to make the employees the stakeholders and true partners of the organization. The leaders of the unions may or may not be from the same organization. The committee of this level and nature normally discusses the general state of affairs of the organization, industry and even the economy. The members, after careful deliberation, decide on the actions to be taken in the future. However, the decisions of this committee are purely of advisory nature and not binding on the management. The corporate-level committees enable employees to understand the real positions and problems of the employees from a closer distance. They also help the organization in creating a sense of belonging among its employees by keeping their representatives on the apex forum. A few popular forms of corporate-level committees have been explained as follows.

WORKERS’ PARTICIPATION AND EMPOWERMENT

Workers’ Participation in Management

Corporatelevel committees

WorkerDirector

Joint management council

Workshoplevel committees

Autonomous group

Profitsharing plans

Suggestionbox scheme

Collective bargaining

Quality circle

Open-door policy

Figure 18.1 Workers’ Participation and Empowerment

Worker-Director It is a kind of corporate-level committee in which the workers’ representatives are nominated to the executive levels of the organization. The primary purpose of including a worker on the company board as the director is to know the workers’ perspectives on all issues discussed in the board and, more so, on issues affecting their interests. Besides, the concept of the worker-director enables the management to effectively involve the employees in matters like wage fixation, training determination, grievance handling and disciplinary action. The worker-directors are usually elected by the employees for a specific tenure. However, an organization can also have nominated worker-directors on their boards. In some countries, the practice of including employees as directors on the board is known as co-determination. The merit of this method is that the worker-directors are able to raise the demands and the grievances of the employees at the highest level and bring it to the direct attention of the top management. However, the worker-directors often find themselves in conflicting roles by being loyal both to the employees and to the board of directors, and are highly stressed.7 Joint Management Council The joint management council usually functions at a level lower than the board of directors. The council is represented by the representatives of both the management and the unions. The purpose of keeping the joint management council a step below the board of directors is to preserve the freedom of decision making for the management. Normally, the members of a joint management council are allowed to have access to management information but are not involved in decision making. Employees’ representatives in these councils perform the role of advisors and not decision makers. The joint management councils function at the plant level, which is above the shop-floor level but below the board of directors.

Workshop-level Committee The workshop-level committees are more informal than the other kinds of committees functioning in an organization. The members of these committees normally belong to the same

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department or workshop. They often discuss the matters relating to their own workshop. For instance, they may discuss workshop-level matters like job assignment, shift system, interpersonnel problems, and training requirements for employees. Usually, the issues affecting the workshop are discussed and, if possible, solved at this level first before being taken to the higher levels. The first-line supervisors conduct the meetings of these committees. We shall now see the specific methods under this category. The Autonomous Work Group Method The practice of allowing the employees to meet to discuss the issues affecting their workplace is called the autonomous work group method.8 It is basically a self-managed team with voluntary participation by the employees. The uniqueness of the autonomous group is that its activities are managed by the group itself. The group usually comprises members from the same department. They meet regularly during the working hours to discuss the matters pertaining to their department. The group manages its own activities by planning its actions and executing them. The union representation in an autonomous work group is normally restricted as the employees directly participate in the deliberations of these groups. The Suggestion-box Scheme It is a kind of scheme which provides employees with the option to share their opinions, ideas and suggestions directly with the management. Suggestion boxes are kept in the prominent places of the plant and the employees can drop their written suggestions in such boxes. This scheme thus facilitates participation of the employees in the management decision-making process. The purpose of the suggestion box is to include the employees in a continuous improvement process. The employees’ suggestions are given serious consideration and, if found acceptable, implemented by the management. This makes the employees feel that they are a part of the management. In fact, the suggestionbox schemes create a sense of belonging among the employees and improve their involvement and commitment. Generally, all employees are allowed to participate in this scheme but such participation is purely voluntary. Box 18.2 outlines the utility of the suggestion-box scheme as an element of WPM. The Quality-circle Scheme The quality-circle scheme is a popular form of workers’ participation. It is established at the workshop levels with voluntary participation from the employees. An ideal circle may consist of six to ten members belonging to the same department or workshop with common interests. The members of a quality circle meet periodically to discuss the issues relating to the quality aspects of the job. It is a process without any mone tary benefits but with the intention of involving the employees at the grass-roots level in the decision-making process. Open-door Policy Many organizations adopt open-door policies to encourage the employees to share their views, grievances, ideas and suggestions with their superiors. In organizations following open-door policies, the employees who want to share their suggestions or grievances, can meet the managers in their offices to do so. In a full-fledged open-door policy, the employees do not need to have an appointment with the manager and can meet him at any time during the office hours. The open-door policy as a form of participatory management can enhance communication between the management and the employees. It is a simple and effective method available to the management to become aware of the concerns of the employees early and solve them quickly.

WORKERS’ PARTICIPATION AND EMPOWERMENT

Box 18.2

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The Suggestion-box Scheme at Lafarge Cement India

Many organizations adopt suggestion-box schemes to gather the opinions, ideas, suggestions and concerns of the employees. Through these schemes, the management can accomplish the goal of WPM. The suggestion-box scheme is a simple but effective technique available to the management to involve the workers in the managerial decisions of the organization. This scheme is used for gathering suggestions from the workers about the ways to increase productivity, reduce costs, and improve the working conditions. It makes the employees feel that their management cares for them. Thus, a successful suggestion-box scheme has several advantages for the organization. Lafarge Cement India is a case in point. The purpose of having a suggestion-box scheme at Lafarge Cement India is to provide a chance to all categories of employees, including grass-roots level workers, to participate in the continuous improvement process of the company. Each employee is entitled to offer inventive and creative opinions and suggestions to the management regarding the various aspects of the company. However, the management views any suggestions as worthwhile suggestions only if their implementation result in the (i) increased productivity and profitability for the organization, (ii) improved performance of existing equipment, or

tools and layouts, methods, processes and procedures and (iii) enhanced health and safety for the employees at the work place. The suggestion-box scheme of Lafarge cement India basically aims at 1. fostering positive attitude and creative thinking among employees at all levels of the organization 2. forming a productive wok culture and constantly reinforcing it 3. ensuring high level of employee commitment, participation and involvement in all the activities of the organization, 4. generating and implementing best work practices on a sustained basis 5. achieving healthy employer-employees relations by constantly ascertaining employees’ views and opinions about different aspects of the firm 6. recognizing and suitably rewarding the group’s principles to enhance its image locally 7. making the company a pioneer in the industry in integrating sustainable growth into the business Adapted from http://www.energymanagertraining.com/ announcements/IncentiveScheme/03LafargeIndia.pdf.

Profit-sharing Plans Including Employee Stock Ownership Plans This is another mode of employee participation in management. In this method, the employees get a share in the profit of the organization in the form of bonus. A share in the profit is a form of participation of workers in the management of the organization. This is because the business risk and the rewards are jointly shared by the employees and the employers. Another form of profit sharing is the employee stock ownership plan (ESOP), in which the employees get equity shares of the company as an incentive for their performance. ESOP makes the employees part owners of the organization and, thus, facilitates WPM.

Collective Bargaining Collective bargaining is another form of WPM since it provides a forum for a formal discussion between the management and the employees. In collective bargaining, the employees’ interests are represented by the trade unions, while the management is represented by its representatives, or by the employers’ association in industry-level bargaining. Through collective bargaining, critical issues relating to the organization or industry are discussed and decisions reached. Since unions are involved in the decision-making process, it becomes the

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joint responsibility of both the employers and the unions to implement the decisions. Due to collective bargaining, the role of unions changed from being the challengers of decisions to becoming the co-determinants of decisions.9

Essential Prerequisites for Effective WPM An effective participative management is a boon to both the employer and the employees of an organization. Through workers’ participation, the management gets to know about the employees’ creative ideas and suggestions and employs them effectively for the benefit of the entire organization. On the other hand, an effective participative management enables the employees to influence the decision-making process of the management and, thus, protects their welfare and future. It also enhances the ownership interest of the employees in the organization. However, an effective participative management must fulfil the following conditions.

Support from the Top Management The top management must have faith in the concept of WPM. It must provide the necessary support and encouragement for the participative style of management. The decisions arrived at the meetings of the committees must be considered seriously and acted upon.

Clarity in Participative Goals, Policies and Practices The corporate policies and philosophies regarding WPM must be spelt out clearly. Similarly, the goals and the process of workers’ participation should also be stated unambiguously.

Fair and Equal Treatment to Employees All the members in the committees or councils, including the workers’ representatives, must be treated fairly and equally. In case of board of directors, the worker-director must have all the rights and privileges on a par with other directors of the board.

Adequate Access to Management Information The workers participating in the committees must have access to all relevant information to make a meaningful contribution to the quality of discussion and decision making. Thus, the information sharing must be proper, timely and adequate.

Assurance against Victimization The management, through its words and deeds, should reassure the workers’ representatives in the committees that there would be no victimization of the workers for freely expressing their views about the management or its actions in the meeting. However, malicious comments with ulterior motives must be avoided by the members.

Respect for the Union’s Strength Organizations must realize the importance of involving the truly representative and strong unions in the participative process. These unions alone can convince the employees and obtain their support for the decisions of the committees or board.

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Recognition of the Employee’s Contribution Organizations must develop a process to recognize the contributions of the employees or their representatives in the participative forums. For instance, the management may introduce gain-sharing and profit-sharing schemes for any improvement achieved in quality, cost reduction, and organization and individual performance.

Training and Orientation for Members To improve the quality of discussion and decisions of the participative forums, the management can provide necessary orientation to the newly elected or nominated workers’ representatives and training to all the employees.

Fulfilling Statutory Requirements Organizations must give due consideration to the various acts that deal with WPM. All the actions of the organization related to workers’ participation must comply with the existing provisions of the relevant laws.

Constant Review of Performance Organizations must view WPM as a continuous process and not as a rare activity. They must effect necessary changes in the participative process after gathering the views of the different stakeholders like workers, frontline supervisors and managers.

Significance of WPM The central government has carried out several amendments in the provisions of the Industrial Disputes act, 1947 and the Factories Act, 1948 for the establishment of work committees and joint management councils to facilitate the process of WPM. However, many organizations in India introduced a participative style of management at their different levels out of their own willingness after they realized its wide and varied uses. We shall now see the importance of WPM.

Increase in Productivity and Performance Since the major focus of discussion in many of the participative forums is on efficiency enhancement through cost cutting, and process and technology improvements, workers’ participation improves employee productivity and organization performance. As such, the increase in employee productivity would be mutually beneficial to the employees and the organization. The employees would be gaining increased financial incentives while the management would get increased profits.

Improves Employee Involvement and Participation The workers’ access to management information and their participation in managerial decisions make them feel important to the organization. This, in turn, develops a sense of belonging and oneness among the employees. Thus, participative management facilitates better involvement of workers in the activities of the organization.

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Better Workforce Flexibility Organizations cannot avoid changes in the environment and, therefore, they must accept these changes as inevitable. The changes in the external environment normally bring about corresponding changes in the technology, process, structure and job characteristics of the organization. Typically, these changes cannot be implemented smoothly without the cooperation and consent of the employees. Organizations can use participative forums effectively to discuss the developments in the external environment and their implications for the organization. Once the management succeeds in persuading the employees to accept the changes and their consequences for them, the implementation process becomes simple and easy.

Promotes Cordiality in Industrial Relations The primary reason for a misunderstanding between the employer and the employees is the absence of adequate information sharing. This misunderstanding and mistrust causes strain in their relationship and affects organizational peace. For instance, the unions which depend more on informal channels like grapevine for gathering management information, normally develop suspicion and animosity towards the management. In contrast, the participative forums enable the employees or their representatives to have a direct access to the management information and also offer required clarifications. Adequate information sharing on a continuous basis not only prevents mistrust but also enhances the understanding between the employers and the employees.

Establishes Goodwill and Public Image WPM as a concept helps the organization in learning and respecting the employees’ feelings, ideas, opinions and suggestions. Organizations which respect the feeling of the employees would certainly enjoy a better image among the existing employees. They would also earn the goodwill of the prospective candidates in the labour markets.

Obstacles Faced by Effective WPM Although WPM is mutually beneficial to the organization and its employees both, it so far has had only limited success. This is due to the presence of a number of limiting factors in the organization. These factors may be listed as follows:

The Management’s Attitude The attitude of the management is critical to the success of WPM. However, the managements with traditional approach often undermine the employees’ calibre and creativity and never feel the need to hear their views on organizational issues. Thus, such employers’ orthodox and negative attitude becomes a stumbling-block to participative management initiatives. Similarly, a weak and unenlightened management may perceive the presence of empowered employees in the organization as a direct threat to its authority. Such a management may not evince keen interest in really empowering its employees.

Role Ambiguity and Conflict In participative management, the workers’ representatives often have role ambiguity due to the lack of clarity about their role in committees, councils or boards. While working at the

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higher levels of the management, they need to consider the interests not only of the workers but also of the management. Due to this sensitive nature of work, the actions of the workers’ representatives often come under close scrutiny and are viewed with suspicion by the fellow workers. Consequently, they are forced to adopt a negative approach towards the management just to prove their credibility among the workers.

Absence of Mutual Faith The essence of WPM is the mutual faith and confidence of the employers and the employees. They must also have faith in the usefulness of participative management. However, organizations often view the employees’ suggestions in the participative forum as interference in their right to decide and administer. Consequently, they undermine the importance of such a forum and adopt a unilateral approach in decision making. Again, the employees on their part view the participative forum as a platform to make unreasonable demands on the management. Besides, the presence or absence of a favourable climate also plays an important role in the success of WPM. When the prevailing climate of the organization is filled with mutual distrust and animosity, it can seriously affect the efficacy and eventual success of WPM.

Non-implementation of Decisions Since the employees’ suggestions in the committees are merely advisory in nature and not binding on the organization, the management never takes the employees’ views seriously. In the long run, this makes the employees lose faith in the system of participative management and collective decision making. Naturally, they begin to adopt a confrontationist approach towards the management.

Absence of Strong Unions The presence of a few but strong unions is another important element for the success of participative management. However, industrial organizations in India often have multiple unions with limited membership, which makes it difficult for the management to determine the composition of the different committees. The presence of too many unions with divergent backgrounds also affects the employees’ bargaining power and the fairness of the outcome of the participative forums.

Lack of Follow-up WPM is an ongoing process and requires continuous changes in its outlook and style. However, organizations hardly carry out any changes in the characteristics and compositions of the committees and councils, thereby making them outdated and insignificant in the present context. Many organizations rarely seek the employees’ opinions about the efficacy of the existing system, and even if they do so, they seldom act on such opinions.

Employee Empowerment Employment empowerment is a technique adopted by the organizations to enable the employees to take independent decisions about the different aspects of their jobs. It liberates the employees from the coercive influence of their superiors. It enables them to plan and execute their own activities with complete responsibility for the performance and results.

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Thus, employee empowerment provides the employees more power to employ judgment and discretion in their job and contributes actively to the decisions relating to their work, plant and environment. The primary objective of employee empowerment is to convert the simple organization into a customer-driven one.10 Its goal is to improve employee satisfaction, motivation and productivity. It is also used as a strategy for increasing efficiency and gaining a competitive advantage in the business environment. The empowerment of employees enables them to make quick decisions and respond promptly to the customers’ needs and concerns, which eventually brings a competitive advantage to the organization. It also develops creative thinking, independent behaviour, and greater responsibility among the employees. However, employee empowerment does not mean any abdication of responsibility on the part of the management. In contrast, it requires development of a stronger leadership at the management level, an improved communication with the employees and the enforcement of better accountability among the empowered employees. This actually means additional work and responsibility for the management as it should provide the necessary training and orientation to the employees and monitor their performance continuously. The transfer of the decision-making power from the higher levels of an organization to its lower levels is the essence of the definitions of employee empowerment. We shall now see a few definitions of employee empowerment in Box 18.3.

Features of Employee Empowerment Based on these definitions, the following features of employee empowerment may be extracted: Delegation of Power Employee empowerment basically means transfer of power from the higher levels of an organization to its grassroots levels. Thus, it involves pushing authority and responsibilities downwards in the organizational structure. Ongoing Process Empowerment is not an end but an ongoing process to achieve the predetermined goals of the organization. These goals may include improving employee motivation and organizational performance, accomplishing organizational goals, and obtaining

Box 18.3

Definitions

“Employee empowerment involves relocation of powers from the owners and managers of corporation to the lower-level, rank-and-file workers and purportedly represents a revolutionary alternative to traditional organizational structures.”11 —Thomas A. Porterfield “Employee empowerment means that management vests decision-making or approval authority in employees where, traditionally, such authority was a managerial prerogative.”12 —J. Gandz

“Empowerment is a process of enhancing the feelings of self-efficacy among organizational members through the identification of conditions that foster powerlessness and through their removal by both formal organizational practices and informal techniques of providing efficacy information.”13 —J. A. Conger and R. N. Kanungo

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competitive advantages. The empowerment process involves the development of goals and visions, the fixation of boundaries for authority and responsibility, the training of employees, the determination of accountability for actions, and finally, the actual transfer of authority from the superiors to the subordinates. Self-determination of Employees Organizations often view independent decision making by employees in their job as the ultimate stage of empowerment. At this stage of empowerment, the employees begin to own the job and accept responsibility for their decisions. Obviously, their involvement and commitment levels tend to be high at this ideal level. Authority over Organizational Resources In empowerment, the employees get freedom from domination by the superiors and also the right to exercise authority over organizational resources. The resources here include physical and human resources of the organization. Strong Leadership The presence of strong leadership and decisiveness is an inherent element of successful employee empowerment. An effective leadership makes it explicit to the empowered employees that it is they who are solely responsible for their actions. They get reward or reprimand, depending upon the outcome of their actions.14 Not a Zero-sum Game In a zero-sum game, one person’s loss is exactly another’s gain. But employee empowerment is not a zero-sum game since the transfer of power from the superiors to the subordinates is not actually a loss of power for the former.

Steps in Employee Empowerment Employee empowerment involves delegation and decentralization of authority and responsibility and making the employees accountable for their actions. It requires meticulous planning and careful implementation. Each organization can have its own system for practising employee empowerment. However, the employee empowerment process shown in Figure 18.2 can be adopted by any organization with suitable modifications. The steps involved in the employee empowerment process are: (i) determining the goals, (ii) orienting the employees, (iii) transferring authority, (iv) assigning responsibility, (v) ensuring accountability, (vi) maintaining communication, and (vii) follow-up and feedback. We shall now see these steps in detail. Determining the Goals The first step in the employee empowerment process is the determination of clear-cut goals and visions to be accomplished by empowering the employees. The empowerment goals are normally derived from the corporate goals and philosophy and the mission and vision statements. The employee empowerment goals must have the complete support of the top management of the organization. Orienting the Employees The employees identified for empowerment must be provided with adequate orientation about the different aspects of empowerment. They must also be trained in situation analysis, decision making, resources utilization and other relevant areas of the job. Transferring Authority In the next step, authority is transferred from higher ranks of the organization to the grassroots-level employees. Now, the employees get the right to decide independently on matters relating to their jobs. The decisions may involve resource utilization, people management, customer caring and other day-to-day activities.

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Determining the goals

Following up and feedback

Orienting employees

Maintaining communication

Transferring authority

Ensuring accountability

Assigning responsibility

Figure 18.2 Steps in Employee Empowerment

Assigning Responsibility Transfer of authority is meaningful only when it is accompanied by responsibility. Authority without responsibility is dangerous for the organization. The organization should spell out clearly the duties involved in the job, the boundaries of authority and responsibility, and the reporting staff for the job. Ensuring Accountability The most crucial phase of the employee empowerment process is making the employees accountable for their actions. Since they enjoy a high level of autonomy in their operations, it is absolutely essential for the organization to fix the accountability for the outcomes of their actions and performance results. The organization must also conduct a mid-term verification of the performance of the employees to avoid misuse of authority and deviant outcomes. Maintaining Communication The success of employee empowerment depends on the degree of openness and frequency in the communication between the reporting authority and the empowered employees. The organization must engage the employees continuously through a good communication system. Understandably, through effective communication, an organization can create mutual trust and confidence in the relationship between the superiors and the subordinates.

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Following up and Feedback Employee empowerment is an ongoing process involving the management, the supervisors and the workers. The organization must review the efficacy of the existing system periodically in order to determine the improvements required in the future. Employees’ performance report, opinion surveys and employees’ interview can be used to study the strengths and weaknesses of the existing system. Based on the outcome, necessary modifications can be made in the empowerment process. Further, the evaluation report of the empowered employees must be shared with the employees concerned and their superiors. Their feedback would help the empowered employees in modifying their style of functioning and their attitude towards the concept of empowerment.

Importance of Employee Empowerment Employee empowerment is key to achieving the desired level of employee motivation and satisfaction. This is because it relieves the employees of the necessity of depending on their superiors for everything and provides them job autonomy. For instance, empowerment facilitates the employees in the customer care department to act swiftly and effectively in attending to the complaints and concerns of the customers with alacrity. When the organization succeeds in satisfying its customers consistently, it begins to enjoy a competitive advantage over its rivals. We shall now see the importance of employee empowerment for an organization. Achieving High Employee Satisfaction and Motivation Through employee empowerment, the employees get the freedom to make independent decisions and, thus, enjoy job autonomy. This gives the employees an intrinsic satisfaction, which, in turn, motivates them to work harder in the job and in goal accomplishment. Developing a Customer-driven Organization Customer satisfaction and loyalty are essential for the survival and growth of an organization in the long term. An empowered employee is able to act quickly in attending to the needs of the customers when he has job autonomy. Understandably, all the activities of the empowered organizations are focused on securing customer satisfaction and trustworthiness. The ability of the employees to take prompt and independent decisions when time is of utmost importance helps the organization in achieving a competitive advantage through employee empowerment. Higher WPM Surely, employee empowerment is one of the techniques available to the management to achieve WPM. Employee empowerment facilitates the workers even at the grassroots levels to acquire authority and participate in the decision-making process, which is one of the key functions of participative management. Scope for Stress Reduction Inter-personal relationship is one of important stresscausing factors in an organization. Since employee empowerment lessens the dominance and interference of the superiors in the work of the subordinates, it reduces the dependence of the workers on their superiors substantially. This should, in turn, reduce the exposure of the employees to their stressful interactions with the superiors. Development of Leadership and Analytical Skills Leadership skills are essential for the empowered employee to act independently but decisively in the critical skills. Employees develop necessary leadership skills either through experience or training. Similarly, an empowered employee must have effective analytical and decision-making skills to act smartly in a situation. Employee empowerment provides adequate opportunities to the employees to learn these skills and perform their job effectively.

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Facilitating Succession Management and Career Planning Employee empowerment enables the management to assess the skills and knowledge of the employees. The performance of the empowered employees in their job helps the organization in determining their efficiency and in planning their career path. Besides, employee empowerment assists the management in identifying the successors for the executives in different levels of the management. Usually, the employees who prove themselves in critical situation are considered as effective replacement for the managerial positions of an organization. In addition to the abovementioned importance, employee empowerment also helps the organization in improving the employees’ commitment and loyalty, risk-taking ability and entrepreneurial behaviour, enthusiastic relationship with the management, and self-interest. As a result of the efficacy of the empowered employees, organizations may also get fewer customer complaints and improved business dealings.

Barriers to Effective Employee Empowerment Although employee empowerment is an effective technique in accomplishing several organizational and HR goals of the organization, its utility is often undermined by a few factors. The management must ensure that these factors are neutralized effectively before employee empowerment is introduced in the organization. We shall now see these factors in detail. Supervisors’ Attitude The supervisors’ attitude towards employee empowerment is critical to the success of any empowerment programme. This is because the superiors are responsible for transferring authority to the workers. When the superior keeps a negative attitude towards employee empowerment and has no trust in the calibre and intelligence of their subordinates, the empowerment programmes are bound to fail. In many organizations, the refusal of the superiors to give up their dominance over the subordinates has proved to be a major hurdle to the effective implementation of empowerment programmes. The organizations can obtain the superiors’ cooperation and support for these programmes by enlightening them about the importance of employee empowerment programmes. Inadequacies in the Workers’ Skill and Knowledge The next barrier to employee empowerment is inadequacies in the skill and ability of the workers to act independently and effectively in a critical situation. Obviously, a misjudgement of the situation and an incorrect decision by the employee can harm the name and fame of the organization. The fear of failure in a critical situation and its consequences for their own future often discourage the grassroots-level workers from accepting job autonomy and employee empowerment. However, through effective training and orientation programmes, organizations can instil confidence in the employees and remove their unnecessary fear. They can provide adequate leadership and decision-making skills for the employees to be empowered. Lack of Clarity and Overlapping Since employee empowerment is not a statutory requirement for an organization, many organizations fail to keep clear-cut policies and provisions for regulating the employee empowerment programmes. Naturally, the lack of clarity in employee empowerment often blurs the boundaries of authority of the empowered employees and puts them in conflict with their own superiors and co-workers. Absence of a Favourable Climate An organization must foster a climate of mutual trust and companionship at all its levels for an effective implementation of employee empowerment. Incidentally, the role of the top management is critical for employee empowerment.

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It must lend the required patronage to employee empowerment programmes and create a favourable climate for their successful execution. In practice, the conflicting interests of the employers and the employees over profit sharing often affect the cordiality of the relationship between them and foster a negative climate within the organization. Lack of Recognition, Appreciation and Reward In many organizations, simply no incentive of any kind is available for improvements in the performance of the employees in an empowered situation. The superiors are often threatened by the effective performance of the empowered employees. Consequently, instead of appreciating their empowered subordinates, the superiors often find fault with them. This makes the employees gradually lose interest in the empowerment programmes and they prefer to return to the old system.

Summary 1. Workers’ participation in management (WPM) is a practice that facilitates the workers’ contribution and influence in the decisions of the organization at various levels. 2.

7.

The features of WPM are the formal involvement of members, participation in decision making, consequence sharing, application of upward control, and a joint and continuous process.

3. The objectives of WPM are greater employee satisfaction, greater responsibility, mutual cooperation, establishing democracy, developing a communication system, and facilitating changes. 4. The methods of indirect participation by the employees in management are joint consultation committees in the form of corporate-level committees, which include worker-director and joint management council, profit-sharing plans, including employee stock ownership plans (ESOP), and collective bargaining. 5. The methods of direct participation by the employees in WPM are the autonomous work group policy, the suggestion-box scheme, quality-circle scheme and open-door policy. 6.

contribution, training and orientation to members, fulfilling statutory requirements, and constant review of performance.

The essential prerequisites for an effective WPM are the patronage of the top management, clarity in participative goals, policies and practices, fair and equal treatment to employees, adequate access to management information, assurance against victimization, respecting the union’s strength, recognizing and rewarding the employee’s

The significance of WPM lies in increasing the productivity and performance, improving employee involvement and participation, better workforce flexibility, promoting cordiality in industrial relations and establishing goodwill and public image.

8. The hurdles to an effective WPM are the orthodox attitude of management, role ambiguity and conflict, the absence of mutual faith, non-implementation of decisions, the absence of strong unions, and lack of follow-up. 9.

Employee empowerment involves relocation of powers from the owners and managers of an organization to the lower level, rank-and-file workers.

10. The features of employment empowerment are delegation of power, empowerment being a process, self-determination being the goal, authority over organizational resources, a stronger leadership, and empowerment not being a zero-sum game. 11.

The steps in employee empowerment are (i) determining the goals, (ii) orienting the employees, (iii) transferring authority, (iv) assigning responsibility, (v) ensuring accountability, (vi) maintaining communication, and (vii) following up and feedback.

12. The importance of employee empowerment lies in achieving high employee satisfaction and

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motivation, developing a customer-driven organization, higher workers’ participation in management, scope for stress reduction, development of leadership and analytical skills, and facilitating succession management and career planning.

13.

The barriers to an effective employee empowerment are the superiors’ attitude, inadequacies in the workers’ skills and knowledge, lack of clarity and overlapping, the absence of a favourable climate, and lack of recognition, appreciation and reward.

5.

Describe the meaning, importance and limitations of workers’ participation in management.

6.

Trace the hurdles to an effective implementation of workers’ participation in management. Also state your suggestions to overcome these hurdles.

Review Questions Essay-type questions 1.

Evaluate critically the different types of indirect participation by the employees in management.

2.

Discuss the various types of direct participation by workers in management.

3.

Evaluate the essential prerequisites for an effective workers’ participation in management critically.

4.

Evaluate the steps in the employee empowerment process critically.

7. Explain the meaning, features, merits and limitations of employee empowerment. 8.

Evaluate the barriers to an effective employee empowerment process and suggest appropriate measures to overcome them.

Skill-development Exercise Objective – The purpose of this exercise is to show you how to establish committees at various levels and decide their duties and responsibilities as part of WPM. Procedure Note – The class is divided into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two senior leaders of the trade unions, and (4) two observers of the meetings. The role of the observer is to observe the different aspects of the role-playing sessions and provide their feedback. Situation HLR Private Limited is a fast-growing textile mill in the country. It has been producing Multi-Filament Nylon, Tyre Cord Fabric and R. F. L. Treated Fabric. Around 7,200 people are employed by the company to carry out its operations. It has one trade union, in which nearly 70 per cent of its employees are members. Only recently, HLR Private Limited gave recognition to this solitary union of the organization. As part of the agreement signed with the union, the company decided

to establish committees at different levels to allow workers’ representatives in all these committees to have access to management information. However, it agreed to permit only the members of the joint management council constituted at the apex level to participate in the decision-making process. The management also settled for a three-month time period for setting up these committees and making them fully operational. It has now instructed the HR department of the company to do the needful for establishing the committees within the specified time period. The HR manager has begun his activities earnestly. Steps in skill-development exercise There are three steps in the exercise: Step 1: The HR manager meets the trade union leaders to discuss the modalities for establishing committees at different levels. Step 2: The HR manager conducts his departmental meeting to decide the duties and responsibilities of the

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committees and their members. He then sends the report to the management for approval.

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Step 3: The observers analyse the performance of the members in the role-playing sessions and give their feedback.

Case Study Karunya Fertilizers and Chemicals Ltd is a medium-sized company engaged in the production and distribution of chemicals. The company caters to the requirements of several large and medium-sized industrial customer companies. Its core policies are uncompromising quality, consistent efficiency and speedy delivery. It has a largely unionized workforce of 9,500 employees. At present, its HR department is headed by the Director (HR), Mr Ashok Verma. In fact, the young and vibrant Mr Verma took up the HR responsibility of the company just a few months back. After assuming office, Mr Verma conducted several rounds of discussion with the trade unions and found a major grievance among all the unions of the organization. All the unions in the company felt unanimously that they were not given adequate representation in the management and the concept of WPM was hardly practised in the organization. Mr Verma also learnt reliably from different sources that the unions resorted to several agitation tactics in the past to get their demand regarding participative management accepted by the management. However, their tactics like go-slow-in-production, non-cooperation, sit-in strikes and other forms of protests did not yield the desired results. This is because the management was never convinced of the benefits of WPM. They never had any real need to consult the employees in decision making or share any information with the workers. However, Mr Verma differed from the overall perception of the management and greatly felt the need to establish necessary committees or councils at different levels of the organization with due representation for the trade unions. Personally, he also favoured the nomination of workerdirectors on the board of the organization. Mr Verma brought this matter repeatedly to the notice of the top management and enlightened them constantly about the mutual benefits of participative management. With the help of his knowledgeable presentation and convincing arguments, Mr Verma finally managed to convince the board of directors about the necessity of WPM and made them provide due representation to the workers and their representatives. In the subsequent management–union

meeting, the management agreed to establish councils at three levels of the organization: a council at corporate level, one at the plant level and a necessary number of councils at various shop-floor levels. It also agreed to include an elected worker-director at the board level. During the initial phase of the establishment of the councils, the unions cooperated with the organization. Council meetings were also progressing well and bonhomie was evident in the attitude and behaviour of the workers’ representatives on the board and in the councils. However, things began to change for the management and took a turn for worse after some time as the workers’ representatives began to resist and even stall all the important and justifiable decisions of the management. After investigating the matter, the worried management found out that the workers’ representatives began to oppose the decisions after they were accused of conniving with the management for pecuniary benefits and bartering away the future and rights of the employees. These charges were made by the rival unions, which had lost the elections for these memberships. Consequently, the union leaders instructed their representatives in the committees to adopt tough postures in the meetings and exhibit a negative attitude towards the management proposals just to retain the credibility of the union and to preserve the membership of the organization. The management was simply stunned by the developments and began to worry about the undue delay in the decisions of the organization and also about the need and future role of these councils in the organization. It now looked toward the HR director to provide solutions to this vexatious issue and its settlement at the earliest. Questions for discussion 1. How do you assess the entire situation at Karunya Fertilizers and Chemicals Ltd? 2.

Do you agree with the stand of Mr Verma towards workers’ participation in management?

3. If you were the HR director, how would you solve the present crisis of the organization?

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Notes Employee Involvement (New York: Cambridge University Press, 2000), p. 87.

1. Mohammad Abdul Mannan, Workers’ Participation in Managerial Decision-Making: A Study in a Developing Country (New Delhi: Daya Books, 1987), p. 5. 2. Richard D. Rosenberg and Eliezer Rosenstein, “Participation and Productivity: An Empirical Study,” Industrial and Labor Relations Review, (April 1980): 355–367. 3. T. D. Wall and J. A. Lischeron, Worker Participation: A Critique of the Literature and Some Fresh Evidence (New York : McGraw-Hill, 1977), pp. 36–41.

9.

Sonia Bendix, Industrial Relations in South Africa (Claremont, Cape Town: Juta and Company Limited, 2001), p. 658.

10.

Jonathan T. Scott, The Concise Handbook of Management: A Practitioner’s Approach (New York: Haworth Press, 2005), p. 49.

4. David Guest and Derek Fatchett, Worker participation: Individual Control and Performance, (London: Institute of Personnel Management, 1974), pp. 9–12.

11. Thomas A. Porterfield, The Business of Employee Empowerment: Democracy and Ideology in the Workplace (Westport, CT: Greenwood Publishing Group, 1999), p. 2.

5. Rensis Likert, New Patterns of Management, (New York, McGraw-Hill, 1961), p. 243.

12. J. Gandz, “The Employee Empowerment Era,” Business Quarterly, 55, no. 2, (1990): 74.

6. Sonia Bendix, Industrial Relations in South Africa (Claremont, Cape Town: Juta and Company Limited, 2001), p. 657.

13. J. A. Conger and R. N. Kanungo, “The Empowerment Process: Integrating Theory and Practice,” Academy of Management Review, 13, no. 3 (1988): 471.

7. Peter W. F. Davies (ed.), Current Issues in Business Ethics (London: Routledge, 1997), p. 180. 8. Casey Ichniowski, Craig Olson et al. (ed.), The American Workplace: Skills, Compensation, and

14. Thomas A. Porterfield, The Business of Employee Empowerment: Democracy and Ideology in the Workplace. (Westport, CT: Greenwood Publishing Group, 1999): p 80.

CHAPTER

19

Job Rotations

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the objectives, characteristics and types of promotion 2 List the criteria for promotion 3 Explain the essentials of a sound promotion policy 4 Understand the objectives, characteristics and types of demotion 5 List the types of transfers and separations

The New India Assurance Company Limited is a leading global insurance company with a significant presence in India and abroad. The company has a workforce of nearly 21,000 employees engaged in more than 1,068 offices. It offers personal, commercial, industrial, liability and social insurance policies. It is the only insurance company in India to be given an “A” (Excellent) grade by A. M. Best, an international rating agency. This company has excellent HR policies and practices that serve the interests of its employees. For instance, it is the first Indian insurance company to introduce the concept of “model office training”. It provides periodic training to its employees through its corporate training centres (CTC), regional training centres (RTC) and zonal training centres (ZTC). These centres prepare their yearly calendar for regular and special training on technological changes, departmental changes, and for transfers and promotions. As part of its careerdevelopment programme, the company provides

training to its employees through Personalitree. com. It also conducts training programmes for its staff in preparation for promotion-oriented competitive examinations. New India Assurance has comprehensive promotion policies for various categories of employees. The essence of its promotion criteria is appropriate recognition of merit and due respect for seniority, consistent with the efficiency of the organization. The process of promotion for the managerial cadre would involve their assessment under the parameters of conceptual level/vision, depth and range of overview of the industry and economy, planning ability, decision-making ability, management traits, positive attitude, problemsolving ability, and overall leadership ability. The importance of the unambiguous promotion policies in the success of New India Assurance Company Limited highlights its significance. We shall now discuss the relevance of promotion and other policies in this chapter.

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Introduction Promotion can be defined as the advancement of an employee from one position to another, resulting in his financial benefit. It is certainly a good and effective motivator for employees. Organizations employ promotion as a tool to recognize and reward the merit and sincerity of the employees. Internal promotion, as compared to external hiring, for filling the job vacancies in an organization can increase the loyalty and morale of the employees. Promotions, which are normally accompanied by financial incentives, also fulfil the economic needs of the employees, in addition to fulfilling the social need of attaining increased status in the society. In fact, the promise of a promotion acts as an incentive to many employees.1 However, a promotion is often viewed as a double-edged sword because an imprudent and unfair promotion can cause exactly the opposite effect on the employees. For instance, a faulty promotion can cause dissatisfaction, de-motivation and even alienation among them. It can also push up the rate of absenteeism and labour turnover in the organization. It is highly essential for an organization to develop a promotion policy that facilitates the advancement of the most suitable person to the available position in the organization. Besides, an organization should also make the employees believe that its promotion policy is fair, just and up to date. Although following a fair promotion policy may require a lot of diligence on the part of the management, it can certainly improve employee commitment and performance in the long run. Therefore, each organization must develop appropriate policies and procedures for assessing the general attributes of the potential candidate in the new job.2 Advancement in the career of an employee is the essence of the definitions of promotion. We shall now see a few definitions of promotion in Box 19.1. We may define promotion as an employee’s upward mobility in the organizational structure accompanied by increased authority, responsibility, compensation and social status.

Characteristics of Promotion The characteristics of promotion are identified as follows: • A promotion normally involves the movement of an employee from one position to another within an organization. However, a promotion can also take place without a change of duties but with increased compensation.5 • A promotion is normally accompanied by an increase in authority, responsibility and compensation, and demands more skills.

Box 19.1

Definitions

“Promotion is a type of transfer which involves reassignment of an employee to a higher position, having higher pay, more privileges and increased benefits.”3 —Wendell French

Promotion is “the permanent movement of a staff member from a position in one job class to a position in another job class of increased responsibility or complexity of duties and in a higher salary range.”4 —The Policy Manual, University of North Texas

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• Normally, a promotion involves the permanent movement of employees to the higher positions in the organization. Moving an employee to a higher position on a temporary basis without any increase in compensation is not usually viewed as a promotion. For instance, if an employee is appointed to a higher position for a few months, this does not constitute promotion. • The promotion of an employee is an administrative act as the management has every right to decide on the matters pertaining to promotion. • The promotion of an employee to the next level is normally decided on the basis of merit or seniority or both. • A simple addition of duties to the existing positions or a hike in the financial compensation at the existing position cannot become a promotion automatically.6

Objectives of Promotion Promotions play an important role in providing socio-economic and psychological satisfaction to the employees. Employees often view promotions as recognition of their hard work and loyalty. Certainly, the absence of adequate promotional opportunities for employees can affect work quality, employee discipline, and cooperation, and can cause acute skill shortages.7 We shall now see the objectives of promotion. • The primary objective of promotion is to fill the job vacancies available within the organization by upgrading the employees. • Organizations seek to encourage efficiency and loyalty among the employees through promotion. • Promotion aims at attracting and retaining the competent employees in the organization. • Organizations rely on promotion to develop constructive competition among the peer group members to improve their performance and productivity. • Through promotion, organizations aim at providing the employees a sense of growth within the organization. • Organizations look to accomplish the long-term organizational goals effectively and continuously with the promise of promotion to the employees. • They strive to develop the culture of continuous learning among the employees by linking promotion to employee competence and knowledge. • Through promotion, organizations seek to fulfil the career growth aspirations of the employees and shape up the succession plans of the organization.

Criteria for Promotion Promotion is one of the highly sensitive tasks of the HR managers, especially when it involves selection from a pool of prospective candidates. This is because the employees who fail to get a promotion may blame the system if it is not transparent. They could soon become disillusioned with the whole organization. Therefore, an organization needs to be cautious with its promotion policy and criteria. Since promotion basically involves decision-making, a fair and transparent promotion policy and concrete criteria alone can help gain the confidence of the employees in the promotion decisions of the organization.

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A good promotion decision requires an objective evaluation of the relevant competences of the prospective candidates. Depending upon the overall promotion policy, the organization must evolve a procedure for determining the promotions of its employees. The critical task in the development of a procedure is the identification of the promotion criteria for deciding the suitable persons to fill the job vacancies. Some organizations may keep competencies as the sole criteria for promotion while others may have seniority as the basis for determining promotion. A few other organizations may consider both of these for deciding on promotion. In any case, it is essential for the organization to ensure that its criteria are objective and practical in nature. However, in practice, organizations rarely publicize their promotion criteria in detail.8 We shall now see the general promotion criteria of organizations.

Merit Merit as a basis for promotion means fulfilling the job positions in an organization with the most talented persons available within the organization for those positions. In this category of promotion, merit is given an appropriate consideration while other factors like seniority become insignificant in the promotion decision. In such cases, the candidate’s identification, evaluation, and selection for promotion will be based only on job-related criteria. The strengths of merit as the standard are: • It improves both employee efficiency and organizational performance. • It acts as an incentive and real motivator for the competent and diligent employees of the organization. • The organization becomes a real hunting ground for people who like to challenge the limits of life. • Promotion on the basis of merit necessitates continuous skill and knowledge acquisitions by the employees throughout their career to remain competitive in the labour market. • It increases the creativity of the employees and keeps the organization dynamic to meet the challenges from the external environment. Though merit as a promotion criterion has quite a few advantages, it also has a few limitations. These are: • Merit as a standard for promotion makes an organization stand firm on a slippery surface. This is because the determination of merit may require considering subjective factors and abstract elements like concentration, involvement, and mental ability. It is difficult to measure subjective factors with a fair amount of accuracy. • Organizations may find it difficult to convince the employees and their unions about the fairness of the promotion system when merit is the sole criterion in promotion. • This method can cause intense and destructive rivalry among the employees, leading to a mutual blocking of performance. • It may favour the younger employees with fresh and relevant knowledge, thereby putting the aged employees in a disadvantageous position. • It can cause undue stress for the employees, especially for those who miss out in promotion, as they may be branded as incompetent and unfit or they may perceive themselves to be so.

JOB ROTATIONS

Seniority In the case of seniority-based promotion, the length of service of the employees is considered for promotion, while other factors like competence and commitment are overlooked. As such, the job positions available within the organization are filled with persons who have the maximum number of years of service in the organization. The length of service in the organization or in the present position becomes the sole criterion in promotion decisions. The senioritybased system is normally followed in public sector organizations. In organizations where the seniority is the sole basis, promotions are time-bound and also a formality. The strengths of seniority-based promotion are: • It is a highly objective and non-controversial form of promotion because subjective elements are not considered for promotion. • This method is better suited for strongly unionized organizations as the scope for a potential conflict with the unions is reduced. • It may improve the loyalty of the employees as the length of service and experience are recognized and respected by the organization. • Unlike the merit-based system, there arise no bitter feelings among any employee at the end of the promotion process. In fact, employees are treated fairly and in a dignified manner till the end of their service. • Seniority-based promotion is simple and straightforward. The employees can themselves compute the time of promotion on the basis of the length of their service. In spite of having several inherent strengths, seniority-based promotion has a few major weaknesses. These are: • The major limitation of this method is that it offers no incentive for the efficiency, creativity and commitment of the sincere and hardworking employees. Thus, promotion cannot be viewed as a motivational tool by the management. • It kills the learning habit of the employees as they never feel any urgent need to acquire new knowledge, skill or ability. • It can undermine the preparedness of the organization in tackling the challenges from the external environment effectively. In fact, employees often resist changes in these organizations due to their inability to cope with the skill and ability requirements of the changing situation. • Organizations may find it difficult to attract and retain the enterprising young people who wish to have challenges in their work life. • The significance of employee performance evaluation is diluted when promotions are not linked to the performance of the employees.

Seniority-cum-Merit-Based Promotions In this method, an organization considers both merit and seniority for determining the promotion of an employee. The primary purpose of this method is to include the positive features of both the promotion criteria. The organization may decide the weights for merit and seniority on the basis of its HR and promotion policies. For instance, an organization

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446 Box 19.2

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The Break-up for a Promotion

Period of service (2 marks per year for the complete period of service, subject to the maximum Performance of work (Work performance for the last three years) Interview

Maximum 30 marks Maximum 40 marks Maximum 30 marks

Total

Maximum 100 marks

may decide to have the proportion of merit and seniority in the ratio of 70 and 30 in order to evaluate the potential candidates., A model standard of selection for promotion procedure, based on this proportion, has been developed in Box 19.2. The strengths of the seniority-cum-merit method are: • This method reduces the element of subjectivity in promotion decisions considerably but it does not rule it out entirely. • It encourages efficiency among the employees even while having due consideration for their length of service. • Employees in general can not have any serious objections against this criterion, provided the management is sincere and objective in its evaluation. • In an intensely competitive external environment, this method is ideal for keeping the organization efficient and dynamic and for protecting the interests and future of the employees. Although the seniority-cum-merit method has several strengths, it also has a few weaknesses. These are: • Organizations may assign weightages to the two criteria in such a way as to make one of them simply irrelevant. For instance, if the ratio of merit and seniority is 80:20, it may open possibilities for manipulation in the promotion process so that the importance of the length of service of the employees gets undermined. • Since this method does not rule out subjectivity altogether, it may suffer from all the weaknesses of merit-based promotion. • It may be difficult for the management to explain the rationale behind the determination of weightages for merits and seniority.

Kinds of Promotion Promotional opportunities to the employees can be classified into different forms based on factors like advancement in the organizational structure, and eligibility. We shall now see two important classifications of promotions.

JOB ROTATIONS

Horizontal Versus Vertical Promotion Generally, promotion means going up in the organizational structure or ladder. A vertical promotion indicates the advancement of employees to higher positions in the organization. Thus, a vertical promotion is accompanied by increased authority, responsibility, accountability and status, and a higher designation. For instance, moving a person from the clerical cadre to the position of an administrative officer can be an example of a vertical promotion. On the other hand, a horizontal promotion brings more responsibility and compensation, but the employee does not go to a higher level in the organizational structure. This method is usually adopted when the chances of ‘going up’ in the organizational structure are limited.9 By and large, organizations view horizontal promotion as an element of an employee’s career growth.

The Open Versus Closed System of Promotion Promotion can also be classified into open and closed systems of promotions. In case of the open system of promotion, an organization does not limit promotional opportunities to any particular section of employees. On the contrary, it keeps them open to all the eligible employees. In practice, all vacancies are openly advertised within the organization in this method, and applications are invited from all the employees who fulfil the eligibility conditions prescribed by the organization. In contrast, the closed system restricts the promotional opportunities to a select list of employees. In this method, an employee gets his promotion through a closed promotional recruitment system established by the organization. In practice, an organization may reserve certain categories of jobs, especially those at the higher levels of management, for a closed system of promotions, leaving the rest of the categories for the open system.

Essentials of a Sound Promotion Policy The primary purpose of a promotion policy is to ensure uniformity in the way promotions are managed in the organization. It may also cover transfers and demotions. It aims at streamlining the activities involving identification, evaluation and selection of the employees from within the organization to fill the job vacancies on a continuous basis. The promotional policy of an organization must provide equal opportunities to all the employees and should never discriminate against them on unlawful grounds like gender, caste, religion or race. It must also offer clear-cut guidelines to the people engaged in the promotional recruitment process. An effective promotion policy should normally ensure the following: • A good promotion policy should be consistent with the organizational objectives, HR policies and relevant contractual agreements with the employees or their union. • It should provide equal promotional opportunities to all the employees of equal abilities. • It should clearly spell out the promotion criteria for different categories of jobs. In other words, it would ensure that these performance standards are not vague, subjective or open to manipulations.

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• It should state the promotion procedure and the role of different authorities in it unambiguously. • An effective promotion policy should treat all the eligible candidates uniformly at the time of promotional recruitment and selection. It should also have adequate safeguards against all forms of discrimination on any basis except employee competency or seniority. • It should keep the promotion procedure transparent and simple. It facilitates the employees in knowing what is required for attaining promotion in the job. • A good promotion policy should permit the eligible employees who fail in the promotional selection to discuss the promotion issues with the appropriate authorities. • It should help the promoted employees in the initial transition process. It may provide for transition programmes for the employees. The transition programmes may orient the employees on role description and expectations.10 • A good promotion policy should insist on a systematic and scientific evaluation of the job performance of the employees. Employees must also be aware of the performance requirements for promotion from the beginning. • It should have all preferences or reservations for different categories of employees like women, the physically challenged and the socially disadvantaged, in the written form to avoid any misuse of these provisions. Box 19.3 outlines the promotion policy of a banking sector organization.

Demotion Demotion is just the reverse of the term promotion. It means the transfer of employees to lower positions in the organizational structure. It is often used as a punishment for employees for serious breach of rules and regulations and for consistent performance deficiency. Box 19.3

Promotion Policy at the Canara Bank

All the employees of an organization are talented in some way. It is the responsibility of the organization to identify such talents and utilize them judiciously. As far as possible, the organization should fill the vacant positions through promotion since it offers several benefits not only to the employees but also to the organization. All those organizations which realize the need to develop committed and resourceful employees at all levels of the organization prefer internal promotion. Thus, organizations require effective promotion policies not only to attract but also to retain efficient people so that they successfully accomplish their corporate objectives and missions. Canara Bank is a case in point. This company has adopted a fast-track promotion policy and offers cash incentive schemes to reward

the high performers of the company. It has a unique programme called “Club 2020”, involving young and talented employees to lead and strategize the organizational change in the fast-changing banking environment. As far as the promotion policy for the managerial cadre is concerned, it has two channels of promotion from the junior management grade to middle management. The first channel of promotion is called the “test channel” and the second is identified as the “interview channel”. Promotion is only by selection and an officer can opt for only one channel. Each channel gives due regard to rural service and to reservation for the deserving communities. Adapted from www.hinduonnet.com/ businessline/2000/07/06/stories/090619vs.htm.

JOB ROTATIONS

Box 19.4

449

Definitions

“Demotion is defined as shifting an employee down to lower levels of positions which involve decrease in salary, status and privilege.”11 —Ali Balci

Demotion is “the permanent movement of a staff member from one position in one job class to a position in another job class of decreased responsibility or complexity of duties and in a lower salary range.”12 —The Policy Manual, University of North Texas

However, a demotion can also be effected by the organization on the request of the employee concerned. It may involve either being assigned a different position or a reclassification of the existing position of the employee with lower designation. The essence of demotion is a decrease in the job status of the employee. Several definitions of demotion revolve around this factor. We shall now see a few of the definitions. We may define demotion as an employee’s downward mobility in the organizational structure which is normally accompanied by reduced authority, responsibility, compensation and social status.

Reasons for Demotion An employee may be demoted for several reasons including administrative convenience and punishment. We shall now see the important reasons for demotions. Administrative Convenience Due to external developments and/or internal restructuring, an organization may be forced to abolish certain categories of jobs or merge the jobs for administrative purposes. In such cases, the incumbent employees of the merged or abolished jobs may be moved to lower positions. Occasionally, organizations also consider demotion as a viable alternative to a layoff when staff reduction becomes inevitable. Inefficiency Employees can be moved out of the existing position to some lower level for consistent failure to meet the performance goals of the organization. The intention of demotion in such cases is to reduce the work responsibilities of the employees so that they will be able to meet the performance requirements of the new position without much difficulty. Disciplinary Action An organization may impose demotion as a punishment for any serious violation of code of conduct. Demotion is considered as less severe punishment than dismissal or discharge of employees from the job. However, demotion as a punishment is normally opposed by unions strongly due to its psychological effects on the employees. Besides, demotions can also have a demoralizing effect on other employees who happen to work with the demoted employee. The organizations must fulfil all legal requirements before initiating serious punishments like demotion and dismissal as these punishments are often challenged in the court of law. Voluntary Demotion It is also called demotion on request. It involves shifting an employee to a lower designation upon his request or concurrence. Employees may request a voluntary demotion when they are not willing or able to perform the existing duties any longer or shoulder the responsibilities of their current positions properly. Specifically speaking, an employee may seek a voluntary demotion due to illness, job difficulty, a misunderstanding

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with supervisors, stress in the current job, relocation of residence, and the unwillingness or inability to accept forced transfers. Organizations usually demand a written request from the employees seeking a demotion before acting on such a request. The employees should also agree to a reduction in pay if required. They must also be made to understand that the demotions are permanent and cannot be reversed. A voluntary demotion can be within the same department or from one department to another. It may be initiated either by the employees or by the employers.

Transfer A horizontal shifting of employees from one job to another without any job related increase in the pay, benefits and status of the employees is called a transfer. It can broadly be classified into two categories, namely, imposed transfers and requested transfers. In case of the former, an employee is transferred for administrative convenience with or without his concurrence. For instance, an organization may carry out transfers for better utilization of skills and knowledge of the employees. It may also transfer employees as part of the on-the-job training process. Transfers may also be used to see whether an employee is fit for permanent placement in that position as a part of promotion. In case of requested transfers, an employee is transferred to another job or place because he has requested for the transfer. Transfers are often requested by the employees for personal reasons. The lateral movement of employees from the existing job to another with comparable duties, responsibilities and pay range is the essence of the definitions of transfer. We shall now see a few definitions of transfers. We may define transfer as an employee’s lateral mobility in the organization structure without any significant change in the authority, responsibility, compensation and social status.

Objectives of Transfer Transfers can serve several purposes for both the organization and the employees. We shall now see the major purposes of transfers. Optimum Utilization of Skills Organizations may transfer employees from places where there is an underutilization of skills due to labour surplus to other places within the organization that suffer from skill shortages. The aim of this exercise is to facilitate a better utilization of the available skills and talents. Thus, transfers can be used as an effective means to meet the changing labour needs of the different departments/units of the organization. Training of Employees Many organizations utilize employee transfers as a tool to train the employees in different jobs of the organization. Such transfers help the organization assess the difficulties of the employees in performing the jobs effectively and the employees acquire the necessary job skills through training and other programmes. Disciplinary Action As part of disciplinary action, employees may be transferred to the least preferred jobs or destinations without any change in the job authority, responsibility and compensation packages. Since the purpose of transfers in such a case is to punish and discipline the employees, it can also be called a punitive transfer.

JOB ROTATIONS

Box 19. 5

451

Definitions

“Transfer is defined as a lateral shift causing movement of individual from one position to another usually without involving any marked change in duties, responsibilities, skill needed or compensation.”13 —Dale Yoder

Transfer is defined as “the permanent lateral movement of a staff member from one position to another position in the same or another job class assigned to the same salary range.”14 —The Policy Manual, University of North Texas

Employee Request Organizations may order a transfer to fulfil the request of an employee for it. Employees may cite health, family or other personal problems for seeking voluntary transfers. They may also seek transfers for job-related reasons like job difficulties and high level of stress. Motivational Tool Many organizations view transfer as an effective means to motivate their employees. When the employees cannot be moved upwards in the organizational structure due to lack of promotional opportunities, organizations can resort to their horizontal movement to provide variety and challenges in the job. In fact, job enlargement and enrichment have made the lateral transfer of employees a good alternative to vertical transfer, namely, promotion.15

Types of Transfer A transfer takes place when an employee is moved to another job or place with the same or a similar position. Such transfers may take place for a variety of reasons like poor health, performance shortage, mutual basis and training. We shall now see the different methods of employee transfers. Inter-departmental Versus Intra-departmental Transfers When employees are rotated from one job to another within the same department, it is called intra-departmental transfer. For instance, when a clerk in a bank branch is made an accountant and if both the jobs carry similar levels of responsibilities and compensation, it is called intra-departmental transfer. When employees are moved from one department to another within the same job classification, it is called inter-departmental transfer. The salary range, responsibilities and duties are the same or similar for both the jobs. Voluntary Versus Involuntary Transfers When an employee voluntarily applies for a transfer to some other position or place within the same job classification, it is called a voluntary transfer. An employee may request for a transfer to another position within or outside the department. When employees are transferred by the organization for administrative or other reasons without their concurrence, it is called involuntary transfer. For instance, an organization may transfer an employee when his existing position or job is marked for abolition as part of the restructuring process. Similarly, an organization may transfer an employee to fill a vacancy caused by the death or sudden resignation of an employee in another job.

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Replacement Transfers This is an infrequent type of transfer in an organization. This transfer is normally carried out by an organization to avoid the imminent layoff of the senior employees due to a difficult organizational situation. In this situation, a junior employee is relieved from his position by the organization as part of the layoff programme and the senior employee is transferred and posted to that position. Versatility Transfers Versatility means possessing a wide variety of skills. Transfers may facilitate employees in acquiring different skills required to perform the jobs in higher positions in the organization. For instance, the entry-level managers may be trained in different positions with comparable responsibilities and duties ahead of their promotion to the higher levels of management. Shift Transfers This is frequently done in organizations with a multiple-shift system. In this method, the employees are transferred from one shift to another but remain in the same job. For instance, an employee may be transferred from the day shift to the night shift. It is often done on a rotation or request basis. The statutory requirements which ban odd-hour shifts (night shift) for women and other factors like employee health can influence the shift transfers. Remedial Transfers Remedial transfers are usually carried out to set right the past mistakes in the appointment or transfers concerning an employee. A wrong placement of employees in the organization may cause numerous problems for both the organization and the employees. Besides causing performance problems, faulty placement can cause tension in the superior–subordinate relationships and employee stress. To rectify such a situation, organizations usually resort to remedial transfers, which enable the employees to find the right job and the right environment. Production Transfers The purpose of a production transfer is to stabilize production by redistributing the employees from labour-surplus units to labour-deficit ones. This internal arrangement helps the management in avoiding or at least postponing employee reduction measures like layoff and retrenchment.

Employee Separation Employee separation is a sensitive issue for any organization. Usually, an employee leaves the organization after several years of service. Thus, the permanent separation of employees from an organization requires discretion, empathy and a great deal of planning. An employee may be separated as consequence of resignation, removal, death, permanent incapacity, discharge or retirement. The employee may also be separated due to the expiration of an employment contract or as part of downsizing of the workforce. Organizations should never harass the employees, especially in the case of resignation, just because they are quitting the organization. In fact, a quitting employee of the organization must be seen as a potential candidate of the future for the organization and also the brand ambassador of its HR policies and practices. However, many organizations are still treating their employees as “expendable resources” and discharging them in an unplanned manner whenever they choose to do so.16 Each organization must have comprehensive separation policies and procedures to treat the departing employees equitably and ensure smooth transition for them. Further, each employee can provide a wealth of information to the organization at the time of

JOB ROTATIONS

separation. Exit interviews can be conducted by the HR department to ascertain the views of the leaving employees about different aspects of the organization, including the efficacy of its HR policies.

Reasons for Separation Employee separation constitutes the final stage in the staffing process of an organization.17 An employee can leave the organization for any reason which he deems fit for seeking separation. However, separation is classified basically into two types. These are: voluntary separation and involuntary separation. Voluntary separation refers to the separation of employees on their own request, while involuntary separation means the separation of employees for organizational reasons which are beyond the control of the employees. We shall now discuss the causes of these separations in detail. Voluntary Separation Voluntary separation, which normally begins after a request is placed in this regard by the employee, can happen due to two reasons: professional reason and personal reason.18 We shall now discuss these reasons in detail. Professional reasons—Employees may seek separation when they decide to seek better positions, responsibilities and status outside the present organization. Efficient employees would seek to expand their realm of knowledge and skills continuously by working in different capacities/positions in various organizations. In their quest for greater responsibility, power and status, they may seek separation from the organization. Personal reasons—The important personal reasons for voluntary separation are relocation for family reasons like marriage of the employees and health crisis of family members, maternity and child-rearing. For instance, when working women get married, they often prefer to settle in the partner’s place of occupation. Similarly, an employee may seek voluntary separation to look after the child or parent. Involuntary Separation As mentioned earlier, an involuntary separation is caused by the factors which remain beyond the purview of the employees. However, these factors may be classified broadly into health problems, behavioural problems and organizational problems. We shall now discuss these factors in detail Health problems—Major health problems crippling the employees may make them invalid or unfit to continue in the profession. For instance, accidents causing permanent disabilities and illness of the employees like brain stroke and other terminal illnesses can lead to their involuntary separation. Death of employees is another factor which results in their involuntary separation. Behavioural problems—An employee’s objectionable and unruly behaviour within the organization may also lead to his involuntary separation from the organization. When the employee’s behaviour is unethical or violates the code of conduct in force, the organization may initiate disciplinary actions, which may eventually result in his termination. This may constitute an act of involuntary separation. Consistent failure to reach performance goals by an employee can also result in his involuntary separation. Organizational problems—Organizational problems are another important factor that contributes to the involuntary separation of employees. The poor financial performance of

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an organization may cause it to terminate the services of some of its employees as part of cost control measure. Such terminations are also classified as involuntary separation. Similarly, automation, organizational restructuring and rationalization can also result in employee termination, discharge or layoff, broadly called involuntary separation.

Types of Employee Separation Depending upon the reason, an organization may initiate voluntary or involuntary separation of employees by adopting any one of the forms mentioned in Figure 19.1. Retirement This is a common form of separation of employees from the organization. Depending upon its retirement policy, an organization would initiate the necessary steps to separate the employees upon attaining the specific age. The age of retirement from government services in India differs from one state to another within the range of 55 to 65 years. However, private organizations can have their own retirement policies. In addition to

Retirement

Layoff

Resignation

Types of Separation

Dismissal Retrenchment

Discharge

Figure 19.1 Types of Employee Separation

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regular retirements, an organization may also adopt voluntary retirement scheme (VRS) and compulsory retirement scheme (CRS) to separate the employees from the organization. In case of VRS, organizations usually offer large sums of money over and above the actual retirement benefits to make the employees willingly leave the organization before their retirement age. This strategy is adopted by organizations when they are confronted with labour surplus and high HR cost. Organizations can also go for a CRS after completing due formalities like necessary notices to the employees. For instance, an organization may keep the absolute right to retire any employee who completes the specified years of service or attains the specified years of age by issuing a proper notice, say a three-month notice, as part of the CRS programme. Resignation When an employee seeks to resign from the job for personal or professional reasons, the organization, after a due consideration of the reasons, may initiate the separation process. In case of efficient workers seeking to resign, an organization would undoubtedly make every possible effort to put an end to the cause for which the employee wishes to resign from the job. For instance, if an employee wants to resign due to family commitment or unsuitable working hours, the organization may offer e-commuting or flexible hours as solutions to retain the employees. Similarly, it may offer a transfer to the desired place to prevent the employee from quitting the job. When the employee is unyielding in his decision, the organization would begin the separation process and ensure that the employee resigns the job as per the employment contract. In the absence of a specific employment contract, the resignation rules of the organization or the relevant provisions of the statutory acts would come into force. As per the company policy, the employee may be asked to give three months’ or one month’s prior notice to the management, expressing his desire to resign from the organization. Removal (Including Dismissal or Discharge) An organization may resort to dismissal or discharge of the employees from the services for reasons like behavioural problems, including unethical behaviour and a breach of the code of conduct. Being an involuntary separation, it is initiated against the employees only by the organization on its own accord but in agreement with the legal provisions. In case of dismissal, an employee is not entitled to get the terminal benefits like provident fund, gratuity, and so on, whereas a discharged employee is eligible for all the terminal benefits. In any case, both dismissal and discharge are always viewed as an extreme punishment and challenged in the various legal forums. It is thus essential for the organization to observe the disciplinary proceedings and the statutory provisions concerning employee termination strictly. For instance, an industrial dispute can be raised as per the Industrial Disputes Act, 1947, when the disciplinary proceedings reach the stage of dismissal or discharge of an employee.19 Besides, the Industrial Employment (Standing Order) Act, 1946 and the Payment of Wages Act, 1936, also deal with certain aspects of disciplinary actions. Retrenchment Retrenchment is a kind of involuntary separation which an organization adopts to downsize it labour force. The purpose of retrenchment is to reduce the expenditure of the business and raise the profitability, especially during the difficult times of the organization. The need for retrenchment may arise due to the closure of unprofitable business operations, the automation of operations, and shifting business from one region or country to another. In case of retrenchment, employees are entitled to necessary compensation under Section 25(f) of the Industrial Disputes Act, 1947. However, retrenchment can have a demoralizing effect on the employee morale and put the remaining employees under excessive work pressure due to a reduced labour force.

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Layoff A layoff is similar to retrenchment except that it is a temporary separation of employees from the organization. Organizations usually resort to layoffs to overcome the problems of business slowdown and other temporary business interruptions. Since a layoff is a temporary separation, the employees would be called back once the business fortunes revive and get stabilized. Section 2(KKK) of the Industrial Disputes Act, 1947, defines a layoff as the failure, refusal or inability of an employer, on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other connected reason, to give employment to a workman whose name appears on the muster rolls of his industrial establishment and who has not been retrenched. However, as per Section 25A of the Companies Act, organizations which employ less than 50 employees on an average working day for the preceding calendar month, are not bound by the layoff provisions. The laid-off employees are entitled to a compensation equal to 50 per cent of the basic wages and dearness allowances that would have been payable to him had he not been laid off. In order to be eligible for the compensation, the laid-off employees should fulfil the following conditions: (i) he should not be a badli or casual worker; (ii) his name should appear on the muster roll of the industrial establishment; and (iii) he should have put in one year of continuous services. However, layoff compensation need not be paid to employees when • the employee declines to accept the offer of an alternate employment by the organization that does not call for additional skills and experience and is located within a fivekilometre radius of the original employment • the employee fails to present himself for the job at the establishment at the appointed time during normal working hours at least one time in a day • the layoff is due to a strike by workmen in another division or part of the establishment. In any case, it is the responsibility of the organization to prove the above-mentioned reasons to make the employees ineligible for compensation.

Summary 1. A promotion is defined as an employee’s upward mobility in the organizational structure accompanied by increased authority, responsibility, compensation and social status.

5.

2. The three criteria for employee promotion are merit, seniority, and seniority-cum-merit.

6. The purposes of transfers are optimum utilization of skills, training of employees, disciplinary action, fulfilling an employee’s request and being a motivational tool.

3. A demotion is defined as an employee’s downward mobility in the organizational structure which is normally accompanied by reduced authority, responsibility, compensation and social status. 4. The purposes of demotion are administrative convenience, inefficiency, disciplinary action and voluntary demotion.

A transfer is defined as an employee’s lateral mobility in the organizational structure without any significant change in authority, responsibility, compensation and social status.

7. The types of transfers are inter-departmental versus intra-departmental transfer, voluntary versus involuntary transfer, replacement transfer, versatility transfer, shift transfer, remedial transfer and production transfer.

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8. Separation is basically classified into two types. These are: voluntary separation and involuntary separation. Voluntary separation refers to the separation of employees on their own request, while involuntary separation means their separation for organizational reasons which are beyond their control.

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are employee health problems, employee behavioural problems and organizational problems. 10. The types of separation are retirement, resignation, removal (including dismissal or discharge), retrenchment and layoff.

9. The reasons for voluntary separation are professional and personal. The reasons for involuntary separation

Review Questions Essay-type questions 1. Discuss the meaning, objectives and characteristics of employee promotion. 2. Evaluate critically the various criteria for conducting promotion selection. 3. Enumerate the essentials of an effective promotion policy. 4. “Demotion is always heartbreaking for the employees.” Do you agree with this statement? Substantiate your stand. 5.

6.

Elucidate the reasons for the separation of an employee from the organization critically.

7.

Illustrate the various types of separation with examples.

8. “Separation is a sensitive issue and thus requires the utmost care and caution.” Discuss. 9.

Explain the various purposes for which an employee can be transferred.

10.

Compare and contrast merit and seniority as the promotion criteria.

Describe the different types of transfer with relevant examples.

Skill-development Exercises Objective – The objective of this exercise is to show you how to develop a promotion policy that can increase employee performance and job satisfaction. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) an external expert, (4) two office-bearers of trade unions, and (5) two observers of the meetings. The role of the observer is to observe the various aspects of the roleplaying sessions and report on them. Situation Rainbow Bank is a private sector banking company with a presence in different part of the country. It offers several unique deposit schemes besides the traditional fixed deposits, recurring deposits, savings bank deposits and current accounts. The company has comprehensive HR policies for all its HR activities. In fact, the compensation package of the company is considered to be one of the best

in the industry and has successfully attracted many enterprising youths to the bank. However, the labour turnover rate of the business has been an area of concern for the bank for a long time. Many experienced employees left the bank in the middle of their career, especially when they were unsuccessful in the promotion selection. The anxious management conducted exit interviews with employees who left the organization recently and found out from them that they were disillusioned with the existing promotion policy, which overtly favoured seniority and left little scope for merit and hard work. Having sensed the mood of the employees regarding the promotion policy, the management instructed the HR department to design a new promotion policy with due regard to employee merit. The HR manager soon swung into action.

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Steps in the exercise There are four steps in the exercise: Step 1: The HR manager meets the office-bearers of the trade unions to ascertain their views on the existing promotion policy and seeks their suggestions for the new promotion policy.

Step 3: He convenes a meeting of his HR team to finalize the new promotion policy after duly considering the relevant reports and guidelines. The new promotion policy is sent to the top management for approval. Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

Step 2: He contacts external experts to ascertain their views on promotion policies and find out the general industry trend from them.

Case Study Hirthick & Co is a popular company engaged in textile production. It has production sites in three different places. It produces high-value pure-wool, wool-blended and premium-polyester-viscose-worsted suitings. Hirthick enjoys a sizeable market share for the finest fabrics and designer wears. In fact, this company has a large variety of worsted suitings to cater to the needs of the assorted customers. The company has a workforce comprising 7,500 employees. The HR department is headed by Mr Uday Shankar, the General Manager (HR). The company has HR policies and practices for almost all its staffing activities. Hirthick’s promotion policy stipulated that the company adopt internal recruitment for non-managerial and entry-level managerial cadres as a first choice, whereas, for all other ranks above the entry-level managerial position, external recruitment should be the only option. The company had a smooth sailing on the manufacturing front till a few weeks ago when Mr Suresh Kulkarni, the production chief at the level of general manager, submitted his letter of resignation. He cited personal reasons for his decision to leave the company and all the efforts of the management to persuade him to take back his resignation failed. Left with no other option, the management instructed the HR department to begin the separation process for Mr Suresh Kulkarni and the recruitment process to fill the consequent vacancy. As regards the recruitment of a new incumbent for the vacant position, the management was in favour of external sources of recruitment as per the policy and they wanted the General Manager (HR) to search widely to choose the best candidate for the job. However, Mr Uday Shankar had different ideas for the post as he wanted to

fill the vacancy by providing promotion to one of the three production managers in charge of the three production units of the company. These senior production managers had been with the company for quite a long time and had nearly unblemished service records. He believed strongly that the promotional opportunities can motivate these managers and improve their morale greatly. Therefore, he made a request to the top management for exempting this job position from the general promotion policy on a trial basis. The top management agreed to the proposal reluctantly and permitted the GM (HR) to proceed with his plan to fill the post by promoting one of the production managers as GM (Production). As per its general promotion policy, the company adopted merit as the sole criterion for choosing the best candidate for the post. The HR department, after a series of promotional selection processes and a due consideration of the past performance records of the three production managers, chose one of the managers as GM (Production). However, the promoted manager happened to be the youngest of all the three managers and had the least number of years of service in the company. The top management approved the selection done by the HR department and issued the job-offer letter to the selected manager accordingly. Soon, the news of the selection spread and the unsuccessful managers expressed shock and disbelief as their first reaction. They could not believe that they were less efficient than the promoted manager. They expressed their displeasure to the top management and faulted the HR department for not selecting them. The efforts of the management to convince them bore no fruits. Their performance began to decline and they showed

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all symptoms of leaving the organization early. In contrast, the promoted manager in his capacity of GM performed brilliantly and justified his selection. Thus, the decisions of Mr Uday Shankar produced mixed results for the company.

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2. Had you been the GM (HR), how would you have filled up the post of GM (Production)? 3. According to you, what is the solution to the problem arising out of the internal recruitment?

Questions for discussion 1.

Do you agree with the decision of Mr Uday Shankar in resorting to internal recruitment for the GM (Production) post?

Notes 1.

2.

Norman R. F. Maier, Psychology in Industrial Organization, 4th ed., (Boston, MA: Houghton Mifflin Company, 1973), p. 517. George C. Thornton III and Deborah E. Rupp, Assessment Centers in Human Resource Management: Strategies for Prediction, Diagnosis, and Development (London: Routledge, 2006), p. 221.

3. Wendell French, The Personnel Management Process: Human Resources Administration, 2nd ed. (Boston, MA: Houghton Mifflin Company, 1970), p. 274. 4. The Policy Manual, University of North Texas, Classification Number: 1.3.12; available at www.unt. edu/policy/UNT_Policy/volume1/1_3_12.html. 5. Oliver P. Field, Civil Service Law (Minneapolis: READ BOOKS, 2007), p. 134. 6. Oliver P. Field, Civil Service Law (Minneapolis: READ BOOKS, 2007), p.135. 7.

William J. Grinker, Donald D. Cooke and Arthur W. Kirsch, Climbing the Job Ladder: A Study of Employee Advancement in Eleven Industries (New York: E. F. Shelley and Company, 1970), p. 17.

8. Bruce W. Tuckman (1979) referred by Ali Balci in “Promotion in Rank in Higher Education”; available at http://dergiler.ankara.edu.tr/dergiler/40/520/6527.pdf. 9. Don A. Josi and Dale K. Sechrest, The Changing Career of the Correctional Officer: Policy Implications for the 21st Century (Boston: Butterworth-Heinemann, 1998), p. xii. 10. Linda Roussel, Richard J. Swansburg and Russell C. Swansburg, Management and Leadership for Nurse

Administrators (Sudbury, MA: Jones & Bartlett, 2005), p. 198. 11.

Ali Balci in “Promotion in Rank in Higher Education,” p. 3; available at http://dergiler.ankara. edu.tr/dergiler/40/520/6527.pdf.

12. Policy Manual, University of North Texas, Classification Number: 1.3.12; available at www. unt.edu/policy/UNT_Policy/volume1/1_3_12. html. 13.

Dale Yoder, H.G, Heneman, J.G. Turnbull and C. H. Stone, Handbook of Personnel Management and Labour Relations (New York: McGraw-Hill, 1958).

14. The Policy Manual, University of North Texas, Classification Number: 1.3.12; available at www.unt. edu/policy/UNT_Policy/volume1/1_3_12.html. 15.

Julius E. Eitington, The Winning Manager: Leadership Skills for Greater Innovation, Quality, and Employee Commitment (Houston, TX: Gulf Publishing, 1997), p.191.

16.

R. Coulson , The Termination Handbook (New York: Free Press, 1981).

17.

V. M. Conley, “Separation: An Integral Aspect of Staffing Process,” College Student Affairs Journal, 21, no. 1, (2001): 57–63.

18. Steven Janosik, Roger B. Winston, Don G. Creamer and Diane L. Cooper, Supervising New Professionals in Student Affairs: A Guide for Practitioners (Washington: Hemisphere Pub, 2003), p. 158. 19.

J. Mankidy, Disciplinary Rules and Procedures: India, Malaysia, Philippines, International Labour Organization, 1994, p. 3.

PART VI:

HR Integration

CHAPTER

20

Industrial Relations

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the characteristics and objectives of industrial relations 2 List the major players in industrial relations 3 Understand the various approaches to industrial relations 4 Discuss the latest trends in industrial relations 5 Enumerate the essentials of effective industrial relations

Royal Dutch Shell is a leading global integrated oil company with nearly $1 billion investment in India’s energy sector. In fact, it is the only global major to have a fuel retail licence in India. Since it operates in more than 145 countries, its HR policies and practices are globally standardized. The focus of the industrial relations at Shell is on the morale and motivation of the employees. It aims at knowing the feelings of the employees about their work in the company and building a strong relationship with the employee representatives, namely, the unions. In fact, Shell devotes considerable time and energy to communicate with and consult the employees and their representatives with the intention of making them realize that they are involved in the decision-making process.

The highlight of its industrial relations exercise is the global Shell People Survey conducted once in two years to discover the real views of its employees across the world. The successful industrial relations promotion activities of Shell involve effective communication and consultation with the staff globally before undertaking large-scale changes. The consultation with the employees may involve (i) consulting and negotiating with the trade unions and staff councils, (ii) identifying and recognizing the best practices, and (iii) conducting, analysing and acting on attitudinal surveys. The industrial relations measures of this energy giant prove its importance to the growth and success of an organization unambiguously and we discuss its details in this chapter.

Introduction The relationship between the employer and the employee is usually referred to as industrial relations. The labour–management relationship is a highly sensitive and complex aspect influenced by a variety of factors. The nature of the industrial relationship in an organization is

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determined by factors such as the organizational culture, the attitude of the management, employees and unions, the condition of employment, the existence of a grievance-handling system and dispute settlement procedures, and the efficacy of rules and regulations. As a separate field of study, it is basically concerned with the systematic study of the various aspects of the labour–management relationship.1 An industrial relationship arises out of the continuous interaction between the employers and the unions, which represent the employees. Thus, the chief actors in industrial relations are the employers and the unions, and their main relationship is through collective bargaining. Compensation-related issues, workload problems, retrenchment, layoffs and similar issues can determine the degree of cordiality in the industrial relationship collectively and individually. The efficacy of industrial relations can be measured through the man-days lost due to strikes, lock-outs and other forms of disturbances in the organization. Generally, the government plays a proactive role in establishing harmonious industrial relations since labour–management problems usually have a social dimension. It acts as a partner and a facilitator in the industrial relations exercises of the organization. It contributes effectively to the establishment of harmony in the industrial relations by enacting laws, formulating polices and participating in the collective bargaining process and tripartite talks. It also acts as a conciliator or the third party in dispute settlement forums. The terms industrial relations, employee relations and labour–management relations are used interchangeably by the organizations while dealing with the employer–employee relationships in the organizations. The protection of the mutual interests of the employees and the employers is the essence of the definitions of industrial relations. We shall now see a few of these definitions in Box 20.1. We may define industrial relations as a process through which an organization controls the employer–employee relations in the organization and this process may involve continuous communication and consultation between them.

Box 20.1

Definitions of Industrial Relations

“Industrial relations is concerned with the systems, rules, and procedures, used by unions and employers to determine the reward for effort and other conditions of employment to protect the interest of the employed and their employers and to regulate the ways in which employers treat their employees.”2 —Michael Armstrong

towards each other with regard to planning, supervision, direction and coordination of the activities of an organization with a minimum of human efforts and frictions with an animating spirit of cooperation and with proper regard for the genuine well-being of all members of the organization.”4 —Ordway Tead and Henry C. Metcalf

“Industrial relations is defined as a whole field of relationship that exists because of the necessary collaboration of men and women in the employment process of an industry.”3 —Dale Yoder

“The study of labor–management relations (LMR) refers to the rules and policies which govern and organize employment, how these are established and implemented, and how they affect the needs and interests of employees and employers.”5 —C. Von Otter

“Industrial relations is defined as the composite result of the attitudes and approaches of employers and employees

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Characteristics of Industrial Relations Based on these definitions, industrial relations may be said to have the following characteristics: • The important actors in industrial relations are the employers, the employees and their unions, and the government. • It involves the deliberate selection of strategies and the framing of rules and procedures by the management that would improve the industrial relations of an organization. • Industrial relations emphasize the development and execution of activities that accomplish the joint objectives of both the employers and the unions, resulting in improved industrial relations. • The protection of the interests and the fulfilment of the needs of both the employers and the employees are the fundamental characteristics of industrial relations. • Industrial relations provides a coordinated and strategic approach to managing the employees of an organization. • The government plays a proactive role in industrial relations in the form of a facilitator, a policy maker and a mediator in tripartite talks.

Objectives of Industrial Relations Developing mutual respect and tolerance is the primary objective of both the employers and the unions in the industrial relations exercise. However, this calls for systematic and sustained efforts on the part of the organization. We shall now see the other objectives of industrial relations.

Building Cordial Relationships with the Employees Organizations aim to achieve warmth and friendliness in their relationship with the employees and their unions through industrial relations.

Maintain Connectedness Organizations look to remain connected with the employees through the industrial relations exercise. In fact, industrial relations tries to expand on the first connectedness brought into existence by the employer–employee contract.6

Safeguarding Mutual Interests Through industrial relations, organizations strive to protect the interests and the well-being of their major stakeholders, namely, the employers and the employees. This is done by ensuring a free and frank exchange of feelings, opinions and grievances at the highest level on a regular basis.

Utilizing Collective Wisdom Through industrial relations exercises, organizations involve unions in the decision-making process, which, in turn, helps the management in utilizing their knowledge and expertise for the betterment of the organization.

INDUSTRIAL RELATIONS

Preventing Industrial Conflicts “Conflict is the motive force of the industrial relations system.”7 This is because an important purpose of industrial relations is to contain industrial conflicts, which normally result in the loss of man-days. Through conflict management strategies involving employers, employees, trade unions and even government, the industrial relations provide for dispute prevention and settlement.

Fostering Industrial Democracy Through the industrial relations system, organizations attempt to promote industrial democracy by involving the employees and their unions in the critical areas of decision-making like conflict resolution, compensation fixation and policy formulation.

Avoiding Exploitation Employees as individuals cannot bargain effectively for their economic and social rights. In the absence of industrial relations and collective bargaining, they may be deprived of their rightful claims to the organizational resources in the form of compensation. In contrast, industrial relations facilitates them in using their collective strength in getting fair compensation and other benefits.

Providing a Dynamic Role for the Government Industrial relations provides a formal means for the government to take an active part in the deliberations involving the employers and the unions as a third party and bring about a rapprochement when either of them adopts a tough posture and the talks end in a stalemate.

Major Players in Industrial Relations Industrial relations cannot be performed in isolation. Being a social activity, it requires interaction among all the stakeholders of the industrial relations system namely, employers, trade unions and government. Since industrial relations warrant a continuous interaction among the different parties, the role of each party is crucial to the success of the industrial relations exercise. Industrial relations is not confined to the relationship between the employers and the trade unions; rather, it moves beyond that to cover all forms of inter-group and intra-group interactions taking place in an organization. In fact, each interaction, whether it is formal or informal, contributes directly or indirectly to the existing industrial relations. We shall now see the role and responsibilities of the major parities in the development of industrial relations.

Employers and their Associations Understandably, the primary responsibility for ensuring cordiality in the industrial relations rests with the employers. This is because the employees’ attitude towards management is greatly influenced by the nature of industrial relations prevailing within the organization. There is no denying the fact that the management has inalienable rights in the organization with regard to the recruitment and separation of employees. It also has the right to decide on policy matters like expansion, restructuring and closure, notwithstanding their impact on the workers’ interests. Employers have all the right to expect the employees and their unions to respect their rights. However, the management also has a responsibility to

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respect the rights of the employees and to safeguard their interests in the organization. With regard to the employees, the management has a responsibility to ensure them minimum wages; to guarantee their health and safety within the organization; to assure the availability of equal opportunities to all employees of equal skills and calibre; to be fair in settling their disputes and redressing their grievances; to guarantee reasonable work schedules and hours of work; to improve their general well-being in all possible manners; In industry-level forums, the employers may be represented by their associations in talks with the trade unions. They may act as pressure groups on the government to protect the interests of the employers and represent the employers strongly in all the national- and industry-level negotiations with the workers’ unions and managers’ associations. Some of the major employers’ associations in India are the Confederation of Indian Industry (CII); the National Association of Software and Services Companies (NASSCOM), Associated Chambers of Commerce and Industry of India (ASSOCHAM); All India Manufacturing Organization (AIMO); Federation of Indian Chambers of Commerce and Industry (FICCI); the World Association of Small and Medium Enterprises (WASME); and Federation of Association of Small Industries of India (FASSI).

Employees and their Unions Employees and their unions play a crucial role in helping the business achieve its objectives and also in fostering positive industrial relations within the organization. In this regard, the employees of an organization must know the job-related expectations of their employers. Similarly, they should also convey their own expectations to their employers unambiguously. The employees may choose to express their demands, feelings and opinions to the employers either directly or through their unions. We shall now discuss separately the role of the individual employees and that of their trade unions in promoting industrial relations. Employees The success of industrial relations depends to a great extent on the attitude of the employees towards the organization and its policies. An understanding of the numerous problems of the employers from their perspective by the employees helps in getting better cooperation from the latter. For this, it is essential for the employers to ensure that the industrial relations be decentralized and carried out at different levels of the organization, including at shop-floor levels. Besides their unions, the employees must be allowed to take part in the relations-building exercise at their workplaces. The double form of workers’ representation, namely, trade union representation and direct employee participation, in the different forums at different levels can surely help the organizations in exchanging the information mutually and solving the problems collectively. It is essential for the employees to appreciate the problems of their employers and be flexible and cooperative in solving the organizational problems. They must realize that their well-being hinges crucially on the well-being of their organization. They should believe in an accommodative approach and be prepared to look at the implications of their demand from the organizational perspective. For instance, while demanding better economic conditions, they must also consider the financial capability of their organization and the present conditions of the market. They must always be committed and loyal, and should be ready to subordinate their individual interests to the organizational interest. Trade Unions Undoubtedly, trade unions play a pivotal role in the industrial relations–building activities of the organization. The labour unions, as the representatives

INDUSTRIAL RELATIONS

of the employees, wield enormous clout in the industrial relations processes like collective bargaining. The unions in India enjoy a lot of political power and often act as a wing of the political parties. They should not care solely about the rights and interests of the employees but also have concern for the organizational interest. They must hear out the views of the employers on issues affecting the organization and should also share their concern. They should never use unfair means to get the employees’ demands fulfilled by the management. Besides, they should not make unreasonable demands on the employers. They must not intimidate the employers with threats of strike, boycott and picketing. As far as the employee interests are concerned, the unions must work smartly in the collective bargaining process to influence the employers positively to provide better welfare facilities for the employees and protect their interests from all forms of exploitation. They must also get involved in the organizational decision-making process by participating effectively in various forums such as board of directors, joint management councils, plant councils and shop floor councils. Similarly, they must also represent the employees effectively in collective bargaining conducted at the national, regional, sectoral, or corporate levels. They should organize the issues affecting the employees like compensation and working conditions properly and present them methodically to clinch the issues in a mutually beneficial manner. Despite the importance of the unions as a protector of employee rights and privileges, there is in general a declining trend observed in their membership due to the changing characteristics of the employees, employers and environment.8

Government The government has been playing multiple roles in safeguarding the interests of the employees and in ensuring harmony in industrial relations. It acts as the facilitator and regulator of the industrial relations process. It also acts as the policy maker by enacting necessary laws and amendments in the existing laws to foster industrial relations in the organization. After Independence, the government introduced the Industrial Disputes Act, 1947, as a legal measure to regulate the industrial relations in the organizations. The purpose of this act is to (i) establish a permanent system for the prevention or settlement of disputes through works committees, conciliation officers, industrial tribunals, and labour court, and (ii) make an award of a tribunal binding on the parties and legally enforceable. Besides, the Trade Union Act, 1926, was also amended adequately and the unfair and unconstitutional activities of both the employers and the unions were defined clearly.

Approaches to the Study of Industrial Relations Since the employers and the employees have conflicting interests over the organizational resources, industrial relations remains a complex and sensitive issue. On the one hand, the employers in business aim at making more profits and faster growth by reducing cost. On the other hand, the employees seek to enhance their income and social status by demanding more compensation from the employers, and this will obviously push up the cost of production. The interests of the employers and those of the employees often remain irreconcilable and their stand remains mutually antagonistic. Industrial relations problems may arise from psychological, social, economic, or political factors. They may also arise from a combination of two or more of these factors. Therefore, the study of industrial relations requires an in-depth and multi-faceted approach. The study of industrial relations has drawn heavily from the disciplines of economics,

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sociology, psychology, law, politics, accounting, and management studies. Obviously, the issues confronting industrial relations need to be studied on a multi-disciplinary basis to understand the sources of the problems and to tackle them effectively. Obviously, several approaches (see Figure 20.1) have been developed for the study of industrial relations. These approaches are: (i) the unitary approach, (ii) the pluralist approach, (iii) the system approach, (iv) the social action approach, (v) the Marxist approach, (vi) the Gandhian approach, (vii) the human relations approach, (viii) the Giri approach, (ix) the industrial sociology approach, and (x) the Oxford school approach. We shall now discuss these approaches.

Unitary approach Oxford school approach

Pluralist approach

Industrial sociology approach

System approach

Industrial Relations Approaches

Giri approach

Social action approach

Human relations approach

Marxist approach Gandhian approach

Figure 20.1 Approaches Industrial Relations

INDUSTRIAL RELATIONS

The Unitary Approach The unitary approach is characterized by a form of administration in which power is vested with a single authority. In the case of the unitary approach to industrial relations, the authority rests solely with the management with no right to anyone to challenge its decisions. According to the proponents of this approach, its basic assumption is that the common values and objectives unite and bind both the management and the workers.9 The use of power in this approach is only for the common good and interest. The management, this approach believes, must deal strongly with the perceived challenges born out of irrational beliefs, the short-term preoccupations and the narrow perspectives that develop from the ignorance of the challengers to its authority and to the overall system. In essence, this approach is not appreciative of the role of trade unions in the organization and, certainly, they are not welcome. However, there are two perspectives within the unitary approach.10 The first perspective holds the view that the industrial conflicts are abnormal and must be suppressed by all possible means. The second perspective, which is modern and sophisticated, views the industrial conflicts as unavoidable but believes that they ought to be controlled through diligent planning and management.

The Pluralist Approach Unlike the unitary approach, the pluralist approach believes in basic ground rules, negotiated settlements and mutual compromises for solving the industrial conflicts. The basic assumption of this approach is that the disagreements between the parties to the industrial relations on important issues are not unbridgeable by compromises and the collaborations can continue at all stages.11 In the pluralist approach, the power is not vested with any one group; rather, a balance of power is maintained between the parties to the industrial relations. Besides, the employers and the employees have a shared morality in upholding the cordial industrial relations through accommodative discussions and amicable decisions. This approach accepts that the company is made up of different interest groups and recognizes the trade unions as the rightful negotiators for the employees. Thus, the pluralist approach emphasizes industrial democracy and collective bargaining. Based on the balance of power and the parties involved, the pluralist approach can be further classified into liberal collectivist, corporatist, liberal individualist and Marxist variations.12

The System Approach The system approach was developed by J. P. Dunlop of Harvard University in 1958. According to this approach, individuals are part of an ongoing but independent social system. The behaviour, actions and role of the individuals are shaped by the cultures of the society. The three elements of the system approach are input, process and output. Society provides the cue (signal) to the individuals about how one should act in a situation. The institutions, the value system and other characteristics of the society influence the process and determine the outcome or response of the individuals. The basis of this theory is that group cohesiveness is provided by the common ideology shaped by the societal factors. According to Dunlop, the industrial relations system comprises certain actors, certain contexts, and an ideology, which binds them together and a body of rules created to govern the actors at the workplace and work community.13 The actors in the system are the managers, the workers and their representatives, and the government agencies. The rules in the system are classified into two categories: substantive rules and procedural rules. The substantive rules determine the conditions under which people are employed. Such rules are normally derived

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from the implied terms and conditions of employment, legislations, agreements, practices and managerial policies and directives. The procedural rules govern how substantive rules are to be made and understood. Ultimately, the introduction of new rules and regulations and revisions of the existing rules for improving the industrial relations are the major outputs of the industrial relations system. These may be substantive rules as well as procedural rules.14 The context in the system approach refers to the environment of the system which is normally determined by the technological nature of the organization, the financial and other constraints that restrict the actors of industrial relations, and the nature of power sharing in the macro environment, namely, the society.

The Social Action Approach The social action approach is a variant of the system approach. In the system approach, society plays a dominant role while the actors such as employers, employees and their representatives keep a low profile and play a passive role in the process. On the contrary, the social action approach assigns an active role to the actors of the industrial relations. The actors’ understanding of the work situation becomes more important than the social factors and their independent views gain a greater weightage in deciding their behaviour towards industrial relations. The social action theory primarily considers bargaining as an important tool for the resolution of a conflict. The actors, according to this approach, are willing to cooperate with other actors in the resolution of conflicts, and bargaining forms the basis for such cooperation.

The Marxist Approach The Marxist approach looks at industrial relations from a societal perspective. It views industrial relations as a microcosm of the wider capitalist society. The basic assumption of this approach is that industrial relations under capitalism are an everlasting and unavoidable source of conflict. According to this approach, industrial conflicts are the central reality of industrial relations, but open conflicts are uncommon.15 The Marxist approach views industrial disputes as a class struggle and industrial relations as a politicized concept and an element of the class struggle. As per the Marxist approach, the understanding of industrial relations requires an understanding of the capitalized society, the social relations of production and the mechanism of capital accumulation. The Marxist approach views the power relationship between the two classes, namely, the employer (capital) and the employee (labour), as the crux of the industrial relations. Both classes struggle hard to consolidate their respective positions so that they can have a greater leverage over the other in the process of bargaining. The proponents of this approach perceive that the employers can survive longer without labour than the employees can without work. As far as theory is concerned, the compensation payable to the employees is an outcome of the power struggle. For instance, the employers seek to maximize their profits by paying less compensation to the employees, while the latter resist such attempts, and this resistance results in industrial conflicts. However, the weakness of this theory is that it is narrow in approach as it views industrial relations as a product or outcome of the industrial conflict.

The Gandhian Approach The core of the Gandhian approach in industrial relations is the utility of non-violence as a means of conflict resolution in organizations. The basic elements of this approach are truth, non-violence, the voluntary arbitration of disputes, and want-lessness. According to Gandhi,

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the growth of civilization does not mean a multiplication of wants; rather, it means a deliberate and self-imposed attempt to reduce such wants.16 He blamed the system, rather than individuals, for several evils of society. He insisted on treating workers as human beings and advocated the concept of trusteeship. He held the view that the employers should consider themselves as trustees or co-owners of the business, and not as sole owners. Similarly, the workers must not view the organization as something that belongs to exploitative owners; rather, they must treat it as their own property. They should also consider themselves as the trustees or co-owners of the organization. Gandhi approved the concepts of strikes, collective bargaining, trade unions, fixation of wages and workers’ participation in management. Further, Gandhi held a definite view about the employees’ right to strike but insisted that it should only be the last resort for the employees. The employees can contemplate strike and that too in a peaceful and non-violent manner only after exhausting all other peaceful and constitutional methods of negotiation, conciliation and arbitration. Gandhi suggested a few guidelines for the industrial strikes: (i) The strike must be for a just cause and there shall be no strike without any grievance; (ii) It must be conducted in a peaceful and non-violent way; (iii) To the maximum extent possible, strike must be avoided in the essential services sector; (iv) As a prelude to organizing a strike, the trade unions must get ballot authority from all its member-workers for doing so; (v) Non-strikers must not be ill-treated or harmed. In essence, this approach emphasizes creating equality in the society through a non-violent approach.

The Human Relations Approach According to this approach, an organization is nothing but a set of human relations and these human relations are central to how an organization functions. As per this approach, organizations are made up of people and the success of the management lies in its dealings with these people and their relationships to one another. The goals of the human relations approach are: (i) getting people to work, (ii) cooperating through mutuality of interests, and (iii) deriving satisfaction from the achieved relationship. The aim of the human relations approach is to make policies and techniques which can improve employee motivation, morale, efficiency and job satisfaction. This approach wants the small work groups in the organization to exert substantial control over its environment and assist the management in the process of removing the major irritants in the labour–management relations. It emphasizes group dependence and highlights the need for better communication, training and management development, recognition of workplace as a social system, group dynamics, and participative management in organizations.

Giri Approach Former President of India V. V. Giri’s deep concern for the well-being of the working class made him write two popular books on labour issues entitled Industrial Relations and Labour Problems in the Indian Industry. According to him, in the tree of socialism, the root comprises human beings. Giri observed that “it is an essential condition to maintain mutual trust and confidence between the employer and employee to obtain the goal of rapid economic development and social justice.”17 The Giri approach in industrial relations focuses on the relevance and importance of voluntary negotiations between the employers and the employees as a means of settling disputes. This approach insists on the establishment of bipartite forums at different levels of the industry to wipe out the dispute between the employers

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and the employees represented by their unions. This approach also provides for the active involvement and intervention of the state in dispute prevention and settlement. However, this approach discourages compulsory adjudication and perceives it to be against the spirit of industrial democracy and unity.

Industrial Sociology Approach The aim of the industrial sociology approach is to investigate the underlying trends and patterns in the cause and effect of industrial disputes both intended and unintended. Unlike most other approaches which focus only on the resolution of conflict as a means of achieving industrial relations, the industrial sociology approach focuses on the prevention of industrial conflict by tracing the cause of the disputes and then avoiding it. This approach provides a conceptual framework for investigating, analysing and specifying the structure and process within the organization that often produce conflicts. As per this approach, the job context and content, the technological characteristics, and human interaction often result in the distributive, structural, and human relations conflicts in the internal environment. In case these conflicts are not resolved within the organization, they may assume larger dimensions and become external conflicts. The removal of the causes of the disputes, according to this approach, facilitates a more effective maintenance of industrial relations.

Oxford School Approach According to this approach, the conflict between the interests of employer and employee is inherent, but this interest can be adjusted in order that a common way, which can satisfy both the parties, can be found out, however difficult it may be.18 Productivity bargaining is a classic example of this approach. For instance, any agreement to increase the productivity can benefit both employer and employee. The employer gets better sales performance and profitability while the employees get increased earning. The underlying assumption of this approach is that ‘you can’t do much without income’ and therefore mutually beneficial ways must be found out for achieving convergence of interests. According to this approach, it is highly essential for the parties to the industrial relations to get the facts right and avoid institutional and other biases. The Oxford school approach can be expressed through the following equation: r = f(b) or f(c) where, r stands for the rules governing industrial relations; b means collective bargaining; and c refers to conflict resolution. According to this approach, the primary responsibility for industrial relations lies with the management. It is the duty to of the management to devise ways and means for developing and introducing innovation in all the aspects of the organization which help the cause of industrial relations. However, this does not mean that there is no responsibility for the unions; this only means that the first responsibility lies with the management.19 Box 20.2 outlines the industrial relations initiatives of a joint venture.

Industrial Relations Trends The advent of globalization and other economic reforms has brought in several challenges for the organizations on different fronts. Competition has intensified and the external environment has become too volatile to operate. Consequently, the knowledge, skills and ability

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Box 20.2

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Industrial Relations at IndianOil Petronas Private Limited (IPPL): A People-driven Strategy

The advent of globalization followed by intense competition in the market for industrial organizations made it absolutely necessary for contemporary organizations to maintain cordial relations with the employees. In a highly competitive environment, organizations simply cannot afford any form of industrial disturbances for they work against tight deadlines, work schedules and cost budgets. Thus, they intend to establish long-term industrial peace and harmony by developing social partnership with the employees. Similarly, the employees and their unions also prefer to maintain cordial relations with the management for their own reasons. As a result of economic reforms, factors like outsourcing, early retirement schemes, well-planned downsizing, casualization of labour and deindustrialization have considerably weakened the strength of the employees and their unions. Consequently, the maintenance of cordial industrial relations and peaceful co-existence has become absolutely inevitable and mutually beneficial for both employers and employees. The focal point of industrial relations exercises of many organizations is the development of mutual trust, cooperation and bipartisanism. Even though each organization can adopt its own style and strategies to build and preserve cordiality in industrial relations, the industrial relations initiative of IndianOil Petronas Pvt. Ltd (IPPL) is a case in point.

IndianOil Petronas Pvt. Ltd (IPPL) is a fifty-fifty joint venture between Indian Oil and Petronas of Malaysia. The two parties are working in the fields of liquefied petroleum gas (LPG), refining, petrochemicals, training and consultancy, research and development (R&D), exploration and production (E&P), and liquefied natural gas (LNG). This company believes firmly that employees and employee-driven strategy are central to the successful growth of any organization. Thus, it remains constantly focused on developing an excellent work culture and a harmonious working atmosphere by instilling a sense of belonging among the employees. IPPL has several proactive and progressive HR strategies for maintaining cordial industrial relations. For instance, it endeavours to foster employee initiatives constantly by involving them in activities like suggestion schemes, quality circles, and safety and welfare committees. It also regularly conducts meetings with the employees to develop good work ethics and work culture within the company. Certainly, this company has succeeded greatly in preserving peace and cordiality in its relationships with all its employees through employee commitment and involvement practices. Adapted from: www.indianoilpetronas.com/PDF/ dreport78.pdf.

(KSA) requirements of employees and the business strategies have seen drastic changes in the recent decades. The human resource management and industrial relations activities have been influenced by these factors. Additional developments in the industry are as follows: • declining union memberships within the organizations, especially in the new and developing industries • decentralization of collective bargaining with increasing preference for organization-wide wage negotiations and settlements • increasing presence of knowledge workers and their changing needs • the preference of the managements for free and direct communication with the employees • diminishing presence of traditional manufacturing industries with high labour intensity and low technological penetration All these developments have influenced industrial relations in varying proportions individually and collectively. As a matter of fact, even the traditional industries have modernized their production lines and supply chains to become lean organizations with the intention of reducing their dependence on labour forces.

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Factors Influencing Industrial Relations Basically, the success of industrial relations depends on the nature of the relationship prevailing among the actors of industrial relations. It also depends equally on the power equation existing between the employers and the trade unions. The attitude of one party towards the other and its strategies depend on its assessment of the strengths and weaknesses of the other party in industrial relations. The power equation of the actors in the industrial relations is determined by a combination of several factors. Some of the factors which influence the distribution of power between employers and employees are:

Trade Union Density When the unions are phenomenally strong in an industry, the power balance would be in favour of the employees and the unions. In such a situation, the terms of industrial relations would be decided by the unions.

Frequency of Strike Activity When the organization or industry reports a high number of strikes within a specific period, the industrial relations would come under increasing strain. Depending upon the outcome of the strikes, the power equation would change.

Political-economic Institutions The role of politico-economic institutions is critical in achieving industrial peace and harmony. When the political institutions, especially the ruling combine, overtly favour the employees and the trade unions, the power equation would tilt in favour of the unions.

Cultural Diversity When there is cultural diversity among the workforce, it may favour the employers to have divisions among the employees along cultural lines. The educated and enlightened employees may make independent decisions, which may differ with the general stand of the unions.

Demographic Structure The presence of heterogeneous groups based on age, gender, income and other relevant bases can also influence the power balance between employers and employees. For instance, the organizations with a high proportion of women employees may witness low intensity in union activity.

Pattern of Behaviour When the employers espouse authoritarianism in behaviour and style of management, the employees may predominantly prefer unions and aggressive postures, if possible. In contrast, the employees side with the employers when the latter adopt a consultative paternal approach.

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In addition to these factors, the state of technology, the nature of supply and demand in the product and labour markets, legal factors, and other external environmental developments can also influence industrial relations. Having discussed the factors influencing industrial relations, we shall now see the measures required for enhancing their effectiveness.

Essentials of Effective Industrial Relations Maintenance of harmonious industrial relations will benefit all the stakeholders of industrial relations like employers, employees, unions and also the government. However, the basic responsibility for fostering an effective industrial relationship rests with the management of the organizations. Thus, industrial relations is an integral part of the management of any business.20 The management must provide due importance to the relationship in the form of effective consultation and good communication with the employees. A few factors contribute critically to the effectiveness of industrial relations. The role and relevance of these factors will be now discussed.

Leadership Commitment Effective industrial relations require strong commitment and support from the management for the maintenance of harmonious industrial relations. The management must develop a kind of culture and philosophy which encourages change management through cooperation and consultation at all levels of the organization. It must also have a comprehensive procedure for bringing in changes in a systematized manner with due regard for the views of the employees and the unions.

Appropriate Vision, Mission and Business Strategy The thinking of an organization and its priority for good industrial relations must be made known to all its employees. The management must make suitable changes in its vision and mission statements so that the managers comprehend the organizational policies clearly and pursue them keenly to the end that the industrial relations goals are achieved effectively.

Creative HR Policies The HR policies of an organization have a profound influence on shaping its industrial relations. In fact, the employees form their perception about the industrial relations on the basis of the HR philosophy and policies of the organization. Thus, it is necessary for the organization to evolve forward-looking and dynamic HR policies which fulfil the changing needs of the employees and foster industrial relations.

Open Communication An organization must develop a two-way communication channel to remain connected with its employees. An open communication system enables the management not only to keep the employees informed about the proposed changes but also to get constant feedback from them about its policies and actions. Two-way communication also facilitates the employees in sharing their suggestions, ideas and concerns with the management.

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Institutionalizing the Relationship In the long run, the management must develop a system for improving the industrial relations on a continuous basis. Intermittent processes like collective bargaining alone are not sufficient to develop the desired level of industrial relationship. The management must take measures for promoting the industrial relations at all levels of the organization. It must have forums like shop floor councils and plant councils for fostering the industrial relations.

Benchmarking Industrial Relations Organizations must make every effort to fix standards or benchmarks for industrial relations so that the progress in industrial relations is properly monitored. Certainly, industrial conflicts like strikes, lock-outs and other forms of industrial disturbances are inversely related to industrial peace and harmony and, as such, can become the criteria for measuring industrial relations. Undoubtedly, the management must develop key indicators for measuring the efficacy of the prevailing industrial relations.

Summary 1.

Industrial relations is a process through which an organization controls the employer–employee relations in the organization and this process may involve continuous communication and consultation between them.

2.

The objectives of industrial relations are building cordial relationships with the employees, connectedness, safeguarding mutual interests, utilizing collective wisdom, preventing industrial conflicts, fostering industrial democracy, avoiding exploitation, and providing a dynamic role for the government.

3.

The major players in industrial relations are the employers and their associations, the employees and their unions, and the government.

4. The approaches to the study of industrial relations are the unitary approach, the pluralist approach, the system approach, the social action approach, the Marxist approach, the Gandhian approach, the human relations approach, the Giri approach, the industrial sociology approach and the Oxford school approach. 5.

In the unitary approach, the authority rests solely with the management with no right to anyone to challenge its decisions.

6. The essence of the pluralist approach is that the balance of power is not vested with any one group; rather, it is maintained between the parties to the industrial relations. 7. The system approach means that the behaviour, actions and role of the individuals are primarily shaped by the cultures of the society. 8. The basic elements of the Gandhian approach are truth, non-violence, the voluntary arbitration of disputes, and want-lessness. 9. The core principle of the Giri approach is that voluntary negotiations between employers and employees are the means of settling disputes. 10.

The factors that influence the distribution of power between the employers and the employees are trade union density, frequency of strike activity, political-economic institutions, cultural diversity, demographic structure, and the pattern of behaviour.

11.

The essentials of effective industrial relations are leadership commitment, appropriate vision, mission and business strategy, creative HR policies, open communication, institutionalizing the relationship, and benchmarking industrial relations.

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Review Questions Essay-type questions

4.

Evaluate the contributions of India to the development of approaches for the study of industrial relations critically.

1.

Evaluate the role of the different actors of the industrial relations critically.

2.

Describe any five industrial relations approaches using examples.

5.

Discuss the trends in industrial relations in India with appropriate instances.

3. Write an essay on the relevance of the unitary and pluralist approaches with suitable examples.

6.

Enumerate the essentials of effective industrial relations with necessary examples.

Skill-development Exercises Objective – The objective of this exercise is to show you how to identify and decide on the measures to be taken to improve the industrial relations in an organization with a view to improve the morale, motivation and cooperation of the employees. Procedure Note – The class is divided into groups. Each group has (1) an HR General Manager, (2) an HR Manager at the plant level, (3) two union leaders, and (4) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them.

communication and lack of consultation as the major source of irritants in the industrial relations. However, the managers denied the allegations and blamed the workers’ nonchalant attitude and the militancy of unions as the cause of the industrial conflict. Sensing the urgency of the situation, the top management instructed the HR general manager to look into the matter and submit a report to it regarding the measures to be taken to improve the industrial relations at the plant. Steps in the exercise

Situation

There are three steps in the exercise:

Dinesh Cements Limited (DCL) is a large cement company with a good performance record. It has five cement plants located at five different parts of the company. Although the general performance of the company has been satisfactory, the major plant of the company located in a southern state of India has been facing intense industrial relations conflict. This particular unit witnessed nearly five major and nine minor strikes in the past five years. The labour–management relations have also remained at a low ebb with the employees and their unions citing poor

Step 1: The HR general manager meets the top union leaders (or select workers in a non-unionized organization) to ascertain their views on the measures required for improving industrial relations at the plant. Step 2: He meets the HR manager of the troublesome plant to discuss and finalize the measures to be made for improving industrial relations. Step 3: The observers the performance of the members in the role-playing session and give their feedback.

Case Study Modern Cars Private Limited is a popular automobile company in India with a sizeable market share in the passenger-car segment. With an unassailable technological edge, it has a variety of brands in the market and each of them is performing well. The company has a committed

and disciplined workforce numbering about 9,500, which includes managerial and non-managerial categories. The company enjoys an excellent rapport with the employees through effective communication and consultation. The fact that this company has witnessed no major industrial

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disturbance during the last ten years would vouch for its industrial relations policies. The HR department of the company is managed by Mr Sakul Ahamed, the General Manager (HR), while the industrial relations section is headed by Mr Altaf, Senior Manager (IR). A few years back, the board of directors approved an ambitious expansion plan of the company. As per this plan, the company would enter the commercial-vehicle segment by offering competitive prices and taking over an existing company which meets its expectations. Six months back, the company got an opportunity to buy out Cellar Cars Private Limited, which is engaged in the production of commercial vehicles. It sent a team of six managers to study the culture, functions, performance and various other aspects of the company. The HR department was represented in the team by the industrial relations manager. After an in-depth study of Cellar Cars Private Limited, the officials of Modern Cars submitted their report to the board for its further action. Although the majority of team members favoured the takeover bid, the industrial relations manager reported quite a few negative things about Cellar Cars. A high incidence of industrial conflicts including a few major strikes, a large number of unionized employees, the rigid attitude of the union leaders, a general distrust in the labour–management relations, and poor productivity were cited as areas of concern. A perturbed board of directors sought the opinion of the general manager (GM) of HR about the HR report presented by the team. The GM (HR), after a close scrutiny of the report of the team, sought additional information about Cellar Cars. At the end, the GM (HR) gave the goahead signal to the board with the contention that the HR problems of Cellar were resolvable. In his report to the board, he held the style of functioning of the management, a lack of communication and consultation with the

trade unions in the decisions involving changes, and outdated HR policies as responsible for the poor industrial relations record of the management. Based on the report of the GM (HR), the board went ahead and completed the takeover successfully. As decided earlier by the Modern Cars board, quite a few managers of the Modern Cars were transferred to Cellar Cars. Some of them went on a temporary basis and others on a permanent basis. Modern Cars began to imbibe the new culture and the new work philosophy of Cellar Cars gradually. The workers seemed to be accepting the new environment and the culture. All was well for the Modern Cars management for a few months until the announcement of a strike by the union leaders of Cellar Cars over automation, performancelinked incentives and the consequent job losses. In spite of the efforts of the management to thwart the strike, the employees went ahead with their strike plan. The unions, with the active backing of external forces, have managed to prolong the strike and are continuously pressuring the management to withdraw its reform proposals. The strike has now entered its twenty-fifth day with no solution in sight and the beleaguered managements of Modern Cars and Cellar Cars are desperately looking for a way out of the mess. Questions for discussion 1. What is your opinion about the developments in Modern Cars that led to the takeover of Cellar Cars? 2.

From your point of view, whose report—Sakul’s or Altaf ’s—is right and why?

3. What measures are now required to end the strike of Cellar Cars Private Limited? 4. Identify the long-term measures required to be taken to prevent future strikes at Cellar Cars Private Limited.

Notes 1. Michael Poole, Industrial Relations: Origins and Patterns of National Diversity (London: Routledge, 2003), p. 4. 2.

Michael Armstrong, A Handbook of Personnel Management Practices, 3rd ed. (London: Kogan Page, 1988), p. 557.

3.

Dale Yoder, Personnel Management and Industrial Relations, (Englewood Cliffs, NJ: Prentice-Hall, 1970, p. 19.

4.

Ordway Tead and Henry Clayton Metcalf, Personnel Administration: Its Principles and Practice (New York: McGraw-Hill, 1920), p. 2.

5.

C. Von Otter, Labor–Management Relations (2007). in G. Ritzer (ed), The Blackwell Encyclopedia of Sociology, Blackwell Publishing. Blackwell Reference Online; available at http://www.blackwellreference.com/subscriber/book?id=g9781405 124331_9781405124331.

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6. Jerome Joseph, Industrial Relations: Towards a Theory of Negotiated Connectedness (London: Response, 2004), pp.1–3. 7.

8.

C. Faucheux and J. Rojot, “Social Psychology and Industrial Relations: Cross-Cultural Perspective” in G. M. Stephenson and C. J. Brotherton (ed), Industrial Relations: A Social Psychological Approach (New York: Wiley, 1979). John E. Kelly, Industrial Relations: Critical Perspectives on Business and Management (London: Routledge, 2002), pp. 70–71.

9. A. Fox, “Industrial Relations: A Critique of Pluralist Ideology,” in J. Child (ed), Man and Organization (London: Allen and Unwin, 1973), pp. 185–233. 10.

Norma Chalmers, Industrial Relations in Japan: The Peripheral Workforce (London and New York: Routledge, 1989), p. 10.

11.

Norma Chalmers, Industrial Relations in Japan: The Peripheral Workforce (London and New York: Routledge, 1989), p. 10.

12. Gill Palmer, British Industrial Relations (London: George Allen and Unwin, 1989).

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13. J. T. Dunlop, Industrial Relations Systems (New York: Henry Holt), p. 7. 14. J. T. Dunlop, Industrial Relations Systems (New York: Henry Holt), p.20. 15.

Richard Hayman, Industrial Relations: A Marxist Introduction (London: Macmillan, 1975), p. 190.

16. M. K. Gandhi, From Yervada Mandir: Ashram Observances, Translator: V. G. Desai, (Ahmedabad: Navajivan Publishing House, 1957), p. 24. 17. V. V. Giri, Labour Problems in Indian Industries (Bombay: Asia Publishing House, 1958). 18. Jeremy Bugler, “The Invaders of Islington,” New Society, (15 August, 1968): 226. 19. Jeremy Bugler, “The Invaders of Islington,” New Society, (15 August, 1968): 226. 20. Shaun Tyson and Alfred York, Essentials of HRM (Oxford and Woburn, MA: Butterworth-Heinemann, 2000), p. 263.

CHAPTER

21

Discipline and Disciplinary Action

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the objectives and types of discipline 2 List the symptoms and causes of indiscipline 3 Enumerate the steps needed for a disciplinary action procedure 4 Discover the elements of a good disciplinary system 5 Understand McGregor’s suggestions 6 Explain the code of discipline

DLF is one of India’s biggest real-estate companies in terms of revenues and developable area. In fact, Super Brands India has awarded the “super brand” ranking to this company for three consecutive years. As part of its corporate governance, the company has developed a strong code of conduct to regulate the performance and behaviour of its directors and employees. The primary objective of its code of conduct is to further encourage its commitment to building a strong culture of corporate governance by promoting the importance of ethical conduct and transparency. The general standards of the conduct of this company specify that: (i) the directors and employees shall conduct its business in an efficient and transparent manner in meeting its obligations towards

the shareholders and other stakeholders; and (ii) they shall not be involved in any activity that would have an adverse effect on the objectives of the company or on the national interest. These specific conducts have been included under captions like: (a) compliance with applicable laws, (b) conflict of interest, (c) business opportunities, and so on. As regards the consequences of noncompliance with the code of conduct, the company warns of appropriate action against the employee whose actions are found to violate it. The strong code of conduct of DLF and its excellent performance vividly show the importance of maintenance of discipline to its success. We shall now discuss the relevance of discipline and disciplinary action in this chapter.

Introduction Managing employee behaviour and performance is one of the important tasks of managers. Discipline refers to the employees’ observance of standards of behaviour set by the organization.

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Disciplinary action refers to the punishing the employees who fail to meet those standards of behaviour. Many organizations maintain a disciplinary policy or system to regulate the behaviour of the employees and deal with the acts of indiscipline. Some organizations even conduct discipline management training for their supervisors and managers to help them understand the tactics of managing discipline among the employees effectively. The purpose of such training is to ensure that when the supervisors discipline their subordinates, they do so in a just and fair manner. This is essential to avoid the charges of bias and prejudice and steer clear of legal problems at a later stage. The managers must also be made to understand that the purpose of disciplinary action is not just punishing the erring employees but also ensuring that the same act of indiscipline is repeated neither by the corrected employees nor by anybody else. Since disciplinary proceedings and actions produce emotional situations for the supervisor and the employee both—the supervisor who conducts the proceedings and the employee who faces the disciplinary action—it is essential for an organization to have unambiguous policies and guidelines. These policies must tell the supervisor clearly how he should conduct the proceedings and how it should be concluded. Although the acts of indiscipline by employees can reveal themselves in many forms, some of the important forms of indiscipline are disobeying the supervisor’s instructions, absenteeism, rule violation, carelessness, poor performance, stealing, alcoholism, wilful mishandling and misuse of organizational property, and general misconduct. All these acts have a negative impact on employee’s productivity and organizational performance. Thus, it becomes absolutely necessary for an organization to end these acts of indiscipline by modifying the behaviour of the employees through appropriate actions. In short, discipline is a corrective mechanism to build and maintain a productive, responsive workforce.1 However, the organization must ensure strictly that its discipline policies and system are not arbitrary. This is because when the employees perceive or believe that the discipline policies of their organization are flawed and unfair, they may try to find alternate employment or depend heavily on the unions for protection and may reduce their focus on job activities, leading to a decline in employee productivity, morale and motivation. Any action by the management to make the employees observe the code of conduct and correct employee behaviour and performance is the essence of the definitions of discipline. We shall now see a few of these definitions in Box 21.1. We may define discipline as a system designed to ensure that the employees’ performance and behaviour are consistent with the relevant organizational rules and regulations in force.

Characteristics of Employee Discipline In normal circumstances, employees conduct themselves voluntarily in a manner agreeable to the management. Thus, indiscipline is considered as an abnormal happening in an organization. If the acts of indiscipline are minor in nature and are occurring for the first Box 21.1

Definitions

“Discipline is a force that prompts an individual or a group to observe the rules, regulations, and procedures, which are deemed to be necessary to the attainment of an objective.”2 — William R. Spriegel and Edward Schultz

“Discipline is the state of employee self-control and orderly conduct that indicates the extent of genuine teamwork within an organization.”3 —R. Wayne Mondy

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or second time, the management usually persuades the employees to merely avoid repeating them. When the gentle and informal advice of the supervisors fails to produce desired results, the management may exercise its rights by initiating formal disciplinary actions against the erring employees. Employee discipline as a concept must have a few necessary characteristics. The necessary characteristics of discipline derived from these definitions are.

Standard Behaviour Discipline involves setting a standard behaviour for the employees to follow in the organization. An organization may express the standard behaviour in the form of a code of conduct for its employees.

Driving Force Discipline is a “force” that drives the employees of an organization to observe the code of conduct in the organization.

Positive or Negative in Nature The force may be positive or negative. A positive force rewards the employees who observe the rules of the organization while a negative force punishes those who violate such rules and regulations.

Voluntary or Imposed Discipline may be voluntary or imposed. In the case of voluntary discipline, an employee develops a discipline on his own, which is called self-discipline. In the case of the imposed discipline, the employees observe rules and regulations out of external force or threat.

A Right of the Management Imposing discipline in the form of rules and regulations is an inalienable right of the management. The employees or unions can challenge this right only when these rules are not fair, just, reasonable or consistent.

An Element of Control Process Discipline is an element of management control process. As such, it is an aspect of standard behaviour in the control process. An evaluation of the actual behaviour of employees would show the observance or inobservance of standard behaviour, i.e., the discipline of the employee.

Objectives of Discipline Traditionally, the purpose of discipline is to punish the employees for the violation of rules and regulations. In those days, to impose discipline, organizations depended predominantly on the threat of punitive action. In modern times, discipline aims at encouraging employees to observe self-discipline in behaviour and performance so that both the employees and the employers benefit out of it. At present, organizations accord a high priority to developing self-discipline among the employees through necessary training and counselling. We shall now see the objectives of the contemporary discipline system.

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Goal Accomplishment Achieving the corporate objectives is an important aim of employee discipline. In fact, all efforts directed towards the maintenance of discipline must end up with the accomplishment of organizational goals; otherwise the imposition of discipline will be of no use.

Developing a Responsive Workforce Organizations utilize discipline to make the employees conform to the standards they have set. This obviously facilitates the employees in avoiding reckless and insubordinate behaviour and keeps them responsive and disciplined.

Changing Employee Behaviour Organizations aim at bringing in the desired behaviour among the employees through discipline. The presence of the discipline policy can help the employees check their behaviour against the standards and cause changes in their behaviour, if necessary. For instance, discipline may caution the low performers of the organization and can compel them to alter their behaviour to meet the performance standards.

Improving Morale and Motivation Organizations attempt to enhance employee motivation and morale through a fair discipline system. When the employees perceive the discipline policy of their organization to be fair and legitimate, they may be willing to work hard to avoid any disciplinary action against them. Similarly, when they see an act of indiscipline getting a fair and quick punishment, they feel proud of their disciplined behaviour. This feeling provides a sense of satisfaction, motivation and commitment to the employees. Eventually, it improves their morale.

Exercising Better Control over Employees Discipline aims at supplementing the efforts of managers and supervisors to exercise effective control over subordinates. Since the authority to take disciplinary action is normally vested with the supervisors, it evokes fear in the minds of the employees and forces them to comply with the instructions of their supervisors.

Ensuring Consistency in Action Organizations strive to ensure consistency in the disciplinary actions of different managers while dealing with acts of indiscipline of similar nature and intensity. They also aim at ensuring consistency in the disciplinary actions of the supervisors in different periods of time.

Promoting Industrial Relations One of the objectives of discipline is to foster good industrial relations in the organization. Discipline issues often cause lot of strain in the union–management relations. However, through objective and transparent disciplinary process, organizations can convince the unions about the fairness of the process and get their continued cooperation in the future.

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Substituting Personal Supervision Another objective of discipline is to reduce the need for close supervision in the organizations. Discipline system and policies develop self-discipline among the employees, which, in turn, eliminate the necessity of closely supervising the performance and behaviour of the employees. Thus, through discipline, organizations can aim at reducing the cost of supervision without compromising on its quality.

Types of Discipline The general purpose of discipline is to bring about positive changes in an employee’s performance, attendance or behaviour. There are many disciplinary systems available for an organization to fulfil the objectives of discipline goals. Depending upon its management philosophy, HR policies and other characteristics, an organization may settle for a particular type of discipline. We shall now discuss the different types of discipline.

Positive Discipline Positive discipline, which is called self-discipline, as well as preventive discipline, aims at seeking the willing cooperation of employees in observing the discipline code of the organization. The two inherent aspects of positive discipline are: (i) personal responsibility of employees for maintaining discipline; and (ii) independent decision making by them to eliminate their unsuitable and undesirable behaviour. In this method, the responsibility of the organization is to create a positive environment that gently prompts the employees to comply with the organizational code of conduct. Besides, the management must provide unambiguous instructions to the employees and relevant and timely feedback about the performance and its behaviour expectations. In the event of indiscipline, ‘remind rather than reprimand’ is the approach in positive discipline.4 The employees are reminded about the rules, and the desired change in behaviour occurs. Thus, when performance or behaviour indiscipline is reported against employees, the first requirement for them, in this method, is to rededicate and recommit themselves to the job and the organization. The prerequisites for implementing positive discipline are: • an excellent communication network • a well-defined line of authority • appropriate working conditions • sufficient discipline training Although an organization needs to devote considerable time and resources to developing positive discipline among its employees, its efforts would certainly pay it rich dividends in the long term. The benefits of positive discipline are cordiality in labour–management relations, improved employee motivation and morale, minimum use of formal authority, effective goal accomplishment and positive image for the organization in the labour market.

Negative Discipline It is a traditional form of discipline followed by an orthodox management. In this method, fear is the key to the maintenance of discipline. For instance, the fear of punishment for the

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acts of indiscipline will be the driving force for the employees to avoiding misconduct. It also forces them to obey the rules and regulations of the organization. This form of discipline is also known by names like punitive discipline and enforced discipline. It never seeks the willing cooperation of the employees in ensuring discipline within the organization. Besides, employees working under a negative environment view discipline as a restraint on their freedom of behaviour. The prime aim of the employees in this method is escaping punishment and not cooperating with the management. For instance, when the management threatens the employees with dire consequences if they do not report for duty at 10 a.m. and remain till 5 p.m., their response would be to ensure that they remain in the office during the stipulated office hours but not reach earlier or leave later than that time. The intention here is evading threat of punishment and not extending cooperation or performing to the potential. The consequences of negative discipline are: • Distrust in industrial relations and mutual antagonism • Low morale and motivation • High labour turnover • Work-to-rule approach • Lack of self-belief

Progressive Discipline It is a popular form of discipline adopted successfully by many organizations in maintaining discipline among their employees. This method of discipline has found wide acceptance even among the unions. Progressive discipline requires an organization to adopt a step-by-step approach in dealing with the indiscipline problems of an employee. While dealing with the discipline issues concerning the employees, this method suggests that the organization begin the disciplinary action process with a modest disciplinary action, then increase the degree of severity gradually and finally end up with the most severe punishment if the successive stages of punishment do not yield the desired change in the behaviour of the employees. For instance, the disciplinary process may begin with an oral reprimand to an employee for performance indiscipline and may end up in his dismissal, if all the efforts to correct his behaviour fail. A progressive disciplining of an employee may begin with the hiring of an employee and can continue through his entire work life in the organization. It may even lead to his suspension and ultimate dismissal. Progressive discipline may be defined as any employee discipline system that provides a graduated range of responses to employee performance or conduct problems.5 Although progressive discipline is similar to positive discipline, it differs on one basic aspect, which is the gradually growing and proportionate punishment to the employees. The extent of punishment depends on the frequency and severity of the performance and behaviour problem and the length of service of the employee. Significance of Progressive Discipline Since the disciplinary actions for misconduct move from mild to severe punishment gradually, this method assumes greater significance from the organizational point of view. We shall now see the importance of progressive discipline for an organization.

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• It provides adequate opportunities to the employees to correct their behaviour and performance. • It enables the managers to intervene in the disciplinary issues involving the employees at the first available opportunity. • It facilitates the managers in getting involved in the disciplinary matters without worrying about the prospects of losing the employees’ friendship.6 This is because the employees are let off with mild punishments in the initial stages of disciplinary actions. • Progressive discipline helps the management avoid time-consuming and costly litigations because this method rarely resorts to extreme punishment. As a matter of fact, the serious disciplinary actions are almost always challenged in the court. • In the event of dismissal or discharge of employees as a result of disciplinary action, the organization may have to incur high staffing cost for finding the right replacement for the separated employee. In this method, extreme punishments like dismissal are rare as the management provides an adequate number of opportunities to the employees to discipline themselves by changing their behaviour and continue in the job. • A proper compilation of the several discipline violations indulged in by the employees and the series of actions initiated by the management through the progressive discipline policy can help the management prepare a legally defensible case against the employees in the event of their suspension or dismissal. In contrast, when an organization adopts a discipline method which is arbitrary in nature, it can invite charges of victimization. It may also jeopardize the relationship between the employer and the employees seriously. The other unintended consequences of a disciplinary system which is not just, consistent and objective are production disturbances, quality compromises, loss of customers, strained labour–management relations, high labour turnover, and rapid unionization of the employees so that they may seek security from the unions. Steps in a Progressive Discipline Process A typical progressive discipline will undergo a standard process although the steps in a process of progressive discipline are bound to vary from one organization to another, depending upon the management philosophy, the nature of industry, the labour market conditions and the strength of the unions. We shall now see the steps in a progressive discipline process in the event of reported indiscipline charges against an employee. Stage 1: Counselling the employee—When any performance or behaviour problem like poor attendance, disobedience, dissidence, or performance deficit is made known to the organization, the first response of the management in this method is to provide counselling to the problematic employee. The counselling process must aim at (i) convincing him about the presence of the problem; (ii) making him understand the nature and extent of the problem; (iii) persuading him to realize the need to solve the problem at the earliest by explaining the likely consequences of the problem to the organization and to the individual; and (iv) recommending the strategies for working on the problem to prevent its recurrence in the future.

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After the counselling sessions, if the employee shows the required improvements in the performance or behaviour, the disciplinary action process is discontinued. Otherwise, the disciplinary process moves to the next step. Stage 2: First disciplinary proceeding (reminder)—If the employee fails to show the necessary improvement in his performance or behaviour in spite of counselling sessions, the disciplinary action process progresses to the next step. At this stage, an appropriate authority like manager or supervisor holds a meeting with the employee concerned. The purpose of such a meeting is to remind the employee of the terms and conditions of his employment and explain to him the need to observe the rules of the organization. The manager also encourages the employee to clarify his misgivings and reservations regarding performance or behaviour standards and other related problems. Normally, the deliberations of the meeting are recorded in writing and sent to the employee for his confirmation and response. The employee can write back his views on the issues and the proceedings of the meeting to the appropriate authority empowered to deal with this issue. However, this must be done by the employee within the specified timeframe as fixed by the management. Normally, the higher-level officials avoid their intervention in the problem at this stage. Stage 3: Second disciplinary proceeding (warning)—When there is no perceptible improvement in the behaviour of the employee at the end of the second stage, the disciplinary process moves to the next step. In this stage, the employee is again called for a meeting with the appropriate authority. Mostly, the authority that carried out the first two stages holds this meeting too. The supervisor quickly redoes the first two steps and moves to the present step. At this stage, the employee is clearly warned, in uncertain terms, of the likely consequences of his continuation with the same problem. For the first time, the threats of severe punishment like pay cuts, suspension, demotion, discharge or dismissal are placed before the employee. Once again, the deliberations are sent to the employee in writing and a copy of this is dispatched to the higher-level management. As in the earlier stage, the employee must again respond within the specified period. Stage 4: Final disciplinary proceeding (undertaking from the employee)—When the employee still shows no sign of improvement in performance or behaviour, the disciplinary process reaches its final stage. At this stage, the appropriate authority calls the employee for a meeting one last time. This time, the employee gets his ultimate chance to set right his performance or behaviour. At the meeting, the supervisor makes it clear to the employee that he would not get any more chance in the future to defend his position and that this is the last chance to rectify his problems in performance or behaviour. However, this time the employee must give a written undertaking to improve his performance or behaviour to meet the expectations of the management. He must also give an undertaking to abide by the disciplinary action likely to be initiated against him if he persists with the same problem. The employee may sign or refuse to sign the required undertaking. In the event of his signing the undertaking, it amounts to accepting the problem and agreeing for future disciplinary action if he fails to improve his performance or behaviour. On the other hand, the employee’s refusal to sign the undertaking would force the organization to straightaway initiate the necessary disciplinary action, the quantum of which usually depends on the severity of the problem. Stage 5: Initiating disciplinary action (dismissal or demotion)—At this stage, the management reviews the case made out against the employee in its entirety before deciding

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on the quantum of punishment. Factors like the seriousness of the problem, the length of service of the employee, the past record of the employee, the discipline policy of the company, collective bargaining agreement and the general environment of the organization act as inputs for the decision involving disciplinary action. Finally, the organization may decide to initiate less severe punishments like pay cuts, increment cuts, involuntary transfers, withholding promotions and even suspension of employee. The management may also decide in favour of more severe punishments like demotion, discharge or dismissal, which are usually permanent in nature. Box 21.2 outlines the role of a whistle-blower in identifying acts of indiscipline.

Symptoms and Causes of Indiscipline The indiscipline may manifest itself in the behaviour or performance of the employees in many forms. It may be caused by organizational, individual and union factors. We shall first see the symptoms of indiscipline followed by the causes of such indiscipline.

Box 21.2

Whistle-Blower Policy at Tube Investments of India Limited

No action can be considered as an act of indiscipline unless and until it is explicitly prohibited and the employees are aware of this. It is exactly for this reason that business organizations develop discipline codes in the form of rules and regulations and let the employees know precisely that any violation of the provisions of this code would be construed as an act of indiscipline and dealt with appropriately. In any case, managerial action against employee indiscipline is a difficult and unpleasant task for the organization since a single disciplinary action can generate a series of repercussions for it. Therefore, the information about a purported act of indiscipline by the employees must be thoroughly investigated and the final disciplinary action must be grounded well on facts and figures. For this, the organizations must groom reliable sources to tip off the management about employee misconduct and protect those sources from possible victimization. Typically, the person who brings the alleged employee misconduct or discipline code to the notice of the management is known as a whistle blower. In India, Clause 49 of the Listing Agreement between listed companies and stock exchanges provides a nonmandatory requirement for all listed companies to establish a mechanism called the Whistle-Blower Policy. This enables employees to report to the management the instances of unethical behaviour, fraud or violation of the code of conduct or ethics policy of the company. This policy is applicable to all permanent employees of a company. The aim of this policy is to provide a

framework to promote responsible and secure whistle blowing in the company. The provisions of this act protect the employees who report the alleged irregularities and indiscipline to the company. This policy also provides for the appointment of an ombudsperson who will receive all complaints under this policy and ensure appropriate action. Since adherence to the provisions of the whistleblower policy is not a statutory requirement, it is for the companies to decide what constitutes an act of misconduct or indiscipline for them. Thus, the coverage of the act may differ from one company to another. In fact, each company reserves its right to amend or modify this policy at any time on the whole or in part, without assigning any reason whatsoever. However, it is necessary for every company to affirm every year that it has provided protection to the whistle blower from any adverse personnel action. Such affirmation shall form part of the Corporate Governance report as attached to the Annual Report of the company. The core guiding principles of the whistleblower policy ensure that the whistle blower is not victimized and there is complete confidentiality about the identity of the whistle blower. Some of the companies develop a detailed whistle-blower policy and circulate it effectively among its employees so that employee misconduct is brought to the notice of the authority concerned at the earliest and the necessary action is taken promptly. The whistle-blower policy of Tube Investments of India Limited is worth mentioning.

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Tube Investments of India Limited, which is the flagship company of the Rs 85 billion Murugappa Group, manufactures precision steel tubes and strips, car doorframes, automotive and industrial chains and bicycles. This company has an exhaustive whistle-blower policy and has developed a simple but effective process flow chart for it. The whistle-blower policy of this company intends to cover all employees’ misconducts that impact the interest of the company. For instance, all actual or

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suspected actions that (i) result in incorrect financial reporting, (ii) contravenes the applicable company policy, (iii) are unlawful or (iv) otherwise considered as serious misconduct or improper acts. The flow chart prepared by Tube Investments of India Limited indicates how the whistle-blower policy operates in the company. In this chart, concern refers to the complaint and investigation subject refers to the person who allegedly indulges in misconduct.

Employee raises a concern

Ombudsperson

Initial enquiry

Concern Dismissed

Stop

Committee appointed (if required)

Investigation subject

Detailed investigation

Decision on action to taken

Concern disproved

Investigation subject exonerated

Concern proved

 Disciplinary action  Preventive measures

Source: http://www.tiindia.com/Abt_WhistleblowerPolicy.html, reprinted with permission.

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Symptoms of indiscipline Since organizations are made up of people, it is natural for them to have inter-personnel conflicts and discipline-related problems. Even very effective disciplinary policies cannot completely thwart the occurrence of acts of indiscipline within the organization. The management must ever be ready to deal with any form of misconduct. Although it is not possible to prepare a complete list of misconducts, Box 21.3 lists the frequently reported performance and behaviour misconducts in an organization.

Causes of Indiscipline Indiscipline simply means unacceptable behaviour of an employee in the organization. The unacceptable behaviour may occur in the form of unsatisfactory performance or undesirable conduct. The short-term approach of an organization in tackling indiscipline is to initiate necessary action against the problematic employees. The intention of this disciplinary action is to pre-empt these employees from making the same mistake in the future. In this case, the prevention of indiscipline is based only on the threat of punishment. However, in the long run, an organization must make efforts to identify and then prevent the factors which cause problems of indiscipline to the organization. These factors may individually or collectively become responsible for the misconduct of employees. It is therefore essential for the organization to promptly identify the root cause of the indiscipline and carry out corrective actions. We shall now record the important factors responsible for undisciplined behaviour. Box 21.3

Symptoms of Indiscipline

Absenteeism

Unauthorized departure from work like leaving early

Interfering with the work of other employees

Inefficiency—poor performance

Immoral conduct

Malicious gossip and/or spreading of rumours

Insubordination

Use of drugs and/or smoking within the factory premises

Taking away the property of the company or others without permission

Negligence

Theft

Misrepresentation of facts in seeking employment

Being unfaithful to the employer

Tardiness

Possession of dangerous weapons like firearms and explosives inside the organizational premises without permission from management

Causing unsafe working conditions

Misuse of the organizational property

Contributing to the unsanitary conditions or poor housekeeping

Wilful damage to machinery or materials

Rule violations

Conflict of interest

Abusing the supervisor or co-workers

Pilferage

Gambling

Refusal to accept a job assignment

Wilful violation of safety norms

Violent acts

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Conventional Management Practices Outdated and old-fashioned management practices may cause indiscipline amongst the present-day employees. For instance, tough rules for leave sanctioning may force the employees to indulge in absenteeism. Similarly, a rigid work schedule may witness frequent schedule violation or breaking. Unfair Treatment Unfair treatment leads to the exploitation of employees. Therefore, when an organization indulges in unfair practices in areas such as compensation fixation, promotion determination and work allotment, it can cause indiscipline among the employees. For instance, fixing low wages may result in work sluggishness. Similarly, unfair promotion practices may cause responsibility avoidance and work jerking by employees. Finally, work overloads may lead to quality compromises in production. Absence of an Effective Code of Conduct The code of conduct alone helps the employees in the identification of discipline and indiscipline in their behaviour. When the code of conduct is unambiguous, the employees understand clearly the dos and don’ts in their job. Apparently, they avoid acts of indiscipline. In contrast, when there is no the code or a poorly written code of conduct, the employee may have difficulty in distinguishing between the acts of discipline and those of indiscipline. They may not even know what constitutes misconduct unless and until the authorities tell them. Absence of a Proper Grievance-handling Mechanism When the employee has a grievance, he must be sure about what he must do next and about the probable time period within which his grievance would be redressed. In the absence of an effective grievance redress system, the employees may indulge in misconduct to attract the attention of the management to their grievances. Thus, lack of effective grievance handling also acts as a source of indiscipline. Ineffective HR Policies and Practices A good HR policy would meet all the reasonable needs of the employees both within and outside the organization. Thus, an effective and dynamic HR policy can help the management in avoiding employee grievance and, by extension, reduce the chances of employee misconduct. In contrast, an ineffective HR policy can breed grievances and indiscipline. Absence of an Efficient Communication System There is a need for every management to keep the employees briefed about the future programmes of the organization. Similarly, it must get continuous feedback from the employees about the various actions of the organization. Further, it should not only be aware of the concerns of its workforce but make every effort to get these concerns addressed. All these require the presence of an effective twoway communication system in the organization. In the absence of such a system, there would be a communication gap between the employees and the management. Obviously, both may have to depend on informal sources like grapevine to gather information. The faulty information fed into the informal communication channel may cause disquiet among the employees and result in indiscipline. For instance, the unconfirmed news of an imminent lay-off can spark an immediate and violent reaction from the employees even if it turns out to be false at a later stage. Negative Attitude of the Employees and their Unions When the employees and their union perceive a negative environment in the organization, they may distrust the management and suspect the real intentions of its every action. In such a situation, the management actions may be opposed by the employees in different forms, which may also include performance and behavioural misconduct.

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Organizational Culture Organizational culture is made up of the attitudes, experiences, beliefs, values and psychology of the members of the organization. As such, the organizational culture is derived from the culture of the society in general. It indicates the basic characteristics of the organization and influences the way the employees interact with one another as well as with other stakeholders like the employers of the organization.7 When the prevailing culture fosters confrontational behaviour among the employees, the organization may witness an increasing number of acts of indiscipline. In contrast, if the prevailing organizational culture is peaceful and affable, the complaints of misconduct would normally be less.

Types of Disciplinary Action The outcomes of indiscipline in normal circumstances are disciplinary actions in the form of punishments. However, the severity of punishment is usually decided by the nature, circumstances and intensity of the offence. Organizational policies and statutory provisions also play a role in determining the outcome of the disciplinary action. As shown in Figure 21.1, different types of punishment are normally awarded for different kinds of offences.

Oral Reprimand It is an oral warning issued to an employee by a manager for the performance or behaviour misconduct reported against that employee. The purpose of oral reprimand is to caution the employee against the continuance of the same misconduct in the future. The manager also explains the likely consequence of a similar misconduct in the future. Oral reprimands are normally issued in private and the matter is kept confidential. As far as possible, the focus of

Discharge or dismissal

Oral reprimand

Suspension

Outcome of Disciplinary Actions Pay reduction and demotion

Written warning

Denial of increments, promotions and pay hikes Figure 21.1 Outcome of Disciplinary Actions

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the discussion must be on the problem and not on the person.8 However, the employee may be allowed to offer a brief response to the charges made out against him.

Written Warning When an oral warning or counselling to the employee does not produce the desired result, the manager may issue a written warning to the employee. On many occasions, this is the first stage of the formal discipline process. The written reprimand normally specifies the nature of offence and also its implications for the organization, the co-workers and the employee concerned. The employee is normally asked to acknowledge the receipt of the written reprimand, irrespective of whether he agrees with the content of the letter. The written warnings are usually legal documents and may have to be presented in the court at a later stage. Naturally, the drafting of such a letter requires a lot of legal expertise and matter-of-fact presentations.

Denial of Increments, Promotions and Pay Hikes On some occasions, the management may refuse promotions, increments or pay hike by blacklisting the employee for a specified period of time. These are usually punishments of a temporary nature. At a later stage, the management may review the progress in the performance or behaviour of the employees to decide whether to clear his name for pay hike, promotions and increments or not.

Pay Reductions and Disciplinary Demotions This is usually more severe than the denial of pay hikes and promotions because the employee loses part of even the existing benefits and privileges hitherto received by him. In case of demotion, the employee loses social status too in addition to the monetary loss.

Suspension A few offences normally require the direct suspension of the employee without any prior warnings, oral or written. In other offences, it normally comes as the next logical step after oral and written reprimands in the discipline process. Depending upon the nature of the misconduct committed by the employee, the immediate supervisor or manager may demand the suspension of the employee accused of misconduct. However, the decision regarding suspension is normally made by higher authorities in the organization. It is also a temporary punishment. Once the investigation is over, the suspension may be converted into dismissal or into some other less severe punishment or simply revoked.

Discharge or Dismissal This is the severest punishment of all. In this, the employee is permanently removed from service. Dismissal or discharge must be done in accordance with the relevant provisions of the law. It must stand the scrutiny of the judicial and quasi-judicial authorities. It is normally preceded by a termination meeting in which the employee is informed of the decision by the management. Usually, higher authorities are consulted on the matters pertaining to dismissal or discharge. In case of dismissal, the employee is not entitled to any separation benefits. In contrast, the employee is eligible for his provident fund and other retirement benefits in the event of his discharge from the job.

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Steps in Establishing a Disciplinary Action Procedure In many organizations, the disciplinary procedure is considered to be the most sensitive and critical HR activity. Many managers, as far as possible, avoid involving themselves in the disciplinary action procedure due to the fear of future consequences. Their ignorance of the organizational rules and the legal dimensions of the disciplinary action also discourage them from being strict in upholding discipline and in punishing the undisciplined employees. However, an effective, well-publicized and legally sound disciplinary proceeding which protects the managers from undue legal harassment can gain their confidence and willing involvement in the disciplinary procedure. The steps mentioned in Figure 21.2 are considered essential for establishing an ideal disciplinary procedure, even though each organization can have its own system to develop and maintain the disciplinary procedure. We shall now see the steps in the establishing of a disciplinary action procedure.9

Establishing a Code of Conduct The first step in the process of establishing a disciplinary procedure is the development of a clear and internally consistent code of conduct for the employees. Since the employees decide the standard behaviour based on this code, it must be explicit, definite and selfexplanatory. Organizations usually distribute employee handbooks, which contain detailed information about the dos and don’ts for their employees. The presence of a code of conduct also helps the management in ensuring transparency and consistency in disciplinary actions. Similarly, it helps the employees in knowing the behavioural and performance expectations of the management. Thus, the preparation of a comprehensive code of conduct is the first requirement for installing a disciplinary procedure.

Developing Goals and a System of Discipline The next step in the installation of the disciplinary procedure is the determination of the disciplinary objective of the organization. The management must make it clear to the employees what it expects as the outcome of the disciplinary action procedure. When the goal of the disciplinary procedure is the punishing and the consequent correcting of the behaviour of the undisciplined employees, it would adopt a negative disciplinary system. The characteristics of negative discipline are: (i) it focuses more on the past behaviour of the employee; (ii) the act of imposing discipline follows an authoritarian style; (iii) the outcomes of the disciplinary action are punishment, forced behaviour alteration and isolation of the employee concerned. In contrast, if the goal of the discipline system is to encourage the employees to follow self-discipline and enable them to make independent decisions to modify their behaviour appropriately, the organization would adopt a positive discipline system. the characteristics of positive discipline are: (i) the spotlight is on improving the future behaviour or performance of the employee; (ii) the environment in such disciplinary meetings is friendly and collaborative; (iii) the outcome of the disciplinary action is an understanding of the problem and joint determination of strategies like counselling and training to solve the problems. Once the organization decides on the goals of discipline and on the discipline system to achieve the discipline goals, it moves to the next step.

DISCIPLINE AND DISCIPLINARY ACTION

Step 1: Establishing a code of conduct

Step 2: Developing goals and a system of discipline

Step 3: Dissemination of information about the goals and the likely outcome of the disciplinary proceedings

Step 4: Ensuring consistency in the disciplinary action

Step 5: Provision for appeal

Step 6: Feedback and review

Figure 21.2 Steps in Establishing a Disciplinary Action Procedure

Dissemination of Information about the Goals and the Likely Outcome of the Disciplinary Proceedings The primary purpose of any form of disciplinary system is to deter the employees from indulging in any act of behavioural or performance misconduct. In order to achieve this purpose, it is absolutely essential for the organization to publicize the goals and rules of the disciplinary proceedings among all the employees of the organization. Every employee must know clearly what will follow as disciplinary action for his acts of indiscipline. The organization must also widely publicize the maximum punishments for different misconducts.

Ensuring Consistency in the Disciplinary Action The main purpose of developing a disciplinary proceeding is to ensure that the misconducts of equal nature get equal punishment, irrespective of persons and periods. This requires the

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managers’ strict adherence to all the provisions of the disciplinary system. When an organization fails to ensure consistency in the application of disciplinary rules and regulations and acts arbitrarily in the award of punishments, its moral, ethical and legal credibility in dealing with discipline matters gets drastically undermined. Therefore, it is very important for the management to observe the disciplinary proceedings closely to ensure the total compliance of managers and supervisors with the disciplinary procedure.

Provision for Appeal Every disciplinary procedure must have a provision to permit the aggrieved employee to appeal against the outcome of the disciplinary proceedings. On no account should this ‘right to appeal’ be taken away from the employees. Similarly, every disciplinary procedure must respect the management’s right in changing the rules and regulations of the disciplinary proceedings and the punishments awarded to the employee at the end of these proceedings. No policy, procedure or system can take away the right of the management to decide on disciplinary matters.

Feedback and Review Changes continuously occur in the environment of business. These changes in labour and technological characteristics and in legislation may require proportionate changes in the code of conduct and the disciplinary proceedings. For instance, fixed working hours have to some extent been replaced by flexi hours. Similarly, the need for the physical presence of employees in offices has been replaced with the e-commuting mode of employment. Since maintenance of discipline is a continuous process, it is essential for the organization to gather feedback from its managers, employees and unions about the efficacy of the existing discipline system. Based on the feedback, the management must review the disciplinary proceedings to make them more contemporary and objective.

Essential Steps to Enhance the Effectiveness of Discipline Meetings In any organization, disciplining is one of the most difficult tasks to be performed by the managers, especially when severe punishments are to be given. Disciplining the employees is not an uncommon activity of the organization and thus the process of disciplining must get due attention and importance from the management. When the manager comes across a situation where discipline is breached, he must work systematically to take the discipline issue to its logical end. The manager must not invite the charges of unfairness, arbitrariness and inconsistency at any time during the process. He must follow the discipline guidelines systematically and scrupulously all through the discipline process.10 The manager must adhere to steps like (i) Gathering relevant information about the reported act of indiscipline (ii) Evaluating the nature and intensity of the misconduct and its impact on employee performance and behaviour. (iii) Collating all the relevant information about the undisciplined employee. The information may relate to the employee’s length of service, past behaviour, the background

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of the misconduct, and the severity of the incident. This information would then be used at the time of interview with the undisciplined employee. (iv) Calling a meeting with the manager to discuss every aspect of the problem, and they should develop jointly the action plan to prevent the occurrence of such incidents in the future. (v) Recording the results and agreements of the meeting in writing and signed by both the manager and the employee. (vi) Verifying the employee’s compliance with the agreements of the meeting.

Elements of a Good Disciplinary System A good disciplinary system would focus on the act of the problem and not on the person. It would consider the questions of “What was done” and “Why was it done?” It would be least concerned about “Who has done it?” A good disciplinary procedure approaches the whole disciplinary issue in an impersonal and objective manner. Typically, a good disciplinary system would be guided by the philosophy of an organization and its policy on discipline. In fact, organizations are now widely publicizing their codes of conduct and disciplinary procedures to show how fair they are in dealing with their human resources. This publicity, in turn, helps the organization in attracting the most talented and enterprising individuals to the organization. A good disciplinary system facilitates the organization in developing a cordial relationship with the unions. It also ensures due recognition for the unions in the disciplinary process. We shall now see the elements of a good disciplinary system.

Clarity in Discipline Goals At the outset, an effective disciplinary system must have absolute clarity in its goal. The vision, mission and philosophy of an organization can guide its HR department in developing an unambiguous goal for its discipline. In the absence of clarity, an ambiguous goal can send conflicting signals to the employees about the intentions of the organization in discipline handling. It may also create unnecessary fear and uncertainty in the minds of the employees. It can also affect the morale of the employees adversely.

Fairness of the Procedure A good disciplinary system would ensure that the managers dealing with employee misconduct act impartially in conducting the disciplinary proceedings and in deciding the quantum of punishment. At the end of the disciplinary process, the employee must get the feeling that he was given a fair hearing and that the disciplinary action was guided purely by the severity of the offence and not by the personality of the offender.

Transparency Each employee facing disciplinary action must be aware of the stages involved in the disciplinary proceedings. The details of the disciplinary meeting must be conveyed in writing to the employee. The employee must also be given the opportunity to respond in writing if they disagree with the facts presented in the written report. In short, there must be complete transparency in the disciplinary proceedings.

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Prior Warning The purpose of any disciplinary system or policy is to prevent the occurrence of indiscipline in the organization. A good disciplinary system will act as a deterrent against the possible misconduct. In this regard, the organization must ensure that each employee is aware of the consequences of his actions. The code of conduct must spell out clearly the dos and don’ts in the organization and the maximum punishments for various performance and behaviour misconducts.

Adequate Privacy A good disciplinary system would ensure that discipline is enforced in private and that the employee is not humiliated unnecessarily in public. This may allow the punished employee to lead a normal work life in the aftermath of punishment.

Immediate Response The organization must never delay the process of imposing discipline on the employees charged with misconduct. In fact, ignoring or postponing disciplinary action would make things even worse for the organization.11 Organizations can compromise on disciplines only at their own peril.

Consistency It is another critical element of a good disciplinary system. In the absence of consistency in the outcome of the disciplinary action, the employee may lose confidence in the discipline delivery system itself. Obviously, an organization is fraught with more dangers from a defective discipline system than from the absence of it. An inconsistent system may affect the employees’ morale and motivation, can develop the grievance of unfair treatment among the punished employees, and finally strain the industrial relations.

Progressive Discipline A good discipline system would provide adequate opportunity to the employees to modify their behaviour and fulfil the performance and behaviour expectation of the management. A progressive discipline, for instance, would begin with counselling the employee, then gradually get tough with him, and, finally, end up with the severest punishments like dismissal or discharge, if all the efforts fail. Understandably, it provides ample opportunity to the employees to refine their behaviour.

Documentation Proper documentation of the disciplinary proceedings is another important element of a good disciplinary system. In the event of a legal tussle over disciplinary actions, the organization must be able to defend its case effectively in the court. The documents of the disciplinary proceedings are important evidences to prove the fairness of the whole process.

Appeal Procedure A good disciplinary system would provide adequate opportunity to the disciplined employee to appeal against the disciplinary action. In fact, an appeal provision in the disciplinary system lends credibility to the entire disciplinary proceedings and acts as a check against arbitrariness.12

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Review and Feedback A good disciplinary system would seek feedback from the managers, frontline supervisors and workers about the efficacy of the system. This feedback would help the organization in reviewing the discipline system in light of the suggestions provided by different stakeholders.

Douglas McGregor’s Hot Stove Rule of Discipline Douglas McGregor (1967) identified a few essential characteristics of the disciplinary system of an organization to make it fair, growth-producing and objective. He compared the characteristics of a good disciplinary system with those of a red hot stove to facilitate a better understanding of the concept of discipline. He found four similarities and used them to highlight the requirements of an effective disciplinary system. These common characteristics are: (i) forewarning, (ii) immediacy, (iii) consistency and (iv) impartiality. We shall now see these four characteristics of a hot stove applicable to any disciplinary system.

Forewarning The employees must be forewarned about the consequences of their actions. They must know without doubt that if they break the rule (like touching the hot stove), they would be punished (like getting the fingers burnt) surely. The employees have the responsibility to be aware of the rules and of the punishment for the violation of the rules.

Immediacy When the employees break the rule, the punishment must follow immediately (like getting their fingers burnt at once). The organization must ensure that there is no undue delay in conducting disciplinary proceedings and deciding on the punishment, once indiscipline has been reported and proved subsequently.

Consistency Whenever the employees break the rule (like touching the hot stove repeatedly) they must be punished with the same intensity and speed (like burning the fingers as many times). Thus, there must be consistency in the administration of discipline between persons and periods.

Impartiality Irrespective of who breaks the rule the punishment (severity of burn to the fingers) must be the same. The disciplinary system must consider the offence alone and not the personality of the offender while deciding the punishment.

Code of Discipline The code of discipline was drafted by a sub-committee appointed by the Indian Labour Conference in 1957 in its fifteenth session and later accepted by the central organizations of employers and employees in 1958. This code is a moral and not a legal approach to discipline.13 It places the burden of maintaining discipline on the shoulders of both the management and the employees represented by their unions. The basic tenet of this code is to

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foster mutually beneficial cooperation between the management and the workers at all levels of the organization. We shall now see the major objectives of the code of discipline: • It aims at averting stoppages and time-consuming and costly litigations. • It strives to secure the settlement of conflicts, disputes and grievances through mutual negotiations and reconciliation and voluntary arbitration. • It looks to shun all forms of bullying, exercise of coercive authority, and violence in the relationship between the employers and the workers and their representatives. • It endeavours to provide adequate opportunity for the unions to grow freely and quickly. • It encourages the establishment of a regular grievance redressal procedure in all the organizations with the purpose of attending to the employee complaints promptly. • It encourages free exchange of constructive ideas, suggestions, concerns and criticism between the representatives of the management and those of the employees at different levels of organization. The recommendations of the Indian Labour Conference regarding the code of discipline are non-statutory in nature, and, therefore, its implementation is not mandatory. Due to its recommendatory nature, it could not serve its intended purposes effectively.14

Summary 1. Discipline is a system designed to ensure that the employees’ performance and behaviour are in consistence with the relevant organizational rules and regulations in force. 2. The characteristics of employee discipline are: standard behaviour, driving force, positive or negative, voluntary or imposed, right of the management, and an element of control process. 3. The objectives of discipline are goal accomplishment, developing a responsive workforce, changing employee behaviour, improving morale and motivation, exercising better control over employees, ensuring consistency in action, promoting industrial relations and substituting personal supervision. 4. The types of discipline are positive, negative and progressive. 5. The steps in a progressive discipline process are: counselling the employee, first disciplinary proceeding (reminding), second disciplinary proceeding (warning), final disciplinary proceeding (getting

an undertaking), and initiating disciplinary action (dismissal or demotion). 6. The causes of indiscipline are conventional management practices, unfair treatment, absence of an effective code of conduct, absence of a proper grievance-handling mechanism, ineffective HR policies and practices, absence of an efficient communication system, negative attitude of the employees and their unions, and organizational culture. 7.

The types of disciplinary action are oral reprimand, written warning, denial of increments, promotions and pay hike, pay reductions and disciplinary demotions, suspension, and discharge or dismissal.

8. The steps in establishing a disciplinary action procedure are establishing a code of conduct, developing goals and a system of discipline, dissemination of information about the goals and the likely outcome of disciplinary proceedings, ensuring consistency in the disciplinary action, provision for appeal, and feedback and review.

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9. The elements of a good disciplinary system are clarity in discipline goals, fairness of the procedure, transparency, prior warning, adequate privacy, immediate response, consistency, progressive discipline, documentation, appeal procedure, and review and feedback.

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10. Douglas McGregor’s Hot Stove Rule of Discipline has (i) forewarning, (ii) immediacy, (iii) consistency, and (iv) impartiality.

Review Questions Essay-type questions 1.

Evaluate critically the different types of discipline with suitable examples.

2. Discuss the steps in a progressive discipline process. 3. What are the causes and symptoms of indiscipline in an organization? 4. Enumerate the steps in the establishment of a disciplinary action procedure. 5. Explain the steps needed to establish a disciplinary action procedure using an example.

6. Delineate the elements of a good disciplinary system with relevant examples. 7.

Evaluate the strengths and weaknesses of the code of discipline.

8. “Disciplining an employee is the most complex task for the management of a company.” Discuss. 9. Discuss the effectiveness of the disciplinary procedure in maintaining discipline in Indian industries. 10. Discuss the essentials of a sound disciplinary system.

Skill-development Exercise Objective – The objective of this exercise is to show you how to develop a code of conduct for maintaining effective discipline within the organization so that the employees’ morale and motivation are high. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two office-bearers of the trade unions, and (4) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them. Situation Tupelex Aquatics Private Limited is engaged in the production of cleaning solutions including water purifiers, vacuum cleaners, air purifiers, glass and industrial cleaning solutions. This company has been a market leader for many of its brands with a dominant share in the market. However, in the past two years, the company has reported a high incidence of performance and behaviour mis-

conduct. as well as a significantly higher rate of labour turnover during these years. An investigation by the company into the cause of these two events revealed the reason—the absence of a fair and objective code of conduct and disciplinary system. The arbitrary manner of the disciplinary proceedings and actions emboldened the undisciplined employees and de-motivated the sincere and efficient ones. Due to this, employees began to leave the company in search of better employment. Sensing the urgency of the situation, the management ordered the HR department to develop a code of conduct for the employees and an effective discipline system based on the progressive discipline model. Steps in the exercise There are three steps in the exercise: Step 1: The HR manager meets the office-bearers of the trade unions to ascertain their views and suggestions

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relating to the proposed code of conduct and disciplinary action procedure.

The new code of conduct and disciplinary procedure will be sent to the top management for approval.

Step 2: He convenes a meeting of his HR team to evolve a new code of conduct and disciplinary action procedure after due consideration of the relevant reports and guidelines.

Step 3: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Mr Ravi Kumar has been with Akash Cements Limited f or the past 26 years and still has five more years of service in the company. He is a senior technician in the production department. He is known for his commitment and his supervisors and managers have had high regard for him. He has maintained an unblemished service record in his entire career and has been disciplined in the past only for complaints like late attendance and availing leave without prior permission. As regards the disciplinary actions taken in this regard, he was counselled by his supervisors immediately after the occurrence of these misconducts. As such, no written reprimand was served on him for these minor offences. Thus the personnel file of Ravi was devoid of any serious complaints against him. until a serious misconduct was reported against him last week. Last Saturday, when Ravi Kumar was busy arranging the machine and materials before commencing production, he picked a job-related quarrel with Rakesh Ray, a coworker in the designation of a machine assistant, regarding work sharing for that day. What started as a wordy duel soon developed into a full-fledged confrontation. Finally, it ended up in a physical brawl between these two employees. In the process, Ravi Kumar dealt some injuries to Rakesh Ray. The latter had to be given first aid and leave with pay for that day. Since the duty supervisor was away from the work spot due to his scheduled meeting with the manager, the supervisors had to depend on the statements of the witnesses, all of whom were unanimous in their view that Ravi Kumar was primarily responsible for the incident as he had been the first one to use physical force and Rakesh Ray had merely defended himself.

However, the employees were aware neither of the exact conversation between them before the scuffle nor of what enraged Ravi Kumar. The code of conduct of the company was clear about how a case of fighting must be dealt with. It recommended an emergency suspension of the employee involved in the fighting pending enquiry. However, the duty supervisor was not in favour of suspending Ravi Kumar immediately as he perceived no danger from him and was also aware of his past record. Moreover, he was afraid that this harsh punishment could affect Ravi Kumar’s performance. He recommended to the HR manager that Kumar be allowed to work till the disciplinary proceeding was over and its outcome was known. The HR manager was against the opinion of the supervisor for he felt that this concession could set a bad precedent and, thus, weaken the disciplinary system of the organization. The management is in favour of helping Ravi Kumar without violating the discipline code of the company. Questions for discussion 1. Do you agree with the recommendation of the supervisor regarding the suspension of Ravi Kumar? 2. How would you approach the issue if you were the HR manager of this company? 3. How would you help the management in resolving the disciplinary issue in the way the management wishes?

Notes 1. P. Falcone, “Fundamentals of Progressive Discipline,” HR Magazine, 42, no. 2 (February 1997): 90–94. 2.

William R. Spriegel and Edward Schultz, Industrial Management (London: Longmans, 1967).

3. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ: Pearson Education, 2007), p. 430.

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4.

Wayne F. Cascio, Managing Human Resources: Productivity, Quality of Work Life, Profits, 6th ed. (New Delhi: Tata McGraw-Hill, 2002), p. 549.

5.

Marjorie Mader-Clark and Lisa Guerin, The Progressive Discipline Handbook: Smart Strategies for Coaching Employees (Berkeley, CA: NOLO, 2007), p. 3.

6. Carol Hymowtz, “Managers Struggle to Find a Way to Let Someone Go,” The Wall Street Journal, (28 July 1998), p. B1. 7.

8. 9.

William O. Umiker, Management Skills for the New Health Care Supervisor (Boston: Jones & Bartlett Publishers, 2005), p. 174. Charles W. L. Hill and Gareth R. Jones, Strategic Management (Boston: Houghton Mifflin, 2001). Joyce B. Gentry, HR How-to: Discipline, Everything You Need to Know About Implementing an Effective Employee Discipline Program (Chicago, IL: CCH Incorporated, 2003), p. 12.

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10.

Marjorie Mader-Clark and Lisa Guerin, The Progressive Discipline Handbook: Smart Strategies for Coaching Employees (Berkeley, CA: NOLO, 2007), p. 34.

11.

Joyce B. Gentry, HR How-to: Discipline, Everything You Need to Know About Implementing an Effective Employee Discipline Program (Chicago, IL: CCH Incorporated, 2003), p. 16.

12.

Joyce B. Gentry, HR How-to: Discipline, Everything You Need to Know About Implementing an Effective Employee Discipline Program (Chicago, IL: CCH Incorporated, 2003), p. 17.

13.

G. R. Madan, Indian Social Problems Vol. 2, 5th ed. (New Delhi: Allied Publishers, 1998), p. 242.

14. Jerome Joseph, Industrial Relations: Towards a Theory of Negotiated Connectedness (London: Sage, 2004), p. 149.

CHAPTER

22

Employee Grievances

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the definitions and characteristics of grievances 2 Enumerate the sources of grievances 3 List the techniques of grievance identification 4 Understand the grievance procedure 5 List the essentials of a good grievance procedure 6 Understand the statutory provisions concerning the grievance procedure in India

ACC is a large cement-producing company with a workforce of about 9,000. It has won several awards and accolades for performance and productivity. Its approach towards human capital is viewed by the industry as distinct and innovative. Its emphasis is on developing a strong sense of loyalty among the employees and developing them as a value-adding human capital. For this, it adopts a proactive approach towards its employees by trying to identify their grievances at the earliest possible stage and by conducting employee surveys through professional agencies. For instance, ACC has employed the services of Mercer and the Boston Consulting Group to study its internal work environment and employee policies and suggest

areas of improvement. ACC also conducts its own periodic internal employee satisfaction surveys to assess the areas and levels of satisfaction of its employees. In addition to these in-house surveys, it also participates in annual employee satisfaction and workplace surveys organized by various external agencies like Hewitt Associates and Grow Talent. These systematic measures have ensured the presence of a conflict-free and congenial internal environment within the company. Having understood the methods and benefits of the early diagnosis of grievances for an organization through a live example, let us now discuss the different aspects of grievances and their redressal mechanisms in detail.

Introduction Every organization strives hard to create a work environment in which employees feel satisfied and relaxed. But, this is easier said than done since organizations often face situations where employees feel dissatisfied by the actions and policies of the management and supervisors.

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Conventionally, this feeling of dissatisfaction or discontentment in an employee is treated as a complaint, if it is expressed orally, and a grievance, if it is in a written form. This grievance may be real or imaginary, serious or trivial, but it should arise from a person’s employment in the organization. Generally, grievances arise due to the presence or absence of certain factors. For example, salary and perquisites, working conditions, working hours, policies relating to promotion and transfers, code of conduct, personality factors like the superior’s attitude,1 technological development, and innovations can cause grievances among employees. Box 22.1 describes the various definitions of the term grievance. In conclusion, a grievance is a written complaint lodged by an unsatisfied employee about unfair treatment.

Characteristics of Grievances On the basis of these definitions, we can make out the following characteristics of grievances: • Grievances arise out of the perceived injustice or unfair treatment felt by the aggrieved employee. • It is the state or feeling of discontent or dissatisfaction about any aspect of an organization. • The cause of a grievance may be real or imaginary, serious or inconsequential, genuine or fake, legitimate or irrational. • A grievance may be voiced or unvoiced. But it should be expressed in some form. It is normally expressed in a written form. • It must arise only out of the job of the employee in the company and not out of family or personal problems.

Sources of Grievance A number of events can prompt an employee to feel dissatisfied or discontented in the job, and result in grievance. Practically speaking, it is easier to list out those items that would not

Box 22.1

Definitions

“A grievance is an alleged violation of the rights of workers on the job.”2 —D. Q. Mills “A grievance is a type of discontent which must always be expressed. It can be valid or ridiculous but must grow out of something connected with company’s operations or policy. It must involve an interpretation or application of the provisions of the labour contract.”3 —Edwin B. Flippo “A grievance is a written complaint filed by an employee and claiming unfair treatment.”4 —Dale Yoder

“A grievance is any discontent or dissatisfaction whether expressed or not, whether valid or not, arising out of anything connected with the company which an employee thinks, believes or even feels to be unfair, unjust or inequitable.”5 —Michael Jucius “The complaints affecting one or more individual workers in respect of wage payments, overtime, leave, transfer, promotions, seniority, work assignment and discharge constitute grievances.”6 —The National Commission on Labour

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cause grievances among employees than those that could precipitate them. However, one must understand the fact that certain grievances are more serious than others in their intensity and some are more frequent than others in their occurrence. Grievances are usually filed over disciplinary actions concerning employees and over dissatisfaction on matters like seniority problems, work assignment, job classification, scheduling, promotion, transfer, lay-off and recall, subcontracting of work, and employee entitlement to benefits like vacations, incentive plans and holidays.7 Grievances generally arise from the following sources: • Contract terms, which are too general, contradictory, or ambiguous • Working conditions and pay arrangements, which are in some manner unsatisfactory to the employees • Supervisors who fail to properly abide by and administer the contract • Employees who fail to live up to the conditions set by the management or who neglect adhering to the terms of the contract8 Management experts have identified three major factors to be responsible for causing grievances among employees. These are management policies and practices, trade union practices and personality traits.9 An expert agency’s10 compilation on the sources of employee grievances reveals the following as the important sources: Demands for individual wage adjustment; Complaints about the incentive system; Complaints about job classification; Complaints against a particular foreman; Complaints concerning disciplinary measures and procedures; Objections to the general methods of supervision; Wrong calculation and interpretation of seniority rules and an unsatisfactory interpretation of agreements; Promotions; Disciplinary discharge or lay-off; Transfers for another department and another shift; Inadequacy of safety and health services/devices; Non-availability of materials on time; Violation of contracts relating to collective bargaining; Improper job assignment; Undesirable or unsatisfactory conditions of work. For Indian organizations, the following were found to be the potential sources of grievances for employees: promotions, amenities, continuity of service, compensation, disciplinary action, fines, increments, leave, medical benefits, nature of job, payment, recovery of dues, safety appliances, superannuation, suppression, transfer, victimization, and conditions of work.11 A study of several small business organizations found out that the major grievances of employees centred on less payment of salary and non-payment of salary on time. It also found out that a great majority of the organizations have not put any grievance procedure in place.12 Though it is not possible to state with precision the common causes of grievances for any organization, we can broadly group the sources of grievances under the following headings:

Management Policies and Practices Basic wages and salary scale, provision for general wage rise and overtime allowances; Employee benefits and incentive schemes; Promotion and transfer criteria; Leave of absence and holidays; Fines, punishments and penalties; Attitude towards labour union.

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Working Conditions Occupational health and safety measures; Physical conditions of the workplace; Changes in production schedules and standards; Shortage of required raw material, tools and machines and equipment for performing the job; Improper allocation of work, duties and responsibilities to employees.

Supervision Style of supervision; A misunderstanding between the supervisor and the workers; Rigidity in the interpretation of rules and regulations; Discouraging the complaints and representation of the workers; Ambiguous job instructions.

Collective Bargaining Agreements Vague and unclear language and clauses in the agreements; Violation and/or non-fulfilment of the terms of agreement; An emphasis on a legalistic approach to the employees’ problems without considering the social and economic dimensions that may have a bearing on these problems.

Work-adjustment Difficulties Basic attitude towards job and company; Excessive self-esteem and pride; Introverted personality; Grumbling and fault-finding mindset.

Techniques of Grievance Identification When the grievances of employees are not diagnosed, recognized and resolved at an earlier stage, the organization may face, in course of time, unpleasant situations like high absenteeism, insubordination, low morale, a high incidence of accidents, low productivity, and a strain on industrial relations. This is because of the fact that even a small grievance may be a symptom of a big underlying problem. A good organization must have the ability to detect, analyse and correct the causes of potential employee dissatisfaction before these become grievances. This calls for a proactive rather than a reactive approach of waiting for the grievance to reach it formally. For this, the organization must perfect a system to identify the simmering trouble in advance and solve it before it gets out of control. It may adopt any one of the methods mentioned in Figure 22.1 to identify employee dissatisfaction.

Exit Interview When employees quit an organization for any reason, an exit interview may be conducted to obtain information about job-related matters. It will be natural for those quitting their jobs to speak freely and frankly about their experience and observations in the job. This can provide the employer with an invaluable insight into the simmering problems and anxieties concerning the employees. The length and content of the exit interview will usually depend on the position of the quitting employee in the organizational hierarchy and his reasons for departing from the organization. It is a good opportunity for the management to learn about the invisible but real problems plaguing the organization. It is absolutely essential that the

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Exit interview

Open-door policy

Gripe-box system

Grievance Identification Techniques

Observation

Opinion surveys

Figure 22.1 Techniques of Grievance Identification

employee is treated with dignity and respect at the exit interview. The vital element in an effective exit interview is preparation. Planning forms an essential part of success in conducting the exit interview. In any exit interview, the organization will attempt to find out from the departing employee information like the reason for leaving the organization, the HR policies that require improvement, and the positive and negative aspects of his job.

Gripe-box System Under this system, employees can drop their written complaints in the boxes kept by the organization. The purpose of this system is to provide an outlet to the employees to secretly express their complaints and apprehensions without the fear of being victimized. Gripe boxes are usually kept at prominent places in the office for receiving anonymous complaints pertaining to any aspect of work. This method is more effective than suggestion boxes, if the complaints are serious and sensitive in nature. Box 22.2 highlights the essence of e-gripe boxes.

Opinion Surveys While a gripe box is an impersonal means of collecting complaints, an opinion survey is the direct and personal means of gathering information from the employees about their existing grievances. Group meetings, periodical interviews, snap meetings, and collective bargaining sessions are the various forums available for the employers to get to know the employee’s state of mind.

Open-door Policy This is a progressive style of gathering complaints from the employees. In this system, the workers are encouraged to call on the relevant manager at any time, to freely share their

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Box 22.2

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E-Gripe boxes: A New Style in Grievance Identification

In recent times, organizations are making all possible efforts to keep the attrition rate under control. Quite understandably, grievance identification plays a pivotal role in helping the organization understand its internal environment. Today, every employee who has a grievance expects his company to hear him properly and resolve his grievances fairly and expeditiously. This means that the employee must be provided with the easiest possible means to register his grievance so that the management acts on it without any delay. Of late, many large companies, especially the IT ones, have opened up many avenues to enable the employees to

register their grievances. One such platform is the e-gripe box. The management usually encourages the employees to post anything that bothers them in the company even while assuring complete confidentiality of the information. Competent authorities in the organization act on the grievances posted while maintaining the details of the employees’ secret. In fact, some reputed universities like Virginia Tech University are using e-gripe boxes to gather the grievances of their students about their professors. Adapted from: http://www.hkn.ece.vt.edu/images/hkn. ece.vt.htm

opinions, feelings and complaints with him. This method will be effective only when there is mutual trust in the relationship among the managers, the supervisors and the employees.

Observation In this grievance identification technique, grievances are not heard from the aggrieved employee directly. Rather, the manager or the immediate supervisor constantly tracks the behaviour of the employees working under him. If he comes across an employee who exhibits an indifferent attitude, experiences difficulties in getting along with people, mishandles or damages tools, equipment or materials due to carelessness or rashness, resorts to frequent absenteeism, then they infer that the employee has some serious grievances, which warrant immediate attention and remedy. Once the manager or supervisor notices such an unusual behaviour, he should report this to the higher authorities promptly. Once the grievances are brought to the notice of the management through any of the grievance identification techniques, it must make every possible effort to prevent these grievances from developing into full-fledged disputes. It must begin the process of redressing the grievances at the earliest.

The Grievance Procedure The best way to handle a grievance is to prevent it from arising in the first instance by creating a positive work environment; the next best way is to have an effective mechanism to handle the reported grievance in a mutually satisfactory and expeditious manner. Box 22.3 outlines the basis of grievance redressal schemes of ONGC. Each organization can develop and practise its own procedure to redress the grievances of the employees. For example, large organizations may have a well-established system for a grievance procedure while small ones may follow an ad hoc approach to grievance handling. Nevertheless, grievance procedures are the keystones of industrial relations because of their ability to resolve disputed issues while work continues without litigation, strikes and other radical disputes.13 The three fundamental principles governing any grievance settlement procedure are: (i) settlement at the lowest level, (ii) settlement as expeditiously as possible, and (iii) settlement to the satisfaction of the aggrieved. The following figure outlines the typical grievance

508 Box 22.3

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Grievance Handling: Significance of Non-discriminatory Schemes

Indian organizations are adopting various measures to motivate and retain their precious workforce. It is important for every organization to make the employees feel that it cares for them. Thus, it becomes imperative for it to develop, install and maintain an in-built system to recognize the performance, problems and potentiality of the employees. The maintenance of a dynamic grievance identification and redressal mechanism is one such measure in employee retention strategy. The HR policy

of ONGC is a case in point. In order to keep its employees satisfied and motivated, the company has incorporated schemes such as grievance identification schemes, grievance handling schemes and suggestion schemes to identify and redress the grievances of its employees. The crux of its grievance handling schemes is to make everyone believe that there is a standard process, which is fair, reasonable and non-discriminatory. Adapted from: http://www.ongcindia.com

procedure for a unionized organization. Although five stages are prescribed in Figure 22.2, it is not necessary that each grievance must pass through all these stages. We shall now discuss these stages in detail.

Stage 1 In the first stage, the aggrieved employee, also called a grievant, makes a written/oral submission to his immediate supervisor about his grievance. Union representatives may or may not accompany the aggrieved employee to the supervisor. After ascertaining the facts of the complaint, the supervisor takes the necessary action to settle the issue and informs the employee of his decision. When the employee is satisfied, the matter ends there; otherwise the aggrieved employee proceeds with the next course of action.

Stage 2 Now, the aggrieved employee goes to higher authorities like the sectional/departmental head or any other competent person for the settlement of his grievance. At this point, the employee is normally accompanied by the middle-level union leaders. After analysing the grievance in detail and seeking relevant explanations, the concerned supervisor arrives at a decision and communicates it to the aggrieved employee. If the employee is not satisfied yet, he would request his union to process the grievance and adopt it as a union grievance.

Stage 3 At this stage, the employee grievance becomes the union grievance and it is referred to the grievance committee consisting of members representing both the management and the labour union. The committee would discuss the issue in detail and reach a decision for settling the grievance. It is also possible that the committee may refer the matter to a higher level, if it could not resolve it.

Stage 4 If the grievance still defies solution, the stage is set for referring the issue to the arbitrator for third-party mediation. Usually, the arbitrator is chosen jointly by the management and the union. Now, the concerned supervisors in consultation with the higher-level union leaders write the issue to be arbitrated.

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Stage 5

Arbitration (Decision final and binding)

Union and management meeting participants Stage 4

Top-level executives Higher-level union leaders

Grievance committee meeting participants Stage 3

Union grievance committee members Management grievance committee members

Meeting (Departmental level) participants Stage 2

Aggrieved employee Sectional or departmental head Middle-level union leaders

Meeting (Shop-floor level) participants Stage 1

Aggrieved employee Union representatives Front-line supervisor

Issue resolved

Issue resolved

Issue resolved

Issue resolved

Issue resolved

Grievance filed by the employee Figure 22.2 The Stages in the Grievance Procedure

Stage 5 Grievance arbitration is the final stage of the grievance procedure. The arbitration hearings are quasi-judicial proceedings. The arbitrator’s decision is final, compulsory and binding on both the management and the union. However, in the absence of any formal grievance procedure, the non-unionized and/ or smaller organizations normally adopt a simple, two-stage procedure for settling the grievances of the employees. These stages are:

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Stage I: The aggrieved employee makes a written or oral representation to the frontline supervisor, seeking settlement of his grievance, and if the redressal efforts fail, the issue goes to the next stage. Stage II: In this stage, the labour officer is involved in the process. He acts as a mediator between the aggrieved employee and the supervisor in arriving at a settlement.14 Higher levels of management may get involved in the grievance redressal procedure, depending on the nature and magnitude of the grievance and other situational necessities. The effectiveness of the grievance machinery is reflected in the extent to which the issues are resolved amicably at the first stage itself without full exercise of all the stages. At the first level of grievance procedure, front-line managers usually play a key role in settling the grievance. Factors like proper training and attitudinal change among the frontline managers and the creation of the right environment in the organization can enhance the efficiency of the grievance procedure in settling the grievances promptly.15 Generally, the grievance redressal method adopted in smaller organizations is to allow the aggrieved employees to discuss their grievances openly with the management and get their grievances redressed, if found genuine.16 Box 22.4 shows a model grievance redressal system. The Indian Institute of Personnel Management, Kolkata has given a brief set of fivepoint instructions to be followed by both the management and the aggrieved employee while implementing the grievance-redressal procedure. 1. In the first instance, the grievance should be settled at the lowest level; that is, the employee should raise his grievance with his immediate superior. 2. It should be made clear to the employee that he may appeal if he does not get satisfaction from his immediate superior. He should know who he should refer his grievance to. 3. The grievance should be dealt with promptly and objectively. Box 22.4

The Grievance Redressal Mechanism for Health-care Organizations

Each industry and each company within that industry can have its own system of handling the grievances of employees, provided it conforms to the basics of a good grievance handling mechanism. There is no hard-andfast rule available to govern the functioning of a grievances redressal system except that it should not violate any statutory provisions of the country. Ankush Gupta has prescribed the following steps for a grievance handling mechanism for hospital organizations: • When the grievance pertains to an individual employee, he should verbally represent his grievance to his immediate superior, who should provide the solution within a day if the grievance relates to emergency leave, health problems or similar matters that require immediate attention, and within three working days if the grievance relates to matters that do not need immediate attention.

• If the immediate superior is unable to settle the grievance, the employee should be allowed put up his grievance, in writing, to the head of the department (HOD) or section. The HOD concerned should settle the grievance himself within the next three working days or call the workman along with his immediate superior and try to resolve the grievance. • If the matter is still unresolved, it should be discussed jointly by the HOD and the HR department in an attempt to resolve the grievance. If the grievance remains unresolved, the matter should be taken up with the chief executive and his decision in the matter should be binding on all concerned. Source: Ankush Gupta; http://www.expresshealthcare. in; reprinted with permission.

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4. If the grievance is against any instructions issued by the superior, the employee should understand clearly that in the interest of discipline the instruction must first be carried out before the grievance can be considered and decided upon. It is only when this has been done that the employer will register his protest and set the grievance procedure in motion. 5. It should be clearly understood by the employee that there will be no recourse to any official machinery till the grievance procedure has been set in motion. In the event that the employee is still dissatisfied, there will be no direct action by either party which might prejudice the case or raise doubts while the grievance is being investigated.17

Essentials of a Good Grievance Procedure A good grievance procedure must fulfil the following conditions:

Legally Sustainable It should be ensured by the organization that its grievance procedure is in conformity with the existing laws of the nation. The procedure cannot violate any of the rights of the employees guaranteed by the law. In case of disagreement between the grievance procedure and the legal provision on any matter, the latter is supreme and binding.

Mutually Acceptable In order to be effective, the grievance procedure must enjoy the confidence of all the relevant parties, namely, the management and the employees and their unions. The grievance procedure should not be viewed or used as a battleground by a party to defeat the other. The procedure must ensure equity, justice and openness in its operation to instil confidence in the minds of all the parties.

Easily Understandable The grievance procedure must be reasonably simple and easily understandable. It should be known to all the employees of the organization. If an employee has a grievance on hand, he must know what is to be done and who is to be contacted. The use of technical jargon should be avoided. Even the lower-level workers must be able to use the grievance procedure without fear.

Highly Flexible The grievance procedure should be flexible enough to respond to the reported grievance quickly. It should not get bogged down in any procedural delay. As far as possible, the number of stages in the grievance procedure should be kept to the minimum. There should also be a time limit at each stage to redress the grievance. In fact, the promptness in grievance settlement indicates the efficiency of the system. To the extent possible, the grievance should be settled at the earliest stage to save the time and resources of the parties involved in the dispute. The culture of being rule-bound and procedure-oriented should not dominate grievance redressal forums.19 The procedure must also be reviewed periodically to keep it well attuned to the changing workforce and the organizational characteristics.

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Presents the Lists of Dos and Don’ts in Grievance Handling

A list of dos and don’ts that can be observed by supervisors and other authorities while dealing with employees’ grievances 18

Don’ts:

Dos: • Investigate and handle each case as though it may result eventually in arbitration. • Talk with the employee about his or her grievance; give the person a full hearing. • Require the union to identify specific contractual provisions allegedly violated. • Comply with the contractual time limits for handling the grievance. • Visit the work area of the grievance.

• Discuss the case with the union steward alone. The grievant should also be present. • Make arrangements with individual employees that are inconsistent with the labour agreement. • Hold back the remedy if the company is wrong. • Admit to the binding effect of a past practice. • Relinquish your rights as a manager to the union. • Settle grievances based on what is “fair”. Instead, stick to the labour agreement. • Bargain over items not covered by the contract.

• Determine whether there were any witnesses.

• Treat claims demanding the discipline or discharge of managers as a subject of arbitration.

• Examine the grievant’s personal record.

• Give long written grievance answers.

• Examine prior grievance records fully.

• Trade a grievance settlement for a grievance withdrawal.

• Treat the union representative as your equal. • Hold your grievance discussions privately. • Fully inform your own supervisor of grievance matters.

• Deny a grievance because “your hands have been tied by the management”. • Agree to informal amendments in the contracts.

Sufficiently Knowledgeable The managers, supervisors, union leaders and others dealing with employee grievances must be well-trained in the grievance handling procedure. They should have sufficient knowledge and a good exposure to the techniques of grievance redressal. This is essential for improving the efficacy of grievance redressal procedure. Box 22.5 lists some of the points to be noted while handling a grievance.

Benefits of the Grievance Redressal Procedure A sound grievance procedure offers the following benefits to an organization: • Enables the management to know the pulse of its employees by learning about their feelings and opinions about the policies and practices of the organization. • Provides a channel to the aggrieved employees to express their grievances about various aspects of their jobs formally.20 • Provides clues about the behaviour and attitude of the managers and supervisors towards their subordinates.

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• Gives an assurance to the employees about the existence of a mechanism for the prompt redressal of their grievance. • Keeps up the morale of the employees by ensuring that their grievance will be redressed in a fair and transparent manner.

Statutory Provisions Concerning the Grievance Redressal Procedure in India In India, the legislative measures governing grievance procedure in industrial organizations are limited. There are three important legal provisions that specify the rules relating to the grievance redressal procedure in Indian industrial organizations. These are:

The Industrial Employment (Standing Order) Act, 1946 Clause 15 of the model standing orders in schedule I of the Industrial Employment Act makes it mandatory for every establishment employing 100 or more workers to have appropriate officers to deal with the complaints of the employees pertaining to their employment with an inherent right to appeal to the highest authority, namely, the employer.

The Industrial Disputes Act, 1947 The provisions pertaining to grievance handling and settlement in this act specify that • There shall be a grievance settlement authority in every industrial organization that employs 50 or more workers. • Whenever an industrial dispute arises in those organizations, the concerned worker or his union may refer such a dispute to the grievance settlement authority for settlement. • The grievance settlement authority, with due regard for the procedure and timeframe, shall process the matter and conclude its proceedings. • There shall be no reference of any dispute to boards, courts or tribunals unless and until such a dispute was considered by the grievance settlement authority to reach a decision and the decision so reached became unacceptable to any one of the parties to the dispute.

The Factories Act, 1948 Section 49 of the Factories Act necessitates the appointment of a welfare officer in every factory that employs 500 or more workers. These officers are actually responsible for settling the grievances of employees. However, this act provides the labour welfare officers with multiple responsibilities. These responsibilities hinder the effective functioning of these officers in terms of settling the grievances of employees.

The Model Grievance Procedure The National Commission on Labour has suggested a model grievance procedure which would ensure the speedy settlement of grievance. The model comprises five steps as outlined as follows:

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1. The aggrieved employee shall convey his or her grievance verbally to the officer designated by the management to deal with grievance. The officer will have to reply to the complaints within 48 hours of its presentation to him or her. 2. If the grievant is not satisfied with the answer or does not receive the answer within 48 hours, he shall, then, present the grievance to the departmental head nominated for this purpose. The head must give his or her reply within three days of the presentation of the grievance. 3. If the aggrieved employee is still not satisfied with the decision of the departmental head or does not receive a reply within the stipulated period, he can approach the grievance committee for the settlement of his grievance. The grievance committee has to give its recommendation in seven days and report it to the management. The management must communicate the decision to the grievant within three days. 4. If the employee is still not satisfied with the decision made by the grievance committee or does not receive the decision from it, he can make an appeal to the management for a revision of the decision taken. The management can take a week for the appeal to be considered, and the revised decision is to be informed to the grievant. 5. If the employee is still not satisfied with the decision of the management, the grievance may be referred to voluntary arbitration within a week after the decision taken by the management in Stage 4. The decision of the arbitrator is final and binding on both the parties, i.e., the management and the union.21

Summary 1.

A grievance is a written complaint of an unsatisfied employee about any job-related unfair treatment.

2.

The sources of grievances are management policies and practices, working conditions, supervision, collective bargaining agreements, and work-adjustment difficulties.

3.

The techniques of grievance identification are exit interview, gripe-box system, opinion surveys, opendoor policy, and observation.

4.

There are generally five stages in the grievance procedure. But the nature and number of stages usually differ for the unionized and non-unionized organizations.

5.

Any good grievance procedure must be legally sustainable, mutually acceptable, easily understandable, highly flexible and sufficiently knowledgeable.

Review Questions importance of a proper grievance procedure in a business organization.

Essay-type questions 1.

Explain the sources of grievance using examples. How can the management gather information about grievances?

2. Discuss the various stages of a grievance procedure using examples. 3.

“What industries need today are highly committed employees.” Keeping this in view, explain the

4.

(a) Define the term grievance and explain the various dimensions of grievances and their implications on employee performance. (b) Examine the steps that are recommended while dealing with an employee’s grievance.

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5. “The prompt and effective handling of grievances is essential for maintaining harmonious or healthy industrial relations.” How do you account for this statement? 6. Examine how grievance management is important both from the perspective of employees and from that of the organization. Illustrate your answer with appropriate examples. 7.

Discuss the statutory provisions concerning the grievance procedure in India.

8. Discuss the model grievance procedure.

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9.

Explain the guidelines to be followed in the redressal of grievances.

10.

Differentiate the meaning of a grievance from that of a dispute. Explain the steps that you would suggest for resolving employee grievances. Examine the possible implications of unresolved grievances on employee motivation and organizational culture.

11. Discuss whether the process is more important than the outcome in grievance handling. What procedure would you like to suggest for a prompt and effective handling of grievances?

Skill-development Exercise Objective – The objective of this exercise is to show you how to conduct a grievance interview and avoid expensive and time-consuming grievance arbitration procedures. Procedure Note – The class is divided into groups. Every group has (1) a factory manager (who will conduct the grievance interview), (2) a shop supervisor, (3) a machine operator (the complainant), (4) a shop-floor union representative and (5) two observers of the interview. The primary role of the observers is to analyse and provide feedback about the various aspects of the role-playing session. Situation Raj Deep has recently been appointed as the machine operator of a medium-level sugar factory and he is still on probation. Last week, when the shop supervisor was doing his routine rounds during night shift, he noticed the erratic performance of a machine assigned to Raj Deep. The supervisor found Raj Deep missing from his spot. Then he went up to the adjacent store room, where he found Raj Deep fast asleep at a desk with his head resting on his arms. The shop supervisor woke him up and Raj Deep apologized. However, the supervisor viewed the incident seriously and reported it in writing to the factory manager. Acting on

the report of the supervisor, the factory manager served a two-week suspension order to Raj Deep. Fearing that the suspension would affect his career, Raj Deep appealed against the suspension through the shop-floor union representative. Now, the floor manager called for a grievance redressal meeting to be attended by the complainant, the shop supervisor, the union representative, and the two observers. Steps in the exercise Step 1: The shop-floor union representative interviews the complainant, namely, the machine operator, to collect all the evidence. Step 2: The floor manager conducts the grievance interview with the complainant in the presence of the shop supervisor, the union representative and the two observers. Step 3: The floor manager communicates his decision to the higher authorities, the union representative and the complainant. Step 4: Two observers analyse the interview and provide feedback about the floor manager’s interviewing skills.

Case Study A Case of Grievance Handling in a Company Naveen Sugars (P) Limited is a large private company employing about 2,000 workers. It has an annual turnover of Rs 2.91 billion. The HR department of the

company is headed by Mr Arvind, an HR expert with MA (in human resource management) and BL degrees. Naveen Sugars is a strongly unionized company with nearly 75 per cent of the employees belonging to the

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only union in the company and the management of this company had a cordial relationship with its employees and their union. However, a recent incident occurring in the crushing division of this company has strained this relationship. Mr Rajesh is a shop-level union representative with nearly 20 years of service in the company. He is around 49 years of age and has been employed in the Crushing Division. Of late, he has not been performing well at work. When the HR manager tried to find out the reason from his friends in the factory, they revealed that he had acute family problems and was depressed. One day, while on duty in a day shift, Rajesh had left his workplace without proper permission and returned after nearly two hours. However, his immediate superior prevented him from resuming the work. Enraged by the refusal, Rajesh engaged in a fierce argument with that superior and misbehaved with him. He also disrupted the work of his co-workers and abused all those who did not support him. Rajesh was immediately suspended from duty pending enquiry and charged with dereliction of duty and disrupting work of the company while on duty. But before the management could proceed with further disciplinary action, Rajesh submitted an application stating that he could not continue in the employment of the company on account of health and voluntarily offered to seek retirement. The top union leaders of the company

strongly backed the request of Rajesh and insisted that the company treat him with compassion. Though the top management was also in favour of this idea, the HR manager insisted on completing the disciplinary proceedings since he feared that Rajesh might create problems at a later stage if the case was not disposed off properly. He also averred that he might even demand reinstatement and all other benefits. Eventually, the management concurred with the views of the HR manager and rejected the request of the aggrieved employee. It also instructed the HR department to begin the disciplinary proceedings. Aghast at this development, the union leaders conducted an emergency meeting and announced a series of agitations. Peeved at this development, the management blamed the HR manager and asked him to find the way out of the mess.

Questions for discussion 1.

How do you view the request of Rajesh seeking voluntary retirement from the company? Does he deserve compassion from the management?

2.

Do you agree with the approach of the HR manager towards this issue?

3. What should the management do now for resolving the imbroglio?

Notes Shobana Khandwala, M. C. Agarwal, and Neena Naik, “Boss: Is He the Most Difficult Person to Work With?” Indian Management, (June 1975): 5.

7.

Donald M. Wollett, “What an Arbitrator Looks for from the Management in Discharge Cases,” Employee Relations Law Journal (Winter 1983–84): 524–534.

2. D. Q. Mills, Labour-Management Relations, 5th ed. (New York: McGraw-Hill, 1994).

8.

Edwin B. Flippo, Personnel Management (Tokyo: McGraw-Hill Kogakusha, 1990), p. 319.

Terry L Leap and Michael D. Crino, Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 661.

9.

Dale Yoder, Personnel Management and Industrial Relations (New Delhi: Prentice Hall of India, 1975).

Herbert J. Chruden, and Arthur W. Sherman, Personnel Management (Cincinnati, OH: South Western Publishing Company, 1976), pp. 433–435.

10.

Department of Labour, United States of America, Settling Plant Grievances, Bulletin no. 60, 1943. (Washington: Government Printing Office, 1943)

11.

S. Chandra, Grievance Procedure: A Survey of Practices of the Industries in India, Administrative Staff College Of India, Hyderabad, 1968.

1.

3. 4.

5. Michael J. Jucius, Personnel Management (Homewood, Ill.: Richard D. Irwin, 1917), p. 108. 6.

Government of India (1969), Report on the National Commission on Labour, Ministry Of Labour Employment and Rehabilitation, New Delhi.

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12. M. Srimannarayana, “Human Resource Management in Small Business,” Indian Journal of Industrial Relations, 41, no.3 (January 2006): 318–322.

17. Personnel Management in India, The Indian Institute of Personnel Management, Kolkata, 1973, pp. 188–189.

13.

18.

C. E. Labig and C. R Greer, “Grievance Initiation: A Literature Survey and Directions for Future Research,” Journal of Labour Research, no.9 (1988): 1–27.

14. C. A. Myers and S. Kannappan, Industrial Relation in India (Bombay: Asia Publishing House, 1970).

Baer Walter, Grievance Handling: 101 Guides for Supervisors (New York: American Management Association, 1970), p. 15.

19. Nitish R. De, “An Approach to Industrial Relation Situation,” Indian Management, (November 1975): 36.

15. H. V. V. Chellappa, “Grievance Settlement: Problems of Frontline Managers,” Indian Management, (September 1985): 20–24.

20. Michael Armstrong, A Handbook of Human Resource Management (New Delhi: Aditya Books Private Limited, 1990), p. 222.

16. M. Srimannarayana, “Human Resource Management in Small Business,” Indian Journal of Industrial Relations, 41, no.3 (January 2006): 318–322.

21.

Government of India (1969), Report on the National Commission on Labour, Ministry Of Labour Employment and Rehabilitation, New Delhi.

CHAPTER

23

Industrial Disputes and Collective Bargaining

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the objectives, characteristics, causes and types of industrial disputes 2 Explain the investigation and settlement of disputes 3 Enumerate the features and procedures of collective bargaining 4 List the conditions needed for effective bargaining

Tata Steel is one of the oldest and largest private sector steel companies in India. Its labour practices meet the United Nations Global Compact principles. It has won accolades for its HR policies and corporate governance. Some of the awards include the Most Admired Knowledge Award from MAKE Asia in 2007 and The Amity Corporate Excellence Award from the Amity International Business School. In addition, Business Today and Ernst & Young surveys rated Tata Steel as India’s Best Managed Company in Metals and Mining. Tata Steel strongly believes in upholding the freedom of trade unions and the effective recognition of the right to collective bargaining. In fact, the first labour union in India was started at Tata Steel in 1920 and the Tata Workers’ Union is the organization that has been conducting collective bargaining from 1937 till now. The collective bargaining process is so successful in the company that it has enjoyed 75 years of uninterrupted

industrial peace. It has a variety of formal two-way communication between the management and the unions and between the management and the employees. To ensure the prevalence of cordial industrial relations (IR) at every level of the company, it has a distinct three-tier consultative system—the joint departmental council, the joint works council and the joint council of consultative management—to ensure workers’ participation in management. This time-honoured and effective arrangement ensures widespread communication and consultation with the employees and a good relationship with the union. The HR and IR practices of this company, including its effective collective bargaining, clearly show the importance of these factors in pre-empting industrial disputes and promoting industrial peace and unity. Given this context, we shall now discuss the different aspects of industrial disputes and collective bargaining in this chapter.

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Introduction An industrial dispute is basically a difference of opinion between the employer and the employees over one or more issues. Disputes are core to the industrial relations exercise of an organization. The primary aim of industrial relations exercises is dispute avoidance. The various aspects of industrial relations are designed with a view of restraining industrial dispute and the resultant labour unrest. Conflict is the driving force of the industrial relations system of an organization.1 Generally, organizations consider an industrial dispute as an uncommon and deviant behaviour of the employees. Consequently, the approach of any management towards an industrial dispute is one of precaution and prevention rather than one of management and resolution. Industrial disputes typically manifest in the debilitating form of strikes, lockouts, picketing, go-slows and gheraos. Hence, they require the development of appropriate strategies for prompt identification of employee grievances and their resolution. In fact, a timely resolution of grievances can prevent them from becoming industrial disputes. Employers and employees have realized the fact that industrial tensions and disputes can demoralize people and destabilize institutions. There is also a growing realization that the loss of man-days due to strikes and lock-outs ultimately benefits no one in the organization. This has forced the organization and the unions to formulate some basic ground rules regarding dispute prevention and handling. Yet, grievance resolution and dispute avoidance are very tricky tasks since the employers and the employees often make competing claims over the organizational resources. For instance, employers aim to make more profits from their investment while the workers aspire for better compensation for their job performance. When the needs, goals and interests of the employers and those of the employees become incompatible, industrial disputes erupt. Section 2K of the Industrial Disputes Act, 1947 defines an industrial dispute as “any dispute or difference between employers and employers, or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour of any person.”

Characteristics of Industrial Disputes Based on the definition of the term industrial dispute given in the Industrial Disputes Act, its characteristics have been identified as follows: • An industrial dispute is a collective dispute between employer and employees. The dispute between an individual employee and employer is not normally viewed as an industrial dispute except for dismissal, discharge, retrenchment or termination of individual employee. Typically, the dispute should have been raised by a substantial number of employees.2 • The relationship existing between the parties to the industrial dispute must be that of the employer and employee or co-workers, that is, between workmen and workmen. • The dispute may arise out of disagreements between employers and employees over the terms of employment like wages and salary, incentives and benefits, work loads, and so on. • It could also be connected to the conditions of labour like working conditions, occupational health and safety, and so on. • The industrial dispute may even relate to non-employment causes of workmen.

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Objectives of the Industrial Disputes Act, 1947 The primary purpose of the Industrial Disputes Act, 1947 is to protect organizations from all forms of disputes irrespective of their sources, magnitude and implications. Although the employers and the employees have irreconcilable goals, needs and interests, the Industrial Disputes Act attempts to provide a mechanism for avoiding dispute and preserving industrial peace. This industrial peace ensures industrial growth, which is a must for any welfare state.3 This act is administered by the Ministry of Labour through its industrial relations division. We shall now see the objectives of the Industrial Disputes Act, 1947. • The primary purpose of this act is to preserve the peace and harmony of an industrial enterprise. • This act aims at ensuring better utilization of the available human resources by avoiding dispute-related manpower loss in the organization. • It looks to preempt the employees’ grievances and industrial tensions from developing into full-fledged disturbances and confrontations between employer and employees in the forms of strikes or lock-outs. • It strives to provide a mechanism for the resolution of industrial disputes and assure industrial justice, which is an essential element of enduring industrial peace. • It seeks to indicate the contingencies when strikes or lock-outs can be imposed lawfully. • It specifies the grounds for declaring a strike or a lock-out as illegal. It thus attempts to avoid illegal strikes and lock-outs and the consequent disruption to work and also production and income losses. • It endeavours to offer financial relief to the employees in the event of a lay-off or retrenchment. • It aims at encouraging and streamlining collective bargaining as a dispute resolution forum.

Causes of Industrial Disputes Organizations can effectively avoid an industrial dispute only when it is able to locate the causes of the industrial tensions and disputes accurately. Generally, these causes are classified as economic and non-economic. The economic causes arise due to the non-fulfilment of economic needs such as wages and salary, incentives and benefits. On the other hand, the non-economic disputes may arise out of organizational violence, working conditions, and indiscipline. We shall now see the important reasons that often lead to disturbances in industrial enterprises.

Demand for Pay and Benefits Hike Employees claim for increased pay and benefits and the employer’s refusal to concede their demand often gives rise to an industrial dispute. Employers and employees often make mutually irreconcilable claim over the profits and wealth of the organizations. On the one hand, the rising cost of living, improved social status and lifestyle changes often force employees to seek increase in their monetary compensation at periodic intervals. On the other hand,

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

survival, prestige and growth needs drive the employers to retain the major share of the profit. When both employers and employees adopt an intransigent stand on financial issues, it ultimately paves way for an industrial dispute.

Demand for Hygienic and Safer Working Conditions The employees’ insistence on good and safer working conditions may also form a ground for an industrial dispute. Specifically, the employees’ demand for a proper physical environment, adherence to statutory safety measures and workload-related issues can cause industrial disputes in an organization.

Demand for Better Labour Welfare and Social Security Measures The employees’ insistence on improvements in welfare facilities such as transport, housing, education, recreation, canteen, insurance, e-commuting and flexi time can also cause industrial disputes. Similarly, the need for better social securities like retirement benefits, medical facilities and compensation facilities may also act as a ground for industrial disputes.

Demand for Recognition and Appreciation Besides the primary needs like wages, incentives, benefits, health and safety, the employees may also demand the fulfilment of social needs like recognition, self-expression, appreciation and scope for personal achievements. When these demands are denied or delayed by the employers, it may provide a ground for industrial dispute.

Demand for Justice for an Individual or a Group of Employees When there is a mass lay-off or retrenchment of employees, it may provide reasons for the employees to develop a dispute with the employers. At times, even the disciplinary actions against individuals in the form of dismissal, discharge, demotions and suspensions may form a ground for industrial dispute as per Section 2A of the Industrial Disputes Act, 1947. In addition to these causes, the unions may also raise industrial disputes out of interunion rivalry, political compulsions and the eagerness to assert their statutory rights. These causes are explained here.

One-upmanship among the Unions One-upmanship is the practice of always keeping one step ahead of the rest, i.e., friends or competitors. In their quest to prove their credibility and dependability among the employees, the unions may adopt a negative attitude towards the management deliberately. In such a situation, the unions may start a dispute with the management even on silly issues just to unite their members and expand their membership base. Moreover, when there is an interunion rivalry, unions adopt a more strident posture and refuse to reach a consensus among themselves before the fixation of wages and other crucial negotiations. Consequently, these unions adopt conflicting and competing stands in their negotiations with the management. For instance, when some unions reach an agreement with the management, others oppose the agreement and start a dispute with the employers in order to portray the rival unions as betrayers.

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External Interference The system of allowing external leaders to manage the unions, like in India, also plays a significant role in an industrial dispute. In such a case, union activities are influenced more by political considerations than by organizational problems.4 The unions’ stands on organizational issues are dictated mostly by the ideology and leadership of the political parties with which the union is affiliated. Thus, political rivalry often causes union rivalry, which, in turn, affects their stands on organizational issues. This may lead to unnecessary tensions and dispute in the organization.

Numerous Labour Legislations The government has enacted several legislations to protect the rights and interests of the workers in industrial establishments. It becomes a legal necessity for the organizations to provide these facilities to their employees. Understandably, any violation of these provisions or denial of statutory facilities to the employees becomes a ground for dispute between employers and employees.

Types of Industrial Disputes An industrial dispute is basically a difference between employer and employees. Based on the characteristics of employees’ needs and interests, the disputes may be classified into interest and rights disputes. We shall now see these disputes in detail.

Interest Disputes These refer to the disputes relating to the economic interest of the employees. The interest disputes often arise at the negotiation or bargaining stage of a collective bargaining process. They may relate to wages, incentives and other benefits of the employees. In short, an interest dispute relates to the conditions of employment of workers.

Rights Disputes These involve disputes over the understanding, interpretation, and application of the rules and regulations which protect the rights of the employees. They may relate to the interpretation and implementation of statutory rules, company rules, collective bargaining agreements, and employment contracts. The alleged violation of these rules provides a ground for rights disputes. For instance, the non-implementation of safety rules, the violation of wages or bonus act and the misinterpretation of wage agreements can cause rights disputes. When the efforts of employees and employers for an amicable settlement of rights and interest disputes fail, the employees may begin to express their disputes openly. The purpose of such an open expression of disputes is to apply pressure on the employers to get their demands fulfilled. They may also attempt to get the attention of the general public and government to their problems.

Outcome of Disputes The interest and rights disputes may be expressed by the employees through the following forms and shapes:

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

Strikes A strike is an important tool in the hands of the trade unions to exert pressure on the employers to achieve their demands. According to the Industrial Disputes Act, 1947, a strike means “a cessation of work by a body of persons employed in any industry acting in combination or a concerted refusal, or a refusal under a common understanding, of any number of persons who are or have been so employed to continue to work or to accept employment. Employees may resort to strike collectively when there is an interest or rights violations. Types of Strike Some of the important forms of strikes are general strike, pen-down, toolsdown and sit-in strikes, wild-cat strike, go-slow and work-to-rule strikes, sick leave and mass casual leave strikes, hunger strike and sympathy strike. We shall now discuss these strikes. General strike—It normally refers to a large-scale strike organized by the employees belonging to an industry, a region or an entire country. Normally, the employees of a region, state or nation are united by common goals and interests and as such struggle together. Since these strikes are organized on a mass basis, they create a huge impact and often put a lot of pressure on the employers. However, general strikes are normally not intended against any individual employer. Pen-down, tools-down and sit-in strikes—In pen-down, tools-down and sit-in strikes, employees report for duty but do no work. In these forms of protest, the employees just refuse to leave their place after entering the work premises and remain idle. These strikes may be planned or spontaneous, depending upon the happenings and urgency of the situation. Wild-cat strike—When employees resort to an unauthorized strike in violation of the labour contract or agreements, it is called a wild-cat strike. Unions may resort to a wild-cat strike to pressure their employers during negotiations. Strictly speaking, wild-cat strikes are illegal and the striking employees are not protected legally against the consequences of these strikes. Go-slow (slow down) and work-to-rule strikes—Go-slow and work-to-rule strikes are forms of strike in which employees work but not up to their usual levels or capacity. They reduce their output deliberately to show their protest to the employers. In this form of strike, the employees continue to get the wages while the employer’s revenue is badly affected. Here, the employees strictly follow the rules and just refuse to deviate from them. They would quote the rule books to avoid or to go slow on the work. Sick leave and mass casual leave strikes—Employees participating in these strikes apply for sick leave or casual leave en masse, mentioning sickness as the reason. The purpose of such mass casual or sick leave is to bring the work to a halt in order to achieve their demands. The employees may opt for this method even to forewarn the employers of the consequences of a strike planned in the future. In this form of strike, the striking employees are legally right and safe as they are entitled to a specified number of days of casual or sick leave in a year. Hunger strike—In a hunger strike, the employees undertake fasting by abstaining from both food and work as a means of protest. Since there is a cessation of work due to employees’ participation in the fasting, it is viewed as a strike. The purpose of such a strike is to embarrass the employers and get the attention of the government and the general public to the cause of the strike.

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Sympathy strike—The purpose of a sympathy strike is to express sympathy and solidarity with another group of striking employees belonging to a different category of employment in the same organization. For instance, in order to express solidarity with the striking doctors, the nursing staff may go on strike. The purpose here may be to further intensify the strike and its impact or to sympathize with the cause of the doctors’ strike or both. As such, the nursing staff may not have any direct or immediate cause to strike other than supporting the doctors’ strike. Incidentally, the sympathy strike may also be conducted for the striking employees in other organizations in the same or a different industry.

Picketing It is a form of protest by employees in which the primary intention is to prevent or dissuade the non-striking employees from attending to their work during the strike period. In this method, the striking employees assemble in front of the factory gates and attempt to persuade the nonstrikers to decide against going inside the premises and thereby participate in the strike. The intention of picketing is to achieve complete stoppage of work in order to increase the pressure on the employer. Picketing may be held at the workplace or even at some other prominent places to attract the attentions of the public and government.

Gheraos It is a form of protest in which employees encircle their employers or top managers at the workplace with a view to restricting their movements. The purpose of a blockade or confinement is to force the employer or managers to concede the demands of the workers. The wrongful confinement of any person is not legally tenable and therefore gherao is an illegal act.

Lock-outs A lock-out is the employer’s response to the employees’ continued protest in the form of strike. In a lock-out, the employer closes the workplace with the aim of preventing the employees from entering the factory premises and performing their job. Employers may resort to lock-outs when there are large-scale work disturbances, incomplete production or abnormally high production costs. It is also a strategy adopted by the employers to test the employees’ endurance and break their resolve to continue the strike. According to the Industrial Disputes Act, 1947, a lock-out means “the temporary closing of a place of employment or the suspension of work, or the refusal by an employer to continue to employ any number of persons employed by him.”

Investigation and Settlement of Disputes Industrial disputes are dangerous for the future of an organization as they can fritter away its time, efforts, energy and resources. Therefore, it must make every effort to prevent disputes. However, in practice, it is not possible to ensure an organization being fully free of industrial disputes and disturbances. In such a situation, the best option is to resolve the disputes in an expeditious manner. Though judicial recourse is a viable option for solving a dispute permanently, it is an expensive, time-consuming and tedious process. When the resolution of a dispute is delayed for any reason, the organization may face a variety of problems. Till a legal verdict is obtained, there remains a state of uncertainty, which may cost in terms of organizational performance and efficiency, and employee productivity and motivation. It is for these reasons that a legal option is often considered to be the last resort. Understandably,

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

non-judicial dispute resolution methods like conciliation and arbitration remain the first preference of organizations in dispute settlement. The non-judicial methods have several merits over the judicial means of dispute settlement. For instance, the non-judicial methods are less formal and rigid, less expensive and less timeconsuming.5 However, no single method or style of dispute settlement is likely to prove equally acceptable to both employers and employees or suitable for all occasions and organizations.6 An organization may choose a specific method for resolving the dispute, depending on the issues and the situation involved (see Figure 23.1 for the different dispute settlement methods). We shall now see the important methods used to resolve industrial disputes.

Negotiation Negotiation as a process of dispute settlement is an effective first attempt to resolve an industrial dispute. Disputes arising out of interpersonal, inter-group problems can be addressed through direct negotiation between the employer and the union. However, an important requirement for the success of the negotiation method is the presence of mutual trust and confidence in the relationship between the employer and the union. In the absence of mutual trust and faith, negotiation as a method of dispute resolution is bound to fail. As part of the negotiationbased dispute settlement, organizations can refer disputes involving individuals to grievance procedures established in organizations in compliance with the Industrial Disputes Act, 1947.

Collective Bargaining It is a forum for reaching an agreement between the employer and the union after negotiations and bargaining. As such, collective bargaining provides for resolution of disputes through

Collective bargaining

Conciliation and mediation

Negotiation

Methods of Dispute Settlement

Adjudication

Figure 23.1 Methods of Disputes Settlements

Arbitration

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compromises or concessions made by both the parties.7 The power equation between the employer and the union is critical in collective bargaining from the beginning to the end of dispute deliberation. For instance, when the employers perceive the union as relatively weak, they may not concede even its demand for referring an industrial dispute to collective bargaining. In such a situation, the union first resorts to some forms of agitation like strike or picketing to prove their strength and force the employers to seek settlement of the disputes through collective bargaining. Even during a collective bargaining process, the employees may keep the threat of a strike as a pressure tactic to reach agreements.8 Similarly, the employers may also make veiled threats by referring to their options like strike-breaking lay-off and lockout to counter pressure the unions. (Collective bargaining has been discussed in detail later in this chapter).

Conciliation and Mediation Conciliation means different forms of mediation through which disputes can be settled without arbitration. The Arbitration and Conciliation Act, 1996 deals with the different aspects of reconciliation. The purpose of the conciliation process is to remove the animosity and mutual distrust in the relationship between employer and employees. When agreements are reached for dispute resolution through conciliation without external intervention, the entire process becomes selfenforcing.9 Conciliation normally involves a third party who acts as a mediator and plays a key role in persuading the employer and the employees to reach voluntary settlement and execution. Conciliation can be defined as a procedure to achieve amicable settlement with the assistance of an independent third party.10 A single individual or group of persons may act as third party conciliator in the conciliation process. The major role the third party is to persuade the parties to settle the disputes by themselves. The role of the conciliator in the conciliation process consists of • Bringing the parties (employer and employees) together to the negotiation table • Guiding the discussion process by setting the agenda for the conciliation process • Helping each party to understand and appreciate the problems of the other • Ensuring that all parties agree to compromises and concession in order to reach a mutually satisfactory agreement to solve the dispute • Ensuring that the agreement reached is actually enforced and the dispute resolved Since conciliation is a voluntary process, the parties to the dispute have an option to withdraw from it at any time during the entire process. Further, the implementation of the agreements reached in conciliation is voluntary and not binding on either party. The success of the conciliation process depends on the mutual trust and good faith of both the parties. Section 4 of the Industrial Disputes Act of 1947 provides for the appointment of conciliation officers in organizations. The act empowers the appropriate government to appoint as conciliation officers such number of persons as it deems fit for the purpose of reconciliation. These officers are entrusted with the responsibility of mediating and encouraging the settlement of disputes through voluntary conciliation. Each conciliation officer may be assigned a specific area or one or more industries in a specific area. Their job tenure may be permanent or for a specific period. When the government deems fit, it may even constitute a board of conciliation, comprising a chairman—an independent person—and a few members, for dispute settlement. Each party to the dispute will have an equal number of representatives in the board as members. For effective discharge of duty, the conciliation officers and the board of conciliation are vested with

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

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Table 23.1 Data Relating to Dispute Settlement through Conciliation by Central Industrial Relations Machinery (CIRM)

Year

2004–05 2005–06 2006–07 2007–08

Number of Disputes Received by CIRM

Number of Disputes which were Considered Unfit for Intervention by CIRM

Number of Disputes which were Settled without Holding Formal Conciliation Proceedings (CP)

6,450 9,538 8,377 8,332

– – – –

2,040 2,017 1,749 1,685

Number of Disputes for which Formal CP were Held

4,125 4,309 3,243 3,047

Number of Disputes for which Conciliation Proceedings Led to the Settlement of Disputes 1,310 1,566 1,037 989

Number of Disputes for which Conciliation Proceedings Ended in Failure

285 2,743 2,206 2,058

Source: http://labour.nic.in/annrep/annrep.htm.

the powers of a public servant as per Section 41 of the Indian Penal Code (Act number 45 of 1860). They can exercise the following powers as part of the conciliation efforts: • Entering the premises of the industrial establishment where the dispute is existing or anticipated, for the purpose of enquiry after due notice • Enforcing the attendance of any person or submission of any document for examination as part of the investigation of the dispute • Investigating the persons who the conciliation officers believe can provide more information about the dispute • Inspecting the documents deemed to be relevant to the industrial dispute • Sending a report to the appropriate authorities detailing the steps taken in resolving the dispute and the agreement reached. In case of failure to reach settlement, the subsequent steps to be taken for amicable settlement must be mentioned. Table 23.1 lists the dispute settlements in India.

Arbitration Like conciliation, arbitration is also a mechanism for the settlement of a dispute by a third party. However, in arbitration, the decision of the arbitrator is binding on both the parties to the dispute and its enforcement is compulsory. Arbitration can be classified as compulsory and voluntary. In case of compulsory arbitration, the dispute is referred for arbitration even without the consent of the parties to the dispute. In case of voluntary arbitration, the parties to the dispute voluntarily submit their dispute for arbitration on the basis of their common understanding. The Industrial Disputes Act provides only for voluntary reference of dispute for arbitration. However, once the parties commit themselves to the arbitration process, they can neither withdraw from the process nor refuse to implement the recommendations of the arbitrator. Though arbitration is different from judiciary, it is also a formal process and the disputants have to make their presentation through evidences and arguments.11

Number of Disputes Pending with the CIRM at the Close of the Year

3,079 3,212 3,385 3,600

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The Arbitration and Conciliation Act, 1996 The Arbitration and Conciliation Act, 1996 deals with domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards in India. It indeed provides a statutory protection to arbitration as a quasi-judicial dispute resolution method. The characteristics of arbitration according to this act are: • It is a quasi-judicial mode of dispute settlement process. • Parties to the dispute voluntarily refer the dispute for arbitration as an alternative to approaching courts of law. • The parties have no right to withdraw from the arbitration tribunal for any reason during the arbitration process before its final award except during circumstances like (i) the disputer withdrawing his claim with the consent of all the parties to the dispute; (ii) both parties jointly agreeing on the withdrawal; and (iii) differences over the jurisdiction of the arbitration tribunal. • The decision called ‘awards’ are binding on the parties and without any recourse to other legal options. The arbitrator of the dispute must be impartial and independent and have a high degree of integrity. He must keep the interest of all parties in mind and treat them fairly and equally. He must avoid reaching any judgment before hearing the views of all parties to the dispute. Usually, arbitration awards are enforceable within three months from the date of announcement of the award.

Adjudication Adjudication is a court-based decision-making process that involves a third party and the judgments are binding on the parties. When the conciliation efforts fail and no agreement is reached, parties may take recourse to the legal process as a final option. Normally, the conciliation officers make a recommendation for referring the dispute for adjudication. Such recommendations are made by them to the appropriate authorities as the next step for settling the dispute. Adjudication is usually a highly formal and time-consuming process. Moreover, it is normally an involuntary and adversarial process. In an adversarial process, judgment is decided in favour of the party which is proved right and, by the same extension, the other party is proved wrong. However, appeals can be filed in higher courts against the judgments. The Industrial Disputes Act provides for a multi-tier system for settling disputes through adjudication. These are courts of enquiry, labour courts, industrial tribunals and national tribunals. We shall now see these courts and tribunals in detail. Court of Enquiry When the government deems fit, it may order a court of enquiry for investigating all matters pertaining to an industrial dispute. Such an enquiry may be ordered • to identify the cause of the industrial dispute • to fix responsibility for the dispute • to suggest steps for preventing its occurrence in the future • to provide a solution to the dispute specifically referred to it The government normally issues notification for the constitution of the court of enquiry in the official gazette. This court may have one or more independent persons for conducting

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the enquiry. When the court has more than one person, one of them should be made the chairman of the court and remaining persons would act as its members. When the appropriate government forms an opinion that an industrial dispute exists or is anticipated, it may refer any matter appearing to be connected with and relevant to the dispute to the court of enquiry but only through a written order. The court will have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (Act number 5 of 1908). Certainly, the court can get the assistance of experts on the subjectmatter by appointing them as court assessors. The specific recommendations of the court of enquiry are usually forwarded to the appropriate government for further action. Labour Court Like the court of enquiry, the appropriate government through gazette notification may constitute a labour court for settling an industrial dispute. However, the labour court must have only one person who should have the appropriate qualification as prescribed by the Industrial Disputes Act. Labour courts normally deal with matters like the discharge and dismissal of workmen, application and interpretation of standing orders, and legality of strikes or lock-outs. The government through appropriate written orders may refer a dispute to the labour court for adjudication. However, a voluntary reference of dispute to the labour court by the parties to the dispute is also possible. For instance, the employers and the employees, through a written agreement, may refer a specific dispute to the labour court for adjudication. The labour court will also have the same powers as vested in a civil court under the Code of Civil Procedure, 1908 (Act No 5 of 1908). The judgment of the labour court is binding on all the parties. In case of dispute involving dismissal or discharge of employees, the court has the power to order the reinstatement of the discharged or dismissed employee. It can also reduce a punishment by awarding a lesser punishment, especially in the case of grave actions like dismissal or discharge of employees. Industrial Tribunal It is one more option available to the appropriate government for settling the dispute between employer and employees. When the government deems fit, it may constitute one or more industrial tribunals for settling industrial disputes. These tribunals deal with collective disputes such as wages, allowances, hours of work, leave, retrenchment, closure, etc., in addition to the matters covered under the purview of labour courts. Like a labour court, an industrial tribunal also has only one member called the presiding officer with necessary qualifications as prescribed by the Industrial Disputes Act. The government, if necessary, can appoint two knowledgeable persons as assessors to the tribunal. In addition to the government’s involuntary reference of a dispute to the tribunal, the parties to the dispute may voluntarily refer a dispute to the tribunal for adjudication. The powers and functions of the tribunal are similar to that of the labour courts. Table 23.2 lists the labour courts in India. National Tribunal National tribunals are formed by the central government for adjudicating the industrial disputes which have implications for the entire nation or affect the industrial organizations in more than one state. The presiding officer of a national tribunal is appointed by the central government after ensuring his eligibility as prescribed by the Industrial Disputes Act. The presiding officer can have two assessors with expert knowledge in the subject matter under consideration. The powers, duties and functions of the presiding officer of a national tribunal are on par with those of the heads of a labour court and an industrial tribunal.

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Labour Courts in India

Location

Dhanbad, and Mumbai Asansol, Bangalore, Kolkata, Chandigarh, Jabalpur, New Delhi, Kanpur, Lucknow, Jaipur, Nagpur, Bhubaneshwar, Chennai, Hyderabad Total

Number of Central Government Industrial Tribunal (CGIT)-cum-Labour Courts 2 each 1 each

17

Source: http://labour.nic.in/cgit.

Collective Bargaining As mentioned earlier, collective bargaining is a process established to improve industrial relations by resolving industrial disputes through collective negotiations. It is also viewed as a mechanism for regulating the relationship between employer and employees. Collective bargaining at the industry level is an important form of negotiation forum between employers and employees in public sector organizations, but the private sector organizations of late prefer organizational-level or workplace bargaining.12 Collective bargaining is differently viewed by the organizations as industrial relations strategy and participative management strategy. Certainly, it provides an opportunity to the employees to involve themselves in the organizational decision-making process on matters affecting their interests and rights. Understandably, it can improve employees’ loyalty and commitment. Employers also gain through collective bargaining by improving employee cooperation and commitment and ensuring cordiality in industrial relations. The International Labour Organization (ILO) has recognized collective bargaining as an instrument of social justice. According to ILO, collective bargaining serves the purposes of protecting the fundamental rights of workers, providing them social protection and promoting sound industrial relations.13 Collective bargaining normally covers issues such as working hours, wages, benefits, working conditions, workloads, and the rules of the workplace. When the collective bargaining process is successful, the employers and the employees’ union reach an agreement and ratify it later. This agreement is usually in force for a specific period like three or five years. However, in practice, collective bargaining is often viewed as an adversarial process in which one party gains at the expense of another. For instance, when the wages are substantially raised without any increase in the workload, the union may view it as a complete victory for itself and, correspondingly, the management may consider it as a negative outcome of the bargaining process. In the long run, this may affect the ability and trustworthiness of the collective bargaining as a fair system of dispute settlement. It is, therefore, essential for the parties to develop mutual trust and accommodative approach in the collective bargaining process. Thus, the parties must strive to reach agreements that are made on trust and enjoy the genuine support of both parties as these are more likely to be respected.14 However, in recent times, the importance of collective bargaining is declining due to factors like lack of recognition for trade unions, high employee mobility and, finally, employees’ preference for individualized bargaining with the organization on the basis of their skills and market demand.

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Box 23.1

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Definitions

“Collective bargaining is defined as the process through which representatives of management and the union meet to negotiate a labor agreement.”15 —Gary Dessler “Collective bargaining is a process, necessitated by a conflict of needs but resting on the basic interdependency and commonality of interest, whereby employee and employer collectives by the conduct of continued negotiation and the application of pressure and

counter-pressure, attempt to achieve some balance between the fulfillment of the needs of the management on the one hand and the employee on the other hand.”16 —Sonia Bendix “Collective bargaining is defined as one method whereby trade unions could maintain and improve their members’ terms and conditions of employment.”17 —Webb Sidney and Webb Beatrice.

The fulfilment of mutual needs through negotiation is the essence of collective bargaining. We shall now see some of the definitions of collective bargaining in Box 23.1. We may define collective bargaining as a free and voluntary forum that facilitates negotiation between employers and employees’ unions on issues affecting the interests and rights of both parties so that an amicable settlement is reached in good faith.

Features of Collective Bargaining Based on these definitions, the characteristics of collective bargaining may be derived as. Joint Process Basically, collective bargaining is a two-way process in which employers or their representatives and employee unions participate in the discussion. Interactive Mode It provides an opportunity to both the parties to influence each other. It aims at fulfilling the needs, aspirations and goals of both the employers and the employees. Continuous Process Since needs are never-ending, employers and employees view collective bargaining as a continuous process. They utilize it to hold discussions with other parties at regular intervals to get their goals and needs fulfilled. Adversarial Strategy Collective bargaining is basically an adversarial process in which each party attempts to fulfil its needs by applying pressures and counter-pressures on the other. At the end of the process, the ultimate gain of one party may be the loss for the other. Union-based Initiative In practice, collective bargaining usually holds little value for employers in monetary terms as agreements with unions, like wage agreements, often result in a huge expenditure for them. Understandably, in most cases, the initiative for bargaining has to come from the unions only. They often force the employer to organize and conduct collective bargaining by resorting to various agitations. Box 23.2 outlines the relevance of collective bargaining as a dispute settlement mechanism.

Classifications of Collective Bargaining The nature and type of bargaining may vary depending upon the organization, industry, region and situation. The prevailing situation, for instance, may have an impact on the bargaining process. Similarly, the issues taken up for discussion may also influence the bargaining

532 Box 23.2

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Collective Bargaining: A Forum for Social Dialogue at ACC

Collective bargaining is recognized as an effective means of achieving social justice by many global organizations like the United Nations and the International Labour Organization (ILO). In fact, ILO considers collective bargaining as one of the fundamental rights of the employees. The collective bargaining convention was approved by ILO in 1981 with the aim of encouraging free and voluntary collective bargaining between employers and employees to settle their disputes. Collective bargaining is viewed as a form of social dialogue and the employers and the employees are considered as its social partners. As such, it enables the employers and the employees to discuss all issues which have a bearing on the social and economic life of the employees. Besides ILO, the United Nations too views collective bargaining as an important right of the employees. In fact, it has developed 10 global compact principles for promoting better corporate responsibilities among the employers. Four of the ten global compact principles deal with the labour aspects of an organization. These four principles are: (i) effective recognition of the right of collective bargaining, (ii) elimination of all forms of forced and compulsory labour, (iii) effective abolition of child labour and (iv) eliminating discrimination in respect of employment

and occupation. Many organizations are now conforming their policies and practices along the United Nations’ global compact principles. In this regard, ACC presents an interesting case. ACC Limited is a signatory to the United Nations Global Compact. It has committed itself to all the 10 principles of the Global Compact, including collective bargaining. As far as the corporate and HR policies are concerned, this company clearly respects the workers’ right to collective bargaining, and encourages dialogues with their unions and associations to solve issues pertaining to work, facilities and benefits. As part of the effective implementation of collective bargaining, ACC holds periodic dialogues and negotiations with the recognized trade unions to discuss and settle their needs and interests cordially. The workers and their elected representatives get the opportunity for consultation and negotiation. Regular interaction with the association and the unions are held to sustain the cordiality and harmony in the industrial relations. The social dialogue with the union is an ongoing process of this company. Adapted from http://www.acclimited.com/newsite/ comm_progress.asp.

process. Further, the levels at which the collective bargaining is done may also influence the bargaining process. Apparently, these factors may form the basis for classifying the collective bargaining. For instance, based on the issues scheduled for discussion in a collective bargaining process, the bargaining may be classified into distributive bargaining and integrative bargaining. Similarly, on the basis of the levels at which the bargaining is done, it may be divided into centralized bargaining and decentralized bargaining. We shall now discuss the different types of bargaining.

Distributive Bargaining A bargaining process is described as distributive bargaining when the parties to the bargaining process have conflicting needs, interests and goals. In such a situation, the employers and employees normally adopt opposing positions. Normally, this type of bargaining is adversarial in character and a hostile environment prevails in the discussion. In this kind of bargaining, one party’s gain is another party’s loss as their needs are mutually exclusive. Economic issues like wages revisions, benefits, bonuses, leaves, and workloads become the major agenda of distributive bargaining. Similarly, controversial issues like employee dismissal, discharge and other disciplinary actions can also be the subject-matter of distributive bargaining. This kind of bargaining is normally a distressing experience for both the parties since they have to bring

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

in enormous pressure on the other party. For instance, the employees’ unions may hold the threat of a strike during the bargaining, while the employers may counter it with the threat of a lock-out and even disputing the union status as the real representative of the employees. Depending upon the power equation, one party finally gains at the expense of another in distributive bargaining.

Integrative Bargaining When there is a convergence of interests, needs and goals among the parties to the bargaining, the bargaining process is usually described as integrative bargaining. In this type of bargaining, the employers and the employees have the same attitude towards the issues discussed in the bargaining and are equally concerned about its outcome. For instance, agreements regarding employee health and safety at the end of the bargaining process benefit both the parties. It is indeed a win-win situation for both the parties. Issues like promotions, productivity-linked incentives, job security, and training and development can be the agenda of this kind of bargaining. The entire discussion in the bargaining is oriented towards finding a mutually beneficial solution to the issues. Unlike distributive bargaining, this method facilitates closer coordination and a better understanding between the employer and the employees. Collective bargaining can also be classified into centralized and decentralized bargaining, based on the level at which the bargaining is conducted. These are being explained below.

Centralized Bargaining When collective bargaining is conducted at higher levels like the national level or industry levels in a centralized manner, it is called centralized bargaining. This may be sectoral or central wage bargaining. Non-market institutions like the government and its agencies play a major role in determining the outcome of the centralized collective bargaining. The economic position and macro-level performance of the nation become important influencing factors in the centralized bargaining process. The chief merit of centralized bargaining is that the centralized wage agreements ensure equal pay increase for equal jobs, irrespective of all other factors. In fact, the individual strengths and weaknesses of each organization are never considered in centralized bargaining while fixing the wages. The other merits of centralized bargaining are: (i) wages are decided purely on the basis of the collective power of employers and unions; (ii) bargaining is usually done in a more systematic and professional manner; (iii) it ensures equal wages for equal jobs across the industry or region. However, on the negative side, the rigid wages structure may affect the ability of an individual organization to attract the best talents from the labour market. Further, centralized bargaining may fix minimum wages for the employees to the advantage of employers.

Decentralized Bargaining In the case of decentralized collective bargaining, the bargaining is conducted at the enterprise level or even at the individual level. In fact, centralized collective bargaining is fast being replaced by decentralized bargaining. In many countries, there is a gradual shift from centralized to decentralized form of bargaining.18 In decentralized bargaining, an organization can develop a tailor-made wage package which best suits the interests of both the employer and the employees. Besides, decentralized bargaining provides an opportunity to the employees to participate

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in the decision-making process. It is also a simple, effective and faster process for deciding the wages and other benefits for the employees. Moreover, it facilitates need-based revision of wage agreements and labour contracts. However, the main drawback of this method is that this may act against the interests of the employees as their individual bargaining power is limited. It may also result in frequent industrial disputes and disturbances as the employers are the direct decision makers in organizational-level bargaining. The wage bargaining may not be conducted by professionals and, as such, the techniques of effective bargaining may not be known to them.

The Collective Bargaining Process The primary purpose of collective bargaining is to ensure the continuance of cordiality in the employer–employee relationship. This is done by avoiding unilateral actions of the employers and by ensuring a rightful place for the trade union in the decision-making process. In fact, the trade unions significantly influence the decisions concerning the interests and well-being of the employees in many collective bargainings. Those organizations that follow decentralized collective bargaining can have their own bargaining process, but at the centralized level, the process is almost the same. In any case, every bargaining process undergoes a few stages.19 The agenda for bargaining usually have an influence on the preparation for and duration of the collective bargaining. The process indicated in Figure 23.2 can be adopted by any organization with necessary modifications. We shall now see the steps in a collective bargaining process.

Deciding the Negotiation Team The first step in a bargaining process is the determination of the negotiation team for the collective bargaining process. The employers and the trade unions both must choose their respective negotiating teams and the chief negotiator to conduct the collective negotiations. Each party must also have the power to remove or replace any member of the negotiating team. The negotiators must be knowledgeable and loyal persons with adequate negotiation skills. Whenever necessary, they may be provided with a supporting team to help in the preparation for the negotiation and bargaining process.

Planning for Negotiations The next step in the bargaining process is doing one’s homework properly. This is applicable both to the employers and the trade unions. No party can afford to stumble at the negotiation table. The negotiators of each side must be fully equipped to present their case effectively and defend their positions strongly in the bargaining. They must have prior meetings among themselves to evolve a strategy for a successful initiation and completion of the negotiation process. The management must have a solid database to support its bargaining positions.20 It must gather sufficient data about the existing compensation packages and other benefits. To strengthen its arguments, it should also have information about the industry pay averages and the pay scales of the rival companies in the same industry. It must also compute the probable labour cost for different compensation packages. Besides, it must use its experience gained from the earlier bargainings to decide its strategy for the future. As for the trade union, it must gather comprehensive information about the needs and desires of the employees. It must clearly know what the employees expect from the next collective bargaining. It must also prioritize the demands for presentation and bargaining.

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

Step 1: Deciding the negotiation team Step 2: Planning for negotiations

Step 3: Presentation of demands

Step 4: Bargaining over the demands

Step 5: Winding up the bargaining

Successful outcome— agreement signed

Unsuccessful outcome—no agreement signed

Administration of agreement

Fresh bargaining or industrial action

Figure 23.2 Steps in the Collective Bargaining Process

Finally, it must predict the likely attitude of the other side to the collective bargaining on the basis of its past experience. Accordingly, it must devise its strategy for the bargaining. As far as possible, each side must keep alternative proposals to offer in the event of the original proposal falling through in the negotiation. Finally, each side must be aware of the culture, climate, history, general economic conditions and laws concerning wages and other benefits and salary structure of similar organizations.21

Presentation of Demands Once the framework and the ground rule for the bargaining process is agreed upon by both the parties, each party would make a detailed presentation about its demands and the issues concerning them. The issues may relate to wages and salary, incentive, paid holidays, bonus payments, profit-sharing plan, sick leave, pension plan, promotions, grievance procedure, lay-offs, transfers, work assignment, work schedule, workloads, rest periods, and employee health and safety. Prior to making this presentation, both sides may exchange their views and opinions about the execution of earlier agreements.

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They may also discuss the additions, deletions and modifications required in the earlier agreements or contracts. After both parties complete their presentation, the stage is set for bargaining.

Bargaining over the Demands This is the most crucial stage in a collective bargaining process. When the bargaining is integrative in nature, the employers and the unions may not feel any need to bring pressure on the opposite side to clinch the issues. This is because the final outcome in integrative bargaining normally benefits both the parties. In the case of distributive bargaining, each party would be wary of the strategies of the other party in the bargaining. Obviously, each party would adopt strategies to settle the issues in its favour. During the time of bargaining, the negotiating teams must consult regularly with, report to and take instruction from the higher authorities regarding the developments, revised strategies, and response to the offers made by the other party. When the negotiation breaks down or reaches a stalemate, the negotiators may offer alternative proposals for reviving the negotiation in due consultation with their top-level authorities. When all the efforts fail, the parties may seek a third-party intervention in the form of arbitration and adjudication or resort to arm-twisting the opposite party for a forced negotiation and settlement.

Winding up the Bargaining with or without Settlement When the bargaining ends with a tentative agreement between the employers and the unions, it becomes the responsibility of each party to get the agreement ratified. The negotiators representing the management would seek the employers’ approval for signing the formal agreement. Since these negotiators have constantly been in touch with the management during the negotiations, there may not be any major problem in getting its approval. In contrast, the real challenge of the unions in collective bargaining actually lies in convincing the union members about the gain of the agreement and finally getting ratification from them for signing the formal contract. Till ratification is obtained from both the sides, it is not possible to make the agreement operational. Once the agreement is signed by all the parties, it is given effect either from the date agreed upon by the negotiators during the bargaining or after the expiry of the existing agreements.

Administration of the Agreement The success of collective bargaining depends more on its successful implementation than on its signing or ratification. Unlike arbitration or adjudication, collective bargaining is not a binding agreement. Thus, the management may evade its commitment for implementing the agreement by citing practical difficulties. For instance, the management may force the unions to accept a partial implementation of wage agreement by citing cost escalation and low profit margin as reasons. Similarly, the unions may resist the attempts of the management to introduce the revised workloads, promotion and transfer policies, as agreed upon by them in agreements. When there is a failure of implementation of agreement, the relevance and importance of the collective bargaining agreement would be considerably undermined. It is the primary responsibility of the organization to explain and implement the agreement by providing the necessary training to its managers and supervisors.22 The unions have an equal responsibility to ensure the effective implementation of the agreement.

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Essentials of Effective Collective Bargaining An effective collective bargaining enables both the parties to work together to define their relationship through an agreement. It helps the employers and the employees in several ways. On the one hand, it helps the employees in influencing the managerial decisions concerning them, and on the other hand, it helps the employers in getting adequate support for their future plans and programmes from the employees and their unions. Ultimately, it helps the entire organization in improving the industrial relations. It is thus essential to ensure the effectiveness of collective bargaining. The presence of the following factors can enhance the effectiveness of collective bargaining.

Strong Unions and Effective Leadership The important prerequisite for the success of collective bargaining is the presence of strong unions with an effective leadership in the organization. Only a strong leadership with effective control over its members can get the bargaining agreements ratified by the members without much difficulty. Thus, a strong and wise union leadership is an important element of effective collective bargaining.23

The Organization’s Recognition of Unions The next important element of an effective collective bargaining is the presence of official unions in the collective bargaining. In this regard, the management must accord due recognition to the unions to represent the employees in the collective bargaining. In case of existence of multiple trade unions, the organization can identify and recognize the largest union as the authorized representatives of the employees. In this regard, the organization may undertake democratic exercises like elections to decide on the popularity of each union for awarding recognition.

Top-management Support The support of and the encouragement from the top management are critical for the success of collective bargaining. The management must have faith in the system of collective bargaining as a dispute resolution process. It must also own responsibility for the fulfilment of the agreements reached through collective bargaining. There must also be a commitment from the management to deal with the employees and their unions in good faith.

Positive External Environment The external environment and events have an important influence on the strategies adopted by the parties in the collective bargaining and also on the outcome. The most influential factors in the external environmental are the national political environment and the policies of the national trade unions. When the government follows pro-labour policies and is positively inclined towards trade unions, the power equation in the collective bargaining could be in favour of the unions. On the other hand, if the government is inclined towards protecting employers and their interests, the power balance might tilt towards the employers in the bargaining.

Openness and Flexibility The degree of openness adopted by the employers and the employees in the bargaining process can also determine its efficiency. When the parties show a greater degree of openness in

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the bargaining, the chances of a positive outcome at the end of the process are brighter. The management should be honest not only in the bargaining but also in the implementation of the agreements. Similarly, the employers and the unions both must adopt an accommodative approach and be ready to ‘give and take’ in the negotiation to reach a settlement. A flexible approach alone can help in the long-term success of the collective bargaining process. The parties must attempt to make every collective bargaining an integrative bargaining so that everyone gets something at the end.

Fair Labour Practices The management must desist from unfair labour practices such as the victimization of union activists through unfair disciplinary actions and even unfair dismissals of union members.24 The other unfair labour practices which the management must avoid are (i) obstructing and undermining the employees’ collective bargaining rights; (ii) preventing the formation or administration of unions through unfair means; (iii) discriminating against the unionized employees in increments, promotion or other career advancement plans; and (iv) keeping unfair recruitment practices to discourage the employees from joining unions. Similarly, the unions should also avoid unfair labour practices like (i) making unreasonable demands on the employers through coercive techniques like strike, picketing and gherao; (ii) preventing the employees from exercising their rights on matters relating to collective bargaining; (iii) discriminating against the non-union members and penalizing those who do not participate in the union-sponsored strikes; (iv) refusing to bargain collectively with an employer; and (v) forcing the employees to participate in strikes and picketing against their will. Fair labour practices would keep the organization free of irritations, victimization and tension. They also help in keeping the industrial relations healthy and cordial.

Summary 1. An industrial dispute is defined as any dispute or difference between employers and employers, between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour of any person. 2. The causes of industrial disputes are demand for pay and benefits hike, demand for hygienic and safer working conditions, demand for better labour welfare and social security measures, demand for recognition and appreciation, demand for justice to an individual or a group of employees, one-upmanship among the unions, external interference and numerous labour legislations. 3. The types of industrial disputes are interest disputes and rights disputes; and the outcomes of disputes are strikes, picketing, gherao and lock-out. Strikes may be classified into general strike, pen-down, tools-down

and sit-in strikes, wild-cat strike, go-slow and work-to-rule strikes, sick leave and mass casual leave strikes, hunger strikes and sympathy strikes. 4. The forums for the settlement of disputes are negotiations, collective bargaining, conciliation and mediation, arbitration and adjudication. 5. Adjudication includes courts of enquiry, labour courts, industrial tribunals and national tribunals. 6. Collective bargaining is defined as a free and voluntary forum that facilitates negotiation between employers and employees’ unions on issues affecting the interests and rights of both the parties so that an amicable settlement is reached in good faith. 7. The features of collective bargaining are: joint process, interactive mode, continuous process,

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

adversarial strategy and union-based initiative. The types of bargaining are distributive bargaining, integrative bargaining, centralized bargaining and decentralized bargaining. 8. The steps in the collective bargaining process are: deciding the negotiation team, planning for negotiations, presentation of demands, bargaining over the

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demands, winding up the bargaining with or without settlement, and administration of the agreement. 9. The essentials of effective collective bargaining are strong unions and an effective leadership, the organization’s recognition of unions, top management support, positive external environment, openness and flexibility, and fair labour practices.

Review Questions Essay-type questions 1. Enumerate the causes of industrial dispute with relevant examples. 2.

Evaluate the different forms of industrial strikes critically and in detail.

3.

Discuss the different methods available for investigating and settling disputes.

4. Explain the different methods of collective bargaining using examples. 5. Describe the different steps in a collective bargaining process. 6.

Enunciate the essentials of effective collective bargaining.

7.

“Collective bargaining improves industrial relations but not productivity.” Discuss.

Skill-development Exercise Objective – The objective of this exercise is to provide you with practice in investigating and settling disputes, especially in a specific situation where there is a high level of industrial disturbance like strike, picketing and lock-out. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two office-bearers of trade unions, and (4) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them. Situation Indus Aluminium Limited is a large aluminiumproducing company. It is engaged in the production of high-grade bauxite and aluminium. The company focuses on three major business activities, namely, mining, refining and smelting. The HR policy of Indus Aluminium is geared towards developing its existing employees and preparing them to be future leaders. This company has a workforce of 7,200 employees. Though it has specific policies for human resources (HR) and industrial relations (IR), its IR record is not impressive. As a matter of fact, it has witnessed several industrial

disputes and conflicts in the last few years. It has already lost several precious man-days due to industrial disturbances. Now, the management of this company wants to have a system that would prevent the industrial disputes from developing into a full-fledged confrontation between the management and the employees in the form of debilitating strikes and lock-outs. With the options of direct negotiation, collective bargaining conciliation, arbitration and adjudication before it, the management instructed the HR department to decide the appropriate way for an effective settlement of disputes. Steps in the exercise There are three steps in the exercise: Step 1: The HR manager meets the office-bearers of the trade unions to know their views on the different dispute settlement techniques. Step 2: He convenes a meeting of his HR team to choose the dispute settlement technique appropriate for the company. Step 3: The observers analyse the performance of the members in the role-playing session and provide their feedback.

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Case Study Vikas Motor Limited is the second-largest two-wheeler manufacturer in the country. The company has ten brands, each performing well, and five production plants in different regions of the country. It has a single recognized union which is strong and effective with nearly 70 per cent membership of the employees. As part of its IR strategy, Vikas Motor follows a wellestablished collective bargaining technique for deciding labour-related issues, including wages and other benefits. Due to collective bargaining, the company has been revising the compensation packages of the employees once in three years. Collective bargaining has also ensured that the company has remained free from any major industrial dispute and disturbances for several years till date. However, the entry of foreign companies into the market, which created a price war in the two-wheeler segment instantly meant that every company in the automobile industry was forced to respond in some way to this emerging trend . Obviously, companies viewed cost reduction as the most viable approach to warding off the threat of elimination from the market. Understandably, the emphasis of Vikas Motor was also on cost cutting, and its board decided that the best strategy for wage reduction or freezing and cutting back on expensive employee benefits is the introduction of individual employee-level bargaining and the elimination of collective bargaining. The directors also felt that collective bargaining achieved the desired result on the IR front but

not in terms of productivity and cost reduction. However, Mr Gupta, Director of HR and IR, differed with the general opinion of the board and advised it to look at collective bargaining as an instrument of change and not as an obstruction. Finally, the board decided to abolish collective bargaining as a wage-fixation technique and replaced it with individual employee-oriented and performancebased system for wage determination. The employees and their union received the news with shock and disbelief and responded with a flash strike. The company witnessed a strike after several years but the management viewed it as an emotional response of the employees and hoped that normalcy could be restored through talks and awareness campaigns. However, Mr Gupta feared a steady deterioration in the relations between the employers and the employees and also reduced employee cooperation and performance. Questions for discussion 1. What is your opinion about the problems of Vikas Motor Limited that have been caused due to the advent of foreign companies? 2.

Do you agree with the decision of the board of directors regarding the abolition of collective bargaining and its replacement with individual employee bargaining?

3.

How do you foresee the future of this company? What measures are required now to normalize the situation?

Notes 1.

C. Faucheux and J. Rojot, “Social Psychology and Industrial Relations: A Cross-Cultural Perspective” in G. M. Stephenson and J. Brotherton (eds), Industrial Relations: A Social Psychological Approach (New York: John Wiley, 1973), pp. 33–49.

2. Jerome Joseph, Industrial Relations: Towards a Theory of Negotiated Connectedness (London: Sage, 2004), p. 142. 3. O. P. Malhotra, The Law of Industrial Disputes, 1, 4th ed., (Delhi: Universal, 1998), p. 3.

4. E. A. Ramaswamy, “Indian Management Dilemmas: Economic Versus Political Unions,” Asian Survey, 23, no. 8 (August 1983): 976–990. 5. Isaak Ismail Dore, Arbitration and Conciliation Under the UNCITRAL Rules: A Textual Analysis (Dordrecht: Martinus Nijhoff Publishers, 1986), p. 3. 6.

John Thomas Dunlop, Dispute Resolution: Negotiation and Consensus Building (New York and London: Greenwood Publishing Group, 1984), pp. 217–218.

INDUSTRIAL DISPUTES AND COLLECTIVE BARGAINING

7.

Sonia Bendix, The Basics of Labour Relations (Cape Town: Juta and Company Limited, 2000), p. 138.

8. Sonia Bendix, The Basics of Labour Relations (Cape Town: Juta and Company Limited, 2000), p. 138. 9.

M. Domke, “Commercial Arbitration at vii,” (1965), referred by Isaak Ismail Dore, Arbitration and Conciliation Under the UNCITRAL Rules: A Textual Analysis (Dordrecht: Martinus Nijhoff Publishers, 1986), p. 4.

10.

Report of the Secretary General, “Conciliation of International Trade Disputes,” (1979), A/CN.9/167, p. 4.

11.

Henry H. Perritt, “And the Whole Earth Was of One Language: A Broad View of Dispute Resolution, 29, Villanova Law Review (1984): 1221, 1331.

12. Jerome Joseph, Industrial Relations: Towards a Theory of Negotiated Connectedness (London: Sage, 2004), p. 13. 13. Shauna Olney and Marleen Rueda, “Promoting Collective Bargaining, Convention No. 154,” Social Dialogue, Labour Law and Labour Administration Department, ILO, Geneva, p. 6. 14. Shauna Olney and Marleen Rueda, “Promoting Collective Bargaining, Convention No. 154,” Social Dialogue, Labour Law and Labour Administration Department, ILO, Geneva, p. 6.

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15. Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 613. 16.

Sonia Bendix, The Basics of Labour Relations (Cape Town: Juta and Company Limited, 2000), p. 138.

17. Sidney Webb and Beatrice Webb, Industrial Democracy (Edinburgh: R&R, Clark Limited, 1898). 18.

Greg J. Bamber, Funkoo Park, Changwon Lee, Peter Ross and Kaye Broadbent, Employment Relations in the Asia-Pacific: Changing Approaches (London: Allen & Unwin, 2000), p. 48.

19.

Arthur A. Sloane and Fred Witney, Labor Relations (Upper Saddle River, NJ: Pearson Prentice Hall, 2004), pp. 177–218.

20. John Fossum, Labor Relations (Dallas: BPI, 1982), pp. 246–250. 21. R. Wayne Mondy, Human Resource Management, 11th ed. (Upper Saddle River, NJ: Pearson Education, 2007), p. 398. 22. R. Wayne Mondy, Human Resource Management, 11th ed. (Upper Saddle River, NJ: Pearson Education, 2007), pp. 411–412. 23. Augustus H. Smith, Economics for Our Times (New York: McGraw-Hill, 1959), p. 380. 24. Roger Blanpain, Encyclopedia of Labour Law and Industrial Relations, Legislation 103 (Supp. 101, 1989).

CHAPTER

24

Trade Unions

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 List the objectives, features and history of trade unions 2 Enumerate the types of trade unions 3 Understand the strategies and actions of unions for goal accomplishment 4 Detail the reasons for which workers join trade unions 5 Overview the Trade Union Act, 1926 6 Understand the challenges facing the trade union movement 7 Discuss union-free organizations

Indian Railways is one of the largest employers of the country with a 1.54 million strong workforce. It has a strong presence in terms of trade unions. The trade union movement began in 1924 since the first railway union, the All India Railwaymen’s Federation (AIRF), was formed that year. The AIRF has conducted several strikes against the railway administration for various demands. It has won most of its demands and the employees now have the Joint Consultative Machinery (JCM) for the resolution of grievances and for a collective bargaining system. Traditionally, two unions—the National Federation of Indian Railwaymen and the All Indian Railwaymen’s Federation—were recognized. Later, the Supreme Court ordered the railway administration to hold a secret ballot for awarding recognition to a select number of unions a few years back. This was necessitated

by the mushrooming of trade unions in recent decades. As per the court order, only those unions that get 35 per cent of the polled votes or 30 per cent of the total electorate will be considered by the management. If a union gets over 50 per cent of votes, it should be the single recognized union in that railway zone. If no union gets even 20 per cent of the valid votes polled, no union will stand recognized in that zone. After the elections, each railway zone has one or two recognized trade unions depending upon the poll outcome. Clearly, the working of the railway unions has now been streamlined and the recognized unions alone participate in the collective bargaining. As a result, the bargaining strength of the unions has been preserved to the advantage of the employees. Given this context, we shall see the importance of trade unions for an organization in this chapter.

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Introduction A trade union is basically the joining together of workers to resist the dictates of employers through collective strength and actions. The purpose of trade unions is to maintain or improve the working lives of wage earners.1 The employee as an individual can never be a match for the employers, who control the economic resources. In a lop-sided competition between the employees and the employers, the chances of equity and fairness in the sharing of profits and wealth are extremely slender. To overcome this inherent weakness in their never-ending struggle against the employers, the employees formally or informally unite themselves. They may unite themselves informally to fight for their rights and interests, but such loose-knit groups may not be able to withstand the concerted pressures and forces of the genuinely powerful employers. Thus, the employees may need a formal organization with the necessary statutory protection to oppose the unfair acts and to resist the exploitations by the owners of the business effectively. Employees form trade unions in the organizations to regulate their relationship with the employers.2 These unions work for the well-being of the employees in a complex way. Trade unions constantly strive to achieve the twin goals of protecting the existing rights and securing new benefits for the employees. In countries like India, governments play a proactive role in protecting the interests of the employees and their unions through the enactment of legislations and the establishment of quasi-judicial and non-judicial forums. The Trade Union Act, 1926 plays a pivotal role in the promotion and protection of trade unions in the country. The act specifies the guidelines for the establishment, administration and dissolution of trade unions. It also deals with the rights, duties and privileges of the unions in detail. Regulating the employees’ relationship with the employer is the essence of many definitions of trade unions. We shall now see a few of these definitions in Box 24.1. We may define a trade union as a formal association of workers for the purpose of protecting and promoting their rights and interests through collective bargaining and actions.

Features of Trade Unions Based on these definitions, trade unions can be characterized as: Box 24.1

Definitions

“Trade Union is defined as any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers, or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more Trade Unions.”3 —Trade Union Act, 1926 “Trade union means any organization, whose membership consists of employees, which seeks to organize and represent their interests both in the workplace and society and, in particular, seeks to regulate their employment

relationship through the direct process of collective bargaining with management.”4 —Michael Salamon “Trade union is defined as a voluntary organization of workers formed to promote and protect the interest by collective actions.”5 —V. V. Giri “Trade union is defined as an organization whose purpose is to improve the material welfare of the members principally by raising wages above the competitive levels.”6 —A. L. Booth

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A Voluntary Association A trade union is basically a voluntary association of employees for any common purpose. Individuals agree on their own to join and act together in order to try and fulfil the purposes for which they come together.

Possessing Common Goals A trade union is organized to achieve a few common goals and all its activities are driven by those goals. On the basis of the goals, voluntary associations, including trade unions, can be classified into two categories. These are expressive associations and social influence associations.7 The goal of an expressive association is the satisfaction of the self-interest of the members. On the other hand, the goal of a social influence association is social improvement and social welfare. Typically, the trade unions belong to the category of expressive association.

Having Authority Flow from the Members Since trade unions are voluntary associations of employees, the leaders are elected by the members. Thus, the real authority is vested only with the members of the unions. This is in contrast to the formal organizations, where authority flows from the top to the bottom.

Acting as an Intermediary The role of the trade unions within an organization is similar to that of mediators. Though a trade union is primarily meant for the protection of its members’ interests, it actually plays the role of intermediary between employers and employees. It indeed eliminates the employers’ need to consult each and every employee before taking decisions affecting him. Instead, the employers talk to trade unions that represent the employees. The trade unions, in turn, pass on the information to the employees through their own sources. They also undertake the responsibility of convincing the employees about the decisions taken by the employers in consultation with them.

Dealing with Collective Action By means of collective action, trade unions attempt to match the power and resources of the employers. This collective nature of activities alone helps the trade unions to establish equality with the employers. It also facilitates better bargaining with the employers on matters relating to the interests and rights of the employees.

Objectives of Trade Unions The primary objectives of trade unions are protecting employment and raising levels of the wages. These two objectives form the basis for all other micro and macro objectives of the unions. For instance, when the wages of employees increase to reasonable levels, it leads to a broader distribution of the wealth of the society. This, in turn, can narrow down the wealth gap prevailing in the society. Similarly, improved wages lead to an increase in the purchasing power of the employees, and this, in turn, creates more demand for the products and goods in the market. An improved buying power and demand creations at the macro level benefit the employers since they would find the market for their goods and services expanding and their profit margins widening. Thus, trade unions serve multiple objectives directly and indirectly. We shall now see the important objectives of trade unions.

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Providing Income Security Trade unions strive to improve the economic life of the employees by getting better wage deals from the employers through collective action.

Maintaining Job Security Trade unions aim at protecting the jobs of the employees. Whenever the employees face a threat of elimination from the employers, in various forms like dismissal, discharge, layoff, retrenchment or compulsory retirement, trade unions resist strongly such designs of the employers to terminate the employees’ services. In fact, trade unions act as an instrument to safeguard the workers from arbitrary and impulsive policies and practices at the workplace.8

Preserving Physical Security Trade unions seek to preserve the health and safety of the employees by asking the employers to provide suitable physical work environment and by insisting on their adherence to safety policies and provisions.

Providing Social Security Trade unions endeavour to provide a peaceful retirement life to the employees by asking the employers to provide adequate retirement and other benefits. They may ensure that the employers contribute adequately and regularly to the statutory funds meant to protect the future wellbeing of the employees. They may also insist on the employers offering organizational-level schemes for improving the employees’ retirement benefits.

Providing Emotional Security Trade unions make every effort to improve the employer–employee relationship by constantly engaging in negotiations with the management. They also work systematically to improve the superior–subordinate relationship by resolving the workplace grievances of the workers thorough appropriate means. Thus, the trade unions, by ensuring peace and harmony at the workplace, provide emotional security to the employees.

Procuring Political Prowess Trade unions attempt to improve the bargaining power of the employees by working closely with the political parties of the country. Interestingly, the inter-relations and interactions between trade unions and political parties are quite common in India. In fact, trade unions may even function as wings or affiliates of political parties. Obviously, the political power of the unions is used for safeguarding the employees’ interests.

Fostering Industrial Democracy and Equity Trade unions attempt to promote democratic values by holding elections at periodic intervals to choose their leaders. The democratic exercise empowers the grass-roots workers to participate in the organizational decision-making process indirectly by choosing their own leaders. Most of all, it enables even the lowest-cadre employee to become an office-bearer of a union and participate in collective bargaining at the highest levels of the management. Thus, it aims at achieving industrial democracy, peace and equity.

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In addition to these objectives, the unions also work towards the socio-economic development of the dependents of the employees. The present-day trade unions provide educational and medical facilities to the family members of the unionized employees. Thus, the objectives of the trade unions have individual, economic, social and political dimensions. However, hardly any union can accomplish all these objectives and the degree of accomplishment alone can determine its success.

Types of Trade Unions It is difficult to classify the trade unions on the basis of a few specific characteristics. Such classifications are irrational and complex since the unions can assume a specific posture depending upon the situation. For instance, a calm and indifferent union may turn violent when there is a dramatic change in the external situation affecting the interests of the union and its members.9 The objectives, operating environment, employer’s attitude, nature of organization and industry, socio-economic conditions, political climate, legislative protection and strength of the membership can form the bases for classifying the unions. Even when trade unions operate in the same region with some common features, they may have fundamentally different characteristics that may distinguish one from another.10 Generally, trade unions are classified into occupational unions, industrial unions, general unions and, white collar unions.

Occupational Unions In this type of trade union, the union members mostly belong to a specific occupational category. For instance, unions may exist exclusively for technicians, pilots, marine engineers, hairdressers, welders, journalists, freelance photographers, and so on. The primary purpose of such unions is to protect the skill status of their members. They keep the power to control the supply of skills and thereby preserve the value of the skills. These unions also control the entry into the occupation by placing restrictions on skill transfers by the existing members. The earliest kind of occupational union was the craft union. The strength of the craft unions lay not in their numerical strength but in their numerical scarcity. However, the introduction of technology to replace manual skill made these unions lose their relevance and utility as the skills or crafts began to wane.

Industrial Unions In an industrial union—the most common form of union—members usually belong to a specific industry. For instance, when the workers belonging to textile or steel industry form a trade union, it is commonly called an industrial union. The primary purpose of the industrial unions is to promote sectoral collective bargaining. When a single industrial union represents all the workers of a specific industry, it is a monopolistic union. The emergence of such a single union for the entire industry helps improve the bargaining strength of the union. Similarly, the collective actions of such a union will have a total impact on the industry. Single unions are also convenient for the employers as they need to transact with only one union. The examples of collective unions are the All India Bank Employees Association (AIBEA), the All India Insurance Employees Association, and the National Federation of General Insurance Employees.

TRADE UNIONS

General Unions When the unions represent workers from different industries and organizations, they are known as general unions. A general union may be a single union for the entire working class or an amalgamation of several unions representing workers of different industries. Normally, it does not place restrictions on membership as it is open to all the workers, irrespective of their industrial background. Besides, it admits both skilled and semi-skilled workers without making any reference to their skill levels. Such unions are capable of organizing general strikes at the national level by converting the entire working class into one body or federation with maximum consequences. The All India Trade Union Congress (AITUC) and the Indian National Trade Union Congress (INC) are some examples of the general unions in India. The International Trade Union Confederation of Regional Organization for Asia and Pacific (ITUC Asia–Pacific), which is a federation of unions belonging to countries in Asia and Oceania regions, is an example of an international general union.

White-collar Unions They are similar to occupational unions except for the fact that the uniting factor for the workers of such a union is the nature of their job and not their skills. The employees who perform non-manual jobs and belong to the salaried class often form white-collar unions. They normally engage in administrative activities of the organization. According to David Lockwood,11 the main reason for the growth of clerical unionization was the bureaucratization of the workplace, which paved the way for the collective representation of clerical-level workers. The growth in the number of white-collar employees in organizations and their increasing grievances has necessitated the formation of exclusive unions. The white-collar unions normally focus on employees belonging to a particular industry. In recent years, factors like technological development, the emergence of the services sector as an important segment of economy, and globalization have all provided impetus to the growth of white-collar unions in the country. Apart from this classification, Edwards et al.12 classified the western-style unions into three categories based on their approach towards goal accomplishment. These are: 1. Unions which act as the collective bargaining agents of the employees. These unions play no role in the political system of the country. This kind of union is widely seen in counties like the U.S. and England. 2. Unions which operate as partners within the socio-democratic governing arrangements. This kind of union has been seen in countries like Sweden and Austria. 3. Unions which act as the constituent elements in the system of political unionism. This type of union is closely linked to the political parties. Countries like France, Italy and Spain have this type of trade union.

Trade Union Goal Accomplishment Strategies and Actions The main goal for which unions came into existence was to protect the interest and rights of the employees. This goal can be achieved only when the unions are able to match the strengths and resources of the employers. The ability of the unions to organize collective actions can

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provide the employers with the necessary bargaining power and equality. However, unions cannot depend solely on collective actions for accomplishing their goals. The failure of collective actions may leave the unions without any further options. Thus, collective actions like strikes should indeed be the last resort of the unions in their plans and programmes to pressurize the employers. As shown in Figure 24.1, unions require multiple steps and strategies to get their demands met by the unions. We shall now see the strategies usually adopted by the unions to achieve their goals.

Collective Bargaining Trade unions often view collective bargaining as a major forum for conducting negotiations with the employers regarding the demands of the employees. The unions negotiate in the collective bargaining on behalf of the workers and reach a collective agreement with the employers. By allowing the unions to represent the employees in the collective bargaining process, the employers recognize their right to being the representatives of the workers. Thus, the unions make use of collective negotiations with the employers to fulfil the employees’ needs and aspirations.

Participation in Internal Consultative Forums Trade unions through their representatives may participate in various decision-making activities of the organization on a continuous basis at different levels. For instance, they may have their representatives in joint management councils, plant councils, and shop floor councils and even at the board levels to influence the decisions of the management. This

Employee empowerment

Political role

Collective bargaining

Union Strategies for Goal Accomplishment Collective actions

Participation in internal forums

Membership in federations Figure 24.1 Strategies for Goal Accomplishment

TRADE UNIONS

enables the trade unions to gather information on a real-time basis and act on it to protect and promote the interests of the employees. The unions can also use the participative forums to exert pressure on the management to get their demands fulfilled. They normally play a proactive role in settling the grievances of the employees and protect them in disciplinary matters with the help of their presence in various forums.

Membership in National and International Federations Trade unions often join together to expand their support base in order to enhance their bargaining strength with the employers. This may also happen as a consequence of the employers’ move to combine themselves to assert their rights with the employee unions more forcefully. In this regard, the unions would form a federation and affiliate their unions to it. A federation is a national- or international-level organization that represents and aggregates multiple individual unions. Federations help the unions bargain with the government and employers’ associations effectively. A few examples of international federations are International Federation of Chemical, Energy, Mine and General Workers’ Unions (ICEM), International Textile, Garment and Leather Workers’ Federation (ITGLWF) and International Federation of Journalists (IFJ). Similarly, federations of unions exist at the national level as well. All-India Federation of Trade Unions, All-India State Government Employees’ Federation, and Electricity Employees’ Federation of India are a few examples of federations.

Collective Action The major instrument in the hands of the unions to show their strength to the employers is collective action like strike and picketing. Since the outcome of bargaining between the employers and the unions depends crucially on the balance of power between them, the unions are often compelled by the situations to prove their strength through collective actions. Sometimes, collective actions become necessary even to persuade the employers to call the unions for negotiations. However, the unions consider collective actions as the last resort to achieve their objectives. This is because strikes and other agitations require meticulous planning, preparation and resources. Besides, the success of collective actions of the unions is determined by a variety of factors including government attitude, employers’ reactions, public response, members’ cooperation and their economic endurances. Thus, the trade unions consider major collective actions like strikes and boycotts seriously only when all other measures fail to produce the desired results.

Playing a Political Role Trade unions often use political powers as a means to achieve their objectives. They utilize their huge membership base for political empowerment by either affiliating their unions to the political parties or by converting themselves as political parties. The latter development can be seen in England where the Labour party had been a powerful trade union of that country before it became a political party.13 Trade unions benefit greatly from their political role as it provides leverage for effective bargaining with the government establishment on matters relating to the protection and welfare of the working class. They can influence friendly political establishments easily to enact necessary legislations to protect the rights and interests of the labour.14

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Employee Empowerment Trade unions empower the employees by educating them about their fundamental rights and privileges in the workplace. This kind of awareness helps the employees understand the exploitative attitude of the employers easily and resist them immediately. In addition to the general awareness programmes, large unions also provide specific training programmes to the workers to make them fit for future promotions in the organization. Besides, trade unions with societal outlook conduct social awareness programmes among the employees by enlightening them about the evils of drugs and alcohol. This kind of social awareness programme helps the unions prevent the possible employee misbehaviours within the organization and the resultant confrontation with the management.

Why do Workers Join Trade Unions? Generally, the employees’ desire for a decent work life prompts them to think of joining trade unions. However, their ultimate decision depends on their confidence in the unions’ ability to get them that decent work life. In earlier days, the employees’ decisions of joining unions were solely influenced by their need to be united against the economically powerful and exploitative employers. In modern days, individual employees have several ways of protecting themselves from the exploitations of employers due to strong statutory protections, skill shortage in labour market and better labour mobility. Thus, the employees’ expectations from the unions have changed vastly since the introduction of economic reforms in the country. Today, the trade union movement as such is facing a paradoxical situation in the country. On the one hand, public sector organizations provide continuous patronage to the trade unions as before and their employees join the unions in large numbers to protect their rights and interests. On the other hand, the new-generation employees working in private sector companies, especially in sunshine industries, prefer direct bargaining with their organization. They desire to conduct individual negotiations and bargaining with their employers on the basis of their skills and knowledge. These employees often seek better job challenges and scope for personal development instead of mere job security and conventional benefits. Trade unions must be prepared to satisfy both the conventional and unconventional needs of the employees. Thus, they need to understand the actual needs of the employees and should act appropriately on those needs to make themselves relevant to the employees. Though it is very difficult to pinpoint the exact reasons for employees joining the unions, some reasons are common and frequent. We shall now see some of the general reasons which influence employees to join the unions.

Defence against Exploitation The foremost reason for employees joining unions is security, especially that against all forms of exploitation by the employers. There is always an inherent conflict of interests between the employers and the employees in organizations, whether it is in sharing the profits and wealth of the organization, or in deciding the priorities for the future. In their scheme of things, the employers often consider the workers as expendable resources and tend to treat the organizational interest as supreme. This makes the employees vulnerable to exploitations by the unscrupulous employers, thereby adding an uncertainty to their future. The employers’ total disregard for the workers’ interest and their exploitative attitude often forces the employees to join trade unions to defend themselves against exploitations and preserve their rights. The employees’

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perception of inadequacies in working conditions, safety and health measures, wage benefits, promotion policies, working hour practices and others can influence them to join trade unions. Besides, employees expect not only mere protection of their existing rights and interests but also a continuous improvement in them. For instance, the employees can not satisfy themselves with the promise of job security and minimum wages for ever. Rather, they must get a periodic rise in the wages and other benefits commensurate with the improved standard of living and social status. They would naturally expect a continuous growth in their standard of living, for which they would seek wages above the competitive levels. They may decide to join unions when they feel confident that the union is the best means of promoting their well-being on a sustained basis.

Sense of Empowerment Even when the employers are reasonable, fair, trustworthy and considerate, employees may join trade unions. They may decide to join unions perhaps due to their perception that the unions are their natural allies and more reliable than the employers. Membership in a strong union also makes them feel empowered and provides them a sense of security and parity in their dealings with the superiors. Thus, the workers join trade unions to acquire informal powers and prowess by making use of union clout.

Fulfilment of Social and Esteem Needs Employees may join trade unions just to fulfil their social needs. They may like to have the company of people with similar interests and attitudes. If they find that the unions provide them social satisfaction, they would decide in favour of joining the unions. In such a situation, the need for joining trade unions arises not out of their physiological or security needs, but out of social needs. Similarly, employees may join unions to fulfil their desire for power. Some employees may nurse leadership desires in life, but if they get leadership opportunities in their formal organization, they may not feel the necessity of joining unions for acquiring power. On the other hand, when they lack such opportunities in their formal organization, they may choose unions to accomplish their quest for power and authority. Since trade unions are basically democratic organizations, they provide equal opportunities to all the members to become leaders and office-bearers, irrespective of their positions and status in the formal organization.

Compulsion to Join In some organizations, union membership is almost compulsory, especially where there is a single union with near-monopoly. Employees may not have the desire to join the union, yet compulsory membership in the union might be a custom of the organization. In such a situation, the employees will have no options other than joining the union. In the United States, this practice is popularly known as union-shop agreement, where the new employee must join the union at the expiry of a specific period.15 In addition to union-shop practice, the United States has two other union-related practices called closed-shop and agencyshop practices.16 In case of closed-shop practice, an organization can recruit employees only through unions, whereas the agency shop makes it compulsory for the all the employees to pay the union subscription, whether they are members or not. This is justified on the ground that the union struggles for all the employees and not for its members alone.

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Peace with Unions: The Tata Way

Futuristic managements consider industrial peace and harmony as important as technological excellence in the long-term success of an organization. When the organizations carry out their obligations towards the employees as a matter of principle, it often leads to a high degree of productivity, increased team spirit, consummate industrial peace, high-capacity utilizations and self-imposed discipline. Good organizations recognize the need of employees to have unions and they respect the rights of those unions in defending the privileges and interests of the employees. Through comprehensive and continuous dialogues with the trade unions, quite a few companies have created a glorious history with more than several years of uninterrupted industrial peace. The cooperation between Tisco and the Tata Workers’ Union is a case in point. Recently, the Tata Workers’ Union signed a Tata Code of Conduct, which was described as a ‘historic event’ by

Mr B. Muthuraman, Managing Director, Tata Steel. The code of conduct regulates the ethical behaviour of the members of the organization. Ethical conduct has been a hallmark of the business philosophy of the Tatas for 100 years. In fact, the reputation of this company for ethics has enabled it to win businesses in several parts of the world. After signing the code of conduct, Raghunath Pandey, the leader of the Tata Workers’ Union mentioned that the union had always been following the Tata Code of Conduct that the signing had just formalized that commitment. The mutual understanding and the accommodative approach between the Tata management and the union have kept this organization peaceful and successful for more than 70 years. Adapted from http://www.tatasteel.com/newsroom/ press408.asp.

Peer-group Influence Peer influence refers to the influence exerted by friends and co-workers on an employee to change his attitudes in order to conform to group customs and norms. In some cases, the employees may decide to join the unions due to peer influence. For instance, the friends and the colleagues may prevail upon a non-union employee to join the union. When the unionized friends put constant pressure, the employee may ultimately yield to such pressure and decide in favour of joining the union. In such a situation, peer pressure becomes the dominant factor in influencing the employee’s decision. Box 24.2 outlines the relevance of employer–union cooperation in industries.

History of Trade Unions In many countries, the establishment of trade unions was seen as a direct outcome of industrialization and the factory form of organization. In fact, trade union is a workers’ social response to industrialization and capitalism.18 The workers belonging to the skilled-labour category were emboldened to begin their own unions as their skill was in short supply and the chances of victimization by the employers was relatively less as compared to the unskilled labour. As a matter of fact, prior to industrial revolution, a section of England’s crafts workers kept trade guilds to protect their profession but these can not be compared with the trade unions as they do not seem to have engaged in any form of bargaining. In the recorded history of world unionism, the earliest labour strike was reported in 1786 in America when the Philadelphia printers struck work, demanding wage hikes.17 The second strike was recorded in 1791, again at Philadelphia, but this time by the carpenters, who struck work for nearly ten days. Yet, there was no symptom of trade unionism before or after these strikes. The first trade union in America was established at New York on 14 August, 1833.

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However, as early as 1824, the first full-fledged trade union was started in England in the name of General Union of Operative Spinners of Great Britain. Again, in 1834, another union was started in England by the name of the “Grand National Consolidated Union” by Robert Owen, an industrialist and philanthropist. In fact, the trade union movement originated in England as an offshoot of the Industrial Revolution and with the intention of protecting the interests of employees.18 However, these unions did not last long. The present-day forms of unions came into existence only 1850 onwards. For instance, the engineers in England started their own union in 1850 to improve their bargaining powers. Similarly, the cigar workers in Germany began their union activities in 1865. The unskilled and semi-skilled workers began their union activities in the 1880s when they established unions to protect their interests. This period also witnessed the establishment of industrial, general and while-collar unions. However, trade union as a concept gained momentum only in the 19th century, when the trade unions began to be viewed as a potent force in the industrial and political arena both. Since then, there was a mushrooming of trade unions in the world with the unions achieving success even in politics through their collective strength and actions.

Trade Union Movement in India In India, the factory form of production came into existence in 1860. During the same year, the then government introduced the Employers’ and Workmen’s Dispute Act.19 The purpose of this act was to settle instantly the wage disputes between employers and workers through magistrates and penalize the workers if they breached the contract. In 1863, the then government introduced the Transport of Native Labourers Act as per the report of the Indigo Commission. Around this time, cotton textile factories were established in the erstwhile Bombay and Madras. Similarly, jute mills were established in Calcutta. In the initial stages, the factories were exporting goods predominantly to countries like England. However, trade union movements were unknown in India during this period. Due to the efforts of a few individuals in India and English entrepreneurs, the British government introduced the Factories Act in 1881 to regulate the working conditions of the labour in factories which employed more than 100 workers. This act reduced the working hours of women to 11 hours and those of children to seven hours. It also ensured that the workers were provided with half-an-hour meal break. However, this act left the plight of the workers unattended as they continued to toil for very long hours. Though there were intermittent protests by the workers against the pathetic working conditions, there was no organized union movement.

The First World War and Trade Unions The First World War (1914–18) brought many industries to India as a consequence of the increased demand for goods, and this resulted in a vast expansion of the working class in the country. Due to the necessity of time and situation, Indian workers were trained to become skilled workers in the organizations and were also considered for supervisory positions. These developments created an ideal situation for commencing trade unions as skilled workers alone made the initiatives for forming unions in different parts of the world. During this period, the workers resorted to strikes at various industrial centres in the country, demanding increased wages to compensate for the surging inflation resulting from the World War. Strikes became widespread and successful and even turned violent in some places. These strikes attracted huge public attention and forced the intervention of great leaders like Gandhi, Jawaharlal Nehru

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and others. The occurrence of global events like the establishment of the International Labour Organization (ILO) and the birth of countries like the USSR around the same time provided the necessary impetus to the formation of trade unions. The first trade union in India was established in Madras (now Chennai) in 1918 and was called the Madras Textile Labour Union.20 In 1919, India’s first federation of trade unions, called the All India Trade Union Congress (AITUC), was founded by Joseph Baptista, a close ally of Bal Gangadhar Tilak, and a few others in Bombay (now Mumbai). However, one of the primary purposes of launching the AITUC was to represent India in the International Labour Organization (ILO) of the League of Nations. In the early 1920s, several unions were formed in the country with the chief objectives of protecting and promoting the interests and rights of the workers. Among them, the most prominent ones were the Textile Labour Association, the Railway Workers’ Union, the Indian Colliery Employees’ Association and the Indian Seamen’s Union. However, the late 1920s witnessed a major split in the AITUC due to ideological differences among the leaders, and this resulted in a major setback to the trade union movement in the country. The cumulative effects of these ideological differences in the AITUC were the formation of another union called the Indian Trade Union Federation in 1930 by V. V. Giri, N. M. Joshi and others. The breakaway group walked away with a sizeable number of unions hitherto affiliated to AITUC. Meanwhile, the British government constituted a commission called the Royal Commission on Labour to look into the grievances of the workers and suggest legal measures to ameliorate the conditions of the industrial workers. The establishment of the Royal Commission can be attributed to the sustained and successful efforts of the workers’ unions. These unions organized several strikes, which forced the announcement of the constitution of the Royal Commission by the British government. This commission made several recommendations towards the protection of wages and ultimately the government introduced the Payment of Wages act in 1936.

The Second World War and Trade Unions The Second World War (1939–45) brought another round of misery for workers as the government imposed a freeze on wages even as the inflation was soaring due to an acute scarcity of essential commodities. Unfortunately, there was no unity and cooperation among the unions as they stood divided on ideological grounds. Consequently, the efforts and agitations of the unions to improve the conditions of the workers failed miserably. The leaders of the major unions realized their mistake and decided to merge their unions to improve their bargaining power. Accordingly, the Indian Trade Union Federation merged with the AITUC, and the trade union movement was considerably strengthened. However, in 1947, the trade union movement witnessed a major split for the second time on ideological basis. Due to their differences with the communists, the nationalist leaders formed a new union called Indian National Trade Union Congress (INTUC) in May 1947. After the split, the communists took complete control of the AITUC operations as the split became complete and unbridgeable. After Independence, the number of unions multiplied due to factors like a simplified procedure for union registration and the political parties’ preference to have their own unions. Today, the country has numerous unions, each with its own political and social ideology. The Hind Mazdoor Sabha, the Bharatiya Mazdoor Sangh, the United Trade Union Congress, the All India United Trade Union Centre, and the Centre for Indian Trade Unions are a few examples of major trade unions in India.

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Trade Union Act, 1926 The Trade Union Act, 1926 deals with the registration and regulation of trade unions. It also specifies the rights, privileges, duties and liabilities of the registered trade unions. This act is applicable to the whole of India. It empowers the state governments to appoint a registrar of trade unions for each state. The state government can also appoint additional and deputy registrars of trade unions as it thinks fit for the purpose of exercising and discharging the powers and functions of the Registrar under this Act. We shall now see the salient features of this act.

Minimum Number for Application Any seven or more members of a trade union can apply for the registration of their trade union under this act. For this, they must subscribe their names to the rules of the trade union and in other way comply with the provisions of this act relating to registration while applying for such registration.

Application (Sections 4 and 5) The application for registration must be sent to the registrar along with a copy of the rules of the trade union and the following particulars: (a)

Names, occupations, and addresses of the members making the application;

(b)

Name of the trade union and the address of its head office; and

(c)

Titles, names, ages, addresses and occupations of the office-bearers.

Certificate of Registration (Sections 8 and 9) The registrar, after verifying and satisfying himself that the trade union has complied with all the requirements of this Act, will register the trade union and issue a certificate of registration in the prescribed form.

Powers of Registered Unions (Section 13) Any trade union registered under this act will have the following characteristics: • It shall be a body corporate by the name under which it is registered. • It shall have perpetual succession (i.e., the entry or exit of its individual members will not affect the continuance of the union). • It shall have a common seal (independent authority) with power to acquire and hold both movable and immovable property. • It is vested with powers to enter into contract with others in its own name. • It can sue others and be sued by others, all in its own name.

Rights and Liabilities of the Registered Trade Unions The activities of the trade unions registered under this act are regulated through various sections of this act. We shall now see the important sections of this act that deal with the rights and liabilities of the registered unions.

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Broad Objectives for the Spending of General Funds (Section 15) The general funds of a registered trade union shall not be spent for any objectives other than those mentioned by this act. A few objectives are: • the payment of salaries, allowances and expenses to office-bearers • the payment of expenses for the administration of the trade union • the prosecution or defence of any legal proceeding to which the trade union or any member thereof is a party • the conduct of trade disputes • the compensation of members for loss arising out of trade disputes • allowances to members or their dependants on account of death, old age, sickness, accidents or unemployment of such members • undertaking policies of assurance on the lives of the members • the provision of educational, social or religious benefits for members Fostering Civil and Political Interests of the Members (Section 16) A registered trade union may constitute a separate fund through contributions and the same may be used for the promotion of the civic and political interests of its members. Legal Protection to Office-bearers in Certain Criminal Conspiracy Charges (Section 17) The office-bearers or members of a registered Trade Union shall not be liable to punishment under sub-section (2) of section 120B of the Indian Penal Code (45 of 1860), in respect of any agreement made between the union members for the purpose of furthering any of the objectives of the Trade Union specified in Section 15 of this act. Immunity from Trade Dispute–related Civil Suits (Section 18) No suit or other legal proceeding shall be maintainable in any civil court against any registered trade union or its members in respect of any act done in contemplation and furtherance of a trade dispute to which a member of the trade union is a party. Such an act may involve inducing a person to break a contract of employment, or interfering with the trade or employment of other persons. Validity of Agreements (Section 19) No agreement between the members of a registered trade union shall become void or voidable just because any of the objects of the agreement are in restraint of trade. Inspection of Books Maintained by the Trade Union (Section 20) The account books of a registered trade union and the list of members thereof shall be open to inspection by any office-bearer or member of the trade union. Admission of Minors as Members of Trade Union (Section 21) Any person who has attained the age of 15 years may become a member of a registered trade union and can enjoy all the rights of a member. Disqualifications for the Holding of Office (Section 21A) A person is not qualified to be the member of the executive or any other office-bearer of a registered Trade Union if

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• he has not attained the age of eighteen years. • he has been convicted by a Court in India of any offence involving moral turpitude and sentenced to imprisonment for a period of five years after his release. Requirements Regarding Industry-wise Representation in Office (Section 22) Not less than one-half of the total number of the office-bearers of every registered trade union shall be the employees in an industry with which the trade union is connected. Conditions Relating to Dissolution (Section 27) When a registered trade union is dissolved, a notice of the dissolution signed by seven members and also by the secretary of the trade union shall be sent to the registrar within 14 days of the dissolution. Filing of Returns (Section 28) A duly audited general statement containing information about receipts and expenditure and the assets and liabilities of the trade union in a prescribed manner shall be sent annually to the registrar, on or before such date as may be prescribed. The general statement must be accompanied by the details about the changes of office-bearers made by the trade union during the same period.

Challenges Facing the Trade Union Movement In many countries, employees have begun to view trade unions as an outdated institution and keep no place for union activities in their busy schedules. Developments like globalization, intensified competition, labour market changes, the replacement of the public sector by the private sector, modern HR management practices, the emergence of smaller and dynamic organizations and individualistic ideologies among employees have all contributed to a rapid decline in the preference for unions. Apparently, the present-day trade unions are facing multiple and complex challenges. We shall now see the challenges before contemporary trade unions.

Declining Memberships Worldwide, there has been a declining trend in the membership of the unions.21 By and large, the same trend is being witnessed in India, particularly in the private sector. The growth of trade unions in India in its initial stages could be attributed to the interventionist policies of the erstwhile governments. For long, trade unions in India enjoyed several statutory protections that facilitated their growth and popularity. But, the economic reformist policies introduced by the Government of India in 1991 changed the priorities of the state and its attitude towards labour and its rights. Now, the unions no longer enjoy the same protection and patronage as they did before 1991. Investment preferences have overtaken the importance of labour protection in the policies of the central and state governments, and this is certainly a setback for the unions. Privatization reduced the membership base of the unions clearly. The post-reformist policy measures of the government like recruitment freeze, longer duration of wage agreements, and voluntary retirement scheme for public sector employees,22 and employment generation in the private sector all acted against the interest of the trade unions in the country. Certainly, the growth in union membership did not keep pace with the increase in the number of workers in the country. Finally, the globalization of the economy led to a greater competition in the market and forced the employers to reduce or, at least, freeze the cost of production and the price of

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product to survive in the market. In such a situation, the employers were unable to afford any increase in the wages as they could not pass on the cost of increased wage to the consumers due to stiff competitions. Understandably, the employers were forced to act tough on the unions when they resorted to agitations like strikes demanding a rise in wages. The failures of unions in industrial conflicts made them unpopular among the employees. Cumulatively, there has been a steady decline in trade union activity in the country over the years.

The Changing Profile of Indian Workers Indian trade unions have often been described as bread-and-butter unions.23 This is because the Indian unions often fight for basic economic issues like wage rise and bonus. In contrast, the present-day elite and urban working class have moved beyond the basic needs and begun to focus on non-economic needs like skills acquisition, job autonomy, job challenges and job mobility. The conventional approaches of the trade unions and their obsession with wages issues act as a stumbling-block in reaching out to the vast majority of the educated middle-class employees.

Multi-unionism and Inter-union Rivalry Since Independence, most of the Indian trade unions have been functioning as the labour wing of political parties. Almost all major political parties in India, including the regional ones, have their own labour wings to control the trade unions of various industries. The existence of a multi-party system in the country led to the mushrooming of unions in the organizations. As these trade unions are mostly ideology-based, there is a clash of interests among these unions which ultimately affects the unity of the employees. The inter-union rivalry affects the collective bargaining and action abilities of the unions. Thus, the inter-union rivalries due to multi-unionism harm the interests of the workers and alienate these unions from the mainstream working class.

External Leadership External or outside leadership in trade unions was the vestige of early trade unionism in the country. In the initial stages of unionism, that is, before Independence, the workers were mostly illiterate and, thus, required the support of powerful political leaders and social workers to propagate their cause and to protect their interests. But after independence, these outside leaders instead of relinquishing their positions began to use the unions for promoting their own political interest. The outside leadership has harmed the union in several ways. For instance, when there is an outside leadership in the organizations, the members of the union can not hold the leaders accountable for their actions and failures. As a matter of fact, the union members will have no control over an external leadership. Even though the conditions which necessitated the introduction of outside leadership are no longer relevant, the external leaders continue to have a stranglehold over the trade unions.24

Entry of International Workers The globalization of economies brought about tremendous changes in every sphere of industrial activities. It has not spared the trade unions either. In fact, globalization has brought in international workers, who face unconventional problems; this phenomenon poses new and multi-faceted problems for the unions. The nation-specific labour legislations lose their

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relevance in international operations. For instance, foreign companies operating in India may not agree to the Indian industrial practice of collective bargaining for wage fixation. Again, in business process outsourcing, the employees are based in one country but serve the customers in another. The labour laws and practices of the country where the company is located may have little relevance for another country where the employees are actually engaged. The main challenge for the unions arising out of globalization is the building of networks among the trade unions along the global production system. The trade unions require international agenda and stronger coordination with unions of different nations to ensure holistic protection for its employees. As a matter of fact, the trade unions now have to work in closer coordination with the global unions like International Trade Union Confederation (ITUC), Global Union Federation (GUF) and the Trade Union Advisory Committee to the OECD (TUAC) to accomplish the union goals effectively and to remain relevant for the future. In a nutshell, the trade unions must be prepared to change their approach, organizational structure and outlook according to the demand of the emerging situations and address new issues, however complex they may be.

Union-free Organizations Many employers often view unions as obstacles in taking their organization forward in the globalized environment. However, it is not easy for employers to make their organization union-free unless they make concerted efforts to achieve this. This is because the employees view the unions as their natural allies. They also consider the unions as a mechanism for raising their workplace concerns and grievances with the management and an antidote to its unfair action. Thus, the employees turn to the unions to settle their grievances when they are not heard by the management properly. It is, therefore, necessary for the employers to understand situations and events that create an ideal ground for unionization, and they should make all efforts to avoid such situations if they do not want unions in their organization. We shall now see the situations and activities the management should avoid to keep off unions. • The absence of an adequate two-way communication between the employers and the employees • Unilateral decision and actions by the management on matters affecting the interests of the employees • The presence among the employees of a general distrust in the management and the superiors • A feeling of stress and anxiety in the job environment • The absence of recognition and respect for the employees and their actions in the organization • The absence of self-assurance and security among the employees and an unfounded fear about their future in the organization • Lack of timely response from the management for the grievances expressed by the employees When an organization is determined to avoid the above-mentioned situations and actions by altering its corporate and HR strategies, philosophies, policies and procedures appropriately, it can become union-free.

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An organization which desires to function in a union-free environment must resort to the following specific strategies:

Effective Information Sharing The organization should promote an open, honest and direct communication with the employees on a continuous basis. The intention of such a communication should be not only information sharing but also gaining the employees’ confidence in management.

Ensuring Employee Participation The organization should be conscious about involving the employees in the decision-making processes that affect them. It must voluntarily create forums and opportunities for the employees to make their views, opinions, concerns and suggestions known to the management. When the employees are involved in the change management process, the chances of resistance to such changes get reduced considerably. In fact, they even develop a personal stake in the success of change and work for it.25

Sensitivity to Employee Complaints and Concerns The organization should conduct employee satisfaction surveys to know their levels of satisfaction in general and their specific concerns regarding employment and environment. The grievances must be resolved and the concerns taken care of by the organization on a time-bound basis so that the employees do not feel the need for unions to resolve their grievances. Finally, the organization can also conduct organizational climate surveys to know the perception of the employees about the prevailing organizational climate and its various characteristics. The characteristics may include wages and salary, incentives and welfare facilities, participative management, grievance handling, and objectivity and rationality in decision making.

Fairness in HR Policies and Procedures Employees often approach trade unions whey they suspect unfairness in the HR policies involving promotion, transfer, compensation, and disciplinary action. The management must follow complete transparency and objectivity in the HR management. Similarly, necessary provisions must be available in the HR procedures to enable the employees to record their grievances with the appropriate authorities when they are unsuccessful in getting promotions, transfers and incentives.

Leadership Training The supervisors and managers play a crucial role in the union prevention strategies of an organization. The superiors in a non-union organization must develop more than a formal relationship with their subordinates to know their genuine feelings and opinions about the various aspects of the organization. Besides, they must be mature and caring in their relations with the subordinates. They must be able to detect the strains in the relations so as to set them right without any time loss. The organization must educate the managers and supervisors about the union prevention strategies to be adopted by them and should teach them the skills and ability to identify subtle union-formation activities among the employees.26

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Vulnerability Test The organization must conduct the necessary tests to determine its risk levels regarding employee unionization. Depending upon the degree of vulnerability to unionization, it may design appropriate strategies to pre-empt the union activities. For instance, when the organization reaches high-risk levels and unionization is imminent, it may have to make immediate and bold moves to stop it from taking roots.

Summary 1.

participation in internal consultative forums, membership in national and international federations, collective actions, political role and employee empowerment.

A trade union is defined as a formal association of workers for the purpose of protecting and promoting their rights and interests through collective bargaining and actions.

2. The features of a trade union are: voluntary association, common goals, authority flow from the members, intermediary role, and collective action. 3. The objectives of trade unions are: promoting the workers’ economic well-being, protecting their employment, safeguarding their health and safety, protecting their life after retirement, promoting industrial relations and peace, procuring political prowess and power and fostering industrial democracy and equity.

6.

The reasons for joining unions are creating a defence against exploitation, trade union clout, the fulfilment of social and esteem needs, compulsion to become a member, and peer group influence.

7. The challenges before the trade union movement are declining memberships, the changing profile of the Indian workers, multi-unionism and interunion rivalry, external leadership, and entry of international workers. 8.

The strategies for developing a union-free organization are effective information sharing, ensuring employee participation, sensitivity to employee complaints and concerns, fairness in HR policies and procedures, leadership training and vulnerability test.

6.

Critically evaluate the different types of unions with relevant examples.

Critically explain the relevance and application of the Trade Union Act, 1926.

7.

Enumerate the strategies and actions of unions for goal accomplishment.

Evaluate the challenges facing the trade union movement in India.

8.

How will you develop a trade union–free organization in India?

9.

“A multiplicity of trade unions hampers their bargaining ability.” Discuss.

4.

The types of trade union are occupational unions, industrial unions, general unions and white-collar unions.

5.

The strategies and actions of the unions for goal accomplishment are: collective bargaining,

Review Questions Essay-type questions 1. 2.

3. Discuss the reasons why workers join unions. 4. Trace the history of the global trade union movement. 5.

Write an essay on the trade union movement in India.

10. “Even after 100 years, the Indian trade unions are fighting for bread and butter.” Comment.

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Skill-development Exercise Objective–The objective of this exercise is to show you how to develop an HR strategy in alignment with the business strategy to keep the organization union-free. Procedure Note–The class is divided into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two employees chosen by the HR manager, and (4) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them. Situation Viswas Bank is a private sector scheduled bank with branches all over India. It offers a wide variety of schemes to serve its assorted customers. This company has a workforce of 7,200 employees, of whom nearly 70 per cent are unionized. The company has seen several union agitations in the past, which resulted in a significant manpower loss. Recently, the company entered into the capital market business through its new and fully owned subsidiary company,

Viswas Capital Market (P) Ltd. The business venture is successful and at present there are 800 employees. The management of Viswas is determined not to allow unionization of employees in the new venture and, therefore, it has instructed the HR manager of Viswas Capital Market (P) Ltd to develop strategies to this effect. Steps in the exercise

There are three steps in the exercise: Step 1: The HR manager meets the selected workers to ascertain their views on the strategies required for keeping a union-free environment in the company. Step 2: He convenes a meeting attended by the two HR team members to finalize the HR strategies for a unionfree organization. These strategies will be sent to the top management for approval subsequently. Step 3: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Adil Limited is a large chemical unit located in southern India. It has 18,500 employees, including the managerial cadre. It has a well-established organizational structure and an efficient HR department. The HR activities are managed by Mr Prakash Roy, the General Manager (HR). Adil Limited is a unionized company with two major unions, namely, VMS and RMU. It also has a new and budding union—ABS. Since this company is more than 60 years old, it has well-established HR policies and procedures for guiding its HR activities. The top management has made it a policy to decide the wage revisions for the employees only through collective bargaining. Thus, it conducts wage negotiations with the employees’ unions at regular intervals of three years. So far, the management faced no major problems in the wage negotiations as the wage agreements were mostly reached on a give-and-take basis at the collective bargaining. Since the new wage agreement is to be implemented after two months, the management issued notice to the two recognized unions, VMS and RMU, calling them in for wage discussions. As per the convention of the company, the top management nominated a group of negotiators

with Roy, as the chief negotiator. The trade unions were represented by two negotiators, one each from VMS and RMU, at the talk. As per the agenda, the management first made its observations about the performance, problems and prospects of the company and about the need for increased cooperation between the management and the employees. In return, the trade unions made their observations about the implementation of the previous agreements, the employee problems and the need for providing better amenities for the employees. The management was stunned by the unreasonably high demands of the unions. It was shocked when the unions adopted a tough posture and made a virulent attack on the management and its policies. The negotiators offered reasonable wages hikes but the unions not only turned it down but also threatened the management with industrial actions like strikes. The management negotiators immediately contacted the top management to appraise them about the developments and get their guidance. Once the wage negotiations resumed, the management offered substantially high wages but less than the demands

TRADE UNIONS

of the unions. However, the unions refused to scale down their demands even a bit. The management counter-warned the unions of dire consequences if they resorted to strikes and other forms of agitation in the event of negotiations failing, and then adjourned the talks. The company now faced imminent failure in the wage negotiations, perhaps for the first time in several decades, and braced for the likely strike call of the unions. They also tried to understand the reason for the posture adopted by the unions. Inquiries with the employees revealed the presence of interunion rivalry among the unions. The new union has already made inroads into the membership base of the other two recognized unions and accused the older ones of being soft with the management. As a result, the other unions are now compelled to prove their credibility among the employees and chosen to adopt a tough posture both at the wage negotiations and outside. As expected, the unions issued a

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strike notice to the management while it was determined to break it. However, Mr Roy felt that the management must understand the tricky situation regarding the unions and should take this into account as well. Questions for discussion 1.

According to you, what are the causes of the present imbroglio prevailing in Adil Limited?

2. What should the management do now to prevent the strike and bring the unions back to the negotiation table? 3.

If you were to be the GM (HR), how would you deal with the new union ABS?

4.

State the long-term strategies to be adopted by the management of Adil Limited to prevent the recurrence of such a situation in the future.

1. Sidney James Webb Passfield and Beatrice Potter Webb, Industrial Democracy 2nd ed. (London: Longmans, Green, 1902).

10.

E. M. Kassalow, Trade Unions and Industrial Relations: An International Comparison (New York: Random House, 1969).

2.

Sonia Bendix, Industrial Relations in South Africa (Cape Town, Juta and Company Limited, 2001), p. 149.

11. David Lockwood, The Black-Coated Worker: A Study in Class Consciousness (London: Allen & Unwin, 1958).

3.

The Trade Union Act, 1926.

4.

Michael Salamon, Industrial Relations: Theory and Practice (London: Pitman Publishing Limited, 1987).

12. Richard Edwards and Michael Podgursky, “The Unraveling Accord: American Unions in Crisis,” in Richard Edwards et al. (eds), Unions in Crisis and Beyond: Perspectives from Six Countries (Dover, Mass.: Auburn House, 1986).

Notes

5. V. V. Giri, Labour Problems in Indian Industry (London: Asia Publishing House, 1972), p. 1. 6.

7.

8.

13.

A. L. Booth, The Economics of the Trade Union (Cambridge, England: Cambridge University Press, 1995), p. 51.

Sonia Bendix, Industrial Relations in South Africa (Cape Town, Juta and Company Limited, 2001), p. 161.

14.

Orvoell R. Gallagher, “Voluntary Associations in France”, Social Forces, 36, no. 2 (December 1957): 153–160.

Susan Fernie and David Metcalf (eds), Trade Unions: Resurgence or Demise? (London: Routledge, 2005), p. 189.

15.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), pp. 598–599.

16.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), pp. 598–599.

Edwin F. Beal and James P. Begin, The Practice of Collective Bargaining, 5th ed. (Homewood, IL: Richard D. Irwin, 1982), p. 91.

9. Leopoldo J. Dejillas, Trade Union Behavior in the Philippines, 1946–1990 (Quezon City: Ateneo de Manila University Press, 1994), p. 137.

17. Selig Perlman, A History of Trade Unionism in the United States (Charleston, SC: BiblioBazaar, LLC, 2008), p. 13.

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18. Manoranjan Mohanty (ed.), Class, Caste, Gender (New Delhi: Sage, 2004), pp. 106–107.

23. Y. Narayana Chetty, Dynamics of Trade Unionism in India (New Delhi: Anmol Publications, 2004), p. 45.

19. Debdas Banerjee, Globalization, Industrial Restructuring, and Labour Standards: Where India Meets the Global (New Delhi: Sage, 2005), p. 283.

24.

20. S. C. Pant, Indian Labour Problems (Allahabad: Chaitanya Publishing House, 1970).

25. R. M. Kanter, B. A. Stein and T. D. Jick, The Challenge of Organizational Change (New York: Free Press, 1992).

21. Robert J. Flanagan, “Has Management Strangled U.S. Unions?” Journal of Labor Research (Winter 2005): 33–63. 22. John Benson and Ying Zhu Yi, Trade Unions in Asia—An Economic and Sociological Analysis (London: Routledge, 2008), p. 169.

Y. Narayana Chetty, Dynamics of Trade Unionism in India (New Delhi: Anmol Publications, 2004), p. 47.

26. Suzanne Smith Blancett and Dominick L. Flarey, Reengineering Nursing and Health Care: The Handbook for Organizational Transformation (Sudbury, MA: Jones & Bartlett Publishers, 1995), pp. 151–155.

PART VII:

HR Control

CHAPTER

25

Human Resources Audit

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Discuss the objectives and scope of human resources audit 2 Enumerate the levels of a human resources audit 3 Explain the steps in a human resources audit process 4 Explain the various approaches to human resources audit 5 Discuss the essential conditions for an effective human resources audit

Hewitt Associates is a US-based international HR outsourcing and consulting organization. Its primary focus is on assisting business organizations in solving their HR bottlenecks, thereby maximizing their HR investment. Since 1997, it has been conducting a region-wise survey, Best Employers, which seeks to discover the link between human resource practices and business results. The primary role of Hewitt Associates in the survey is the gathering of exhaustive data about each of the participating organizations in the survey through three diagnostic tools—(i) Employee Opinion Surveys (EOS), (ii) a People Practices Inventory (PPI), and (iii) a CEO Questionnaire. Besides collecting data through diagnostic tools, Hewitt audits up to 20 per cent of the participating organizations randomly to ensure the accuracy of the provided data and preserve the thoroughness of the study methodology. The HR audit

verifies information about the philosophies, policies, programmes and practices affecting people in the organizations. The collected and verified data is then forwarded to the region-wise independent judging panel, which gets a complete view of an organization’s employee perspectives, leader perspectives, and HR practices. After carefully auditing all the relevant information, the panel chooses the Hewitt Best Employers for its region. The top three of the 25 companies selected by the judges as the Hewitt Best Employers in India for 2009 were HCL, Hindustan Zinc, and Taj Hotels, Resorts and Palaces. The HR-audit-based survey of Hewitt Associates vividly shows how the best employers could outperform the rest in terms of productivity and profitability with the help of the best HR policies and practices. Keeping this context in mind, we shall now discuss the various facets of HR auditing in this chapter.

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Introduction A human resource audit aims at ascertaining the effectiveness of the HR department and its functions. The basic goal of an HR audit is to find out the HR interventions that will increase the firm’s competitive advantage. An HR audit also ensures the compliance of the HR department with the goals, plans and policies of the organization. Similarly, it makes sure that the statutory provisions and other regulations of the government are followed properly without any deviations. It also makes certain that the HR policies are followed uniformly across the entire organization. In fact, it helps in determining not only the efficiency of the HR policies and practices but also their cost to the organization. The audit also helps in assessing the role and contributions of the HR functions in the overall strategic planning of the organization. It facilitates the development of the benchmarks with which the actual HR performance can be compared to identify any performance deficiency. In fact, the HR audit assists the organization in the effective formulation of HR strategies which will align well with the overall corporate strategy. HR auditing is similar to traditional auditing except that the latter focuses on financial functions while the former focuses on the HR functions of the organization. Like a traditional audit, it involves the logical gathering and investigation of the relevant information at periodic intervals. The HR information in an HR audit relates to the people, structures and HR philosophy of an organization. The HR audit normally covers HR functions like employee staffing, training and development, compensation, maintenance, including motivation, communication and leadership, safety and health, and industrial relations. It also focuses on the HR information system, HR research and record keeping, returns on HR investment and policies, procedure, and regulatory compliances. Measuring the effectiveness of the HR activities of an organization is the essence of the definitions of HR audit. We shall now see some of these definitions in Box 25.1. We may define an HR audit as a systematic inquiry into the efficacy of the philosophy, policies and practices concerning HR management in terms of organizational performance and its level of alignment with the overall organizational strategies.

Features of an HR Audit The primary goal of an HR audit is to assess how efficiently the HR functions were performed by the HR department. As such, it provides baseline information to the top management to determine the efficacy of its HR strategies and HR department. Benchmarking HR policies Box 25.1

Definitions

“A human resource audit is defined as an investigative, analytical and comparative process that attempts to reflect the effectiveness of the human resource functions.”1 —Jack J. Phillips

“HR audit is defined as a way of assessing the nature and impact of human resource department activity at particular points in time.”3 —Rosemary Harrison

“The human resource audit is defined as an investigation into size, skill, structure, and all other issues surrounding those currently employed by the organization and its future human resource needs.”2 —David Campbell et. al.

“Human Resource Audit is a systematic assessment of the strengths, limitations, and developmental needs of its existing human resources in the context of organizational performance.”4 — Eric G. Flamholtz

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and practices is a basic feature of an HR audit as it facilitates purposeful comparisons. A few other features can also be made out from these definitions: • An HR audit is an independent, objective and critical examination of the HR functions of an organization. • It gathers data about the people, process, structure and policies of an organization as part of investigation. • It establishes a benchmark for measuring the actual performance of the HR department so as to identify the performance and efficiency gaps. • It detects non-compliance by the HR department on matters concerning statutory provisions, corporate goals and HR policies while performing HR functions. • An HR audit is done by the internal employees or the external consultants with expertise in HR management and basic knowledge in law and auditing. • The HR audit report is normally sent to the senior management for necessary action in order to ensure better regulative and other compliances by the HR department. • The HR audit is normally carried out at regular intervals in the organization. It may be conducted once in a year.

Objectives of an HR Audit The basic objective of an HR audit is to evaluate the current HR policies, procedure and practices of an organization so as to determine the extent of their contribution to the accomplishment of corporate objectives. The evaluation is usually done in terms of completeness, accuracy and effectiveness of the HR policies and practices.5 HR audit serves several other purposes. These are: • to identify the degree of efficiency in the performance of the HR department in implementing the HR policies and practices of the organization and assess the general environment prevailing in HR department • to propose appropriate strategies and corrective action, in case of performance and efficiency gaps • to determine whether the HR functions are performed according to the established practices and procedure of the organization • to measure the HR department’s record of compliance with the statutory provisions regarding hiring, compensation, safety and health, dispute settlement, etc. • to discover the areas where cost savings could be achieved in HR activities like recruitment, development, retention and separation of human resources • to have an improved control over and check on all internal operations of the organization • to create a sense of accountability and discipline among the employees by investigating their past actions periodically • to provide feedback to the employees about the areas of good performance and areas where improvements are required6

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• to convert HR management from an abstract concept into a measurable and quantifiable activity • to determine the HR areas and functions which require further research and development7 • to recognize the good work done by the HR people and reward them appropriately • to prepare the organization for countering the possible legal actions from the aggrieved employees effectively

Scope of an HR Audit Ineffective and misaligned HR policies and practices can cause damages to the sensitive industrial relations and bring employee-related liabilities in the form of legal suits against the organization. Hence, organizations are increasingly subjecting almost all their HR policies, procedures and practices to auditing to ensure their legal compliance and general effectiveness. The HR audit normally covers activities like benchmarking the best ways of performing the HR functions, assessing the flaws and weak spots in the existing HR policies and practices, scrutinizing the management actions concerning human resources and, finally, sharing the audit information with all the stakeholders like management, employees and others to help them enhance the quality of their work. The scope of an HR audit is normally confined to the activities connected with the HR department of an organization. Certainly, the HR audit would also cover the managerial activities pertaining to human resource management. We shall now see the HR-related activities which are typically within the scope of an HR audit. • All application forms including recruitment forms, internal communication, and promotion forms • Job description and job specification statements • All files and records maintained by the HR department and all HR-related files and records maintained by other departments • Hiring policies, practices and procedures • Compensation policies and practices and computation and payment procedures, including information about competitive pay • Training and orientation policies, practices and programmes • Separation schemes, practices and policies • Records relating to legal reporting and legal compliance • Records relating to promotion and transfer practice and policies • Grievance resolution and disciplinary action procedure and records • Policies and performance relating to safety and health • Details about welfare activities undertaken • Information relating to workers’ participation in management • Details about exit and other interviews • Industrial relations policies and practices

HUMAN RESOURCES AUDIT

Box 25.2

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HR Audit in India

Indian industrial organizations are gradually realizing the benefits of HR audits to their business in the short and long runs. Since there is no legal compulsion, many Indian firms ignored carrying out HR audits. However, recent factors like rising cost of human resources, the compulsion to reduce the cost of production due to intense competition in the market, and other business challenges acted as an eye-opener for many of the companies in realizing the utility value of HR audit. The awareness created by employers’ associations like CII through a series of seminars and conferences has also led to the popularity of HR audit. For instance, the Confederation of Indian Industry, Southern Region (CII-SR), is offering a fee-based HR audit of its member companies with the purpose of assisting them in enhancing their HR capabilities and in adopting superior HR policies and processes. Through a programme called HR Excellence, CII would carry out HR audits in companies to examine the various existing processes followed by them and their

efficiency. Based on their performance, these companies would be provided appropriate certificates. The trend of HR auditing is not limited to private and/or service organizations alone. Even the public sector manufacturing organizations have understood the importance of HR audit greatly and begun to make appropriate provisions in their policies to bring in HR audit as a routine annual event. For instance, the Oil and Natural Gas Corporation Limited (ONGC) has included an HR audit as one of the major parameters along with mentoring and coaching, engagement survey, and continuous professional education credit course for evaluating the effectiveness of its HR Systems systematically and scientifically. These parameters available for implementation from 2009–10 are expected to help the company in making time-bound HR initiatives. Adapted from: http://www.thehindubusinessline. com/2008/11/19/stories/2008111950662100.htm and http://www.ongcindia.com/people.asp.

• Performance evaluation procedure and reports • Reports relating to accidents, labour turnover, absenteeism and leaves • Information relating to harassment and discrimination • Reports relating to regulatory compliance • Information relating to return on HR investment • Information about corporate strategies, mission, and vision covering HR aspects • Reports on organizational climate surveys and employee satisfaction surveys. Box 25.2 outlines the HR audit initiatives of Indian organizations.

Levels of an HR Audit The primary purpose of an HR audit is to ensure that the human resource management processes are effectively aligned with the corporate strategies so that the firm gets a competitive advantage out of its human resources. The HR audit per se attempts to identify the degree of alignment and also the causes of misalignment, if any. Since the success of HR activities depends on the involvement and commitment of the different levels of management, HR audit needs to be done at various levels of organization. These levels are corporate level, managerial level and functional level.8

Corporate Level (Board Level) Since the directives for the HR department are issued by the people at the corporate or top level of the management, it is essential to include corporate-level activities within

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the ambit of an HR audit. The HR auditor must ascertain the relevance, completeness and accuracy of the corporate strategies, mission, vision and other directives which provide a broad framework and directions for the HR activities of an organization. HR audit at corporate level usually focuses on issues relating to the designing of organizational structure, institution of reporting and accountability structure among the various levels of management. In addition to the information available through policies, documents and other reports of the organization, the HR auditor can also collect supplementary information through interviews with the top managers. The focus of such interviews should be on ascertaining the present and future plans of the top management for the organization.9

Managerial Level (Line Managers) Line managers play a crucial role in the implementation of HR policies of an organization. For instance, HR-related activities like performance evaluation, on-the-job training, and grievance identification and resolution are done mostly at the departments where employees are engaged. Therefore, the line managers should also be brought under the purview of an HR audit. The HR auditor should examine and evaluate critically the extent to which line managers apply the HR policies and practices while dealing with the employees. As a matter of fact, the rate of labour turnover is affected more by what line managers do in their own department than what anyone at the HR department is doing.10 The line managers can be interviewed as part of the HR audit process to gather their views about the HR policies, practices and programmes of the organization. They may also be encouraged to share their views about the performance of the HR department, especially in the areas of recruitment and selection, training and so on. An HR audit at this level may focus on issues concerned with the identification and description of authority and responsibilities of employees of various departments, preparation of job profile of staff members, and identification of possible HR cost-saving areas. Besides, the line managers’ opinions about the role they foresee for the HR department and the HR activities in their department should also be obtained.

Functional Level (HR Department) In reality, the main focus of the HR audit would be on the HR department, which performs all the HR activities of the organization. The HR audit is primarily concerned with the way the HR department is carrying out the activities assigned to it. It also assesses the competency levels of the staff of the HR department by assessing how well or how badly they performed theirs tasks and the net result of their actions. The HR audit examines the contribution of the HR department to the accomplishment of the overall organizational goals in detail. An HR audit at this level generally focuses on the design and development of various human resource policies and procedures and proper functioning of the human resource department. The HR audit may specifically focus on the levels of employee commitment, involvement and morale in the HR department. The HR auditor may make use of exhaustive questionnaires to gather information about the employees’ roles, activities, and dissensions in order to assess the internal strengths and weaknesses of the HR department.11

HUMAN RESOURCES AUDIT

Steps in an HR Audit Today, an HR audit is viewed as a creative and capable instrument for effective human resource management. It finds better use in organizations which depend more on human assets than physical assets, for example, the organizations in the service sector. The HR audit can be done by an internal or external auditor who enjoys good subject knowledge and high credibility. Since auditing is a sensitive job, organizations may prefer external audit just to keep the process free from the charges of personal bias and victimization. Normally, in the initial stages of its existence, an organization may prefer external audit and as the organization grows in size, it may develop its own team of HR auditors to perform HR audit at periodic intervals. In addition to periodic HR auditing, organizations may also carry out HR audit at the time of mergers and acquisitions, restructuring, and downsizing. As there is no statutory requirement, each organization can have its own system for conducting HR auditing, depending upon its size, objectives, situation and end users. For instance, the HR department may conduct an HR audit for multiple purposes like ascertaining regulatory compliance, measuring the efficiency of its staff and quickly reviewing its general health. The top management might also require an audit report just to find the level of alignment between the corporate strategy and the HR strategy. Further, it may require an HR audit for exceptional purposes like mergers and restructuring. Thus, factors such as the situation or purpose of an HR audit can greatly influence the HR audit process. The HR audit system mentioned in Figure 25.1 can be employed by any organization with due modification to suit its specific needs. The steps involved in an HR audit process are: (i) determining the objectives of the HR audit; (ii) developing a rough audit plan and process; (iii) gathering background data; (iv) determining the criteria and techniques of data collection; (v) firming up the audit plan; (vi) gathering complete audit data; (vii) developing audit report; and (viii) action based on report.12 We shall now see the steps of an HR audit in detail.

Determining the Objectives of the HR Audit The first step in an HR audit process involves making a decision regarding the objectives of the HR audit. The HR audit may attempt to know the efficacy of the HR policies, procedures and practices, the regulatory compliance by the HR department, or the degree of alignment between the corporate strategy and the HR strategy. Further, it may also focus on identifying and solving specific problems like high industrial disputes, labour turnover, and absenteeism. An unambiguous objective can keep the HR auditor focused and help him choose relevant information from the numerous reports and personnel files. At this stage, the organization can also decide whether to entrust the task of HR audit to internal HR specialists or to external consultants. When it decides to assign the job to the external auditor, the organization should set the terms and conditions in writing. In case the organization prefers internal persons for the job, it should ensure that the person enjoys high integrity and objectivity and is not high on hierarchy.13

Developing a Rough Audit Plan and its Process At this stage, the HR auditor prepares a rough sketch about where he should begin, how he should proceed, which areas must be focused on and which sources must be used. A rough audit plan would help the auditor foresee the likely hurdles in the audit process. This kind

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Determine the objectives of the HR audit

Develop a rough audit plan and process

Gather the background data

Decide the criteria and techniques of data collection

Firm up the audit plan

Gather the complete audit data

Develop the audit report

Act based on the report

Figure 25.1 Steps in an HR Audit Process

of a rough audit also facilitates the determination of men, money and material required for the entire audit exercise. The auditor can also identify tentatively the sources to be tapped for gathering relevant information.

Gathering the Background Data At this stage, the auditor gathers general information about external and internal factors. Regarding the external environment, the HR auditor may seek information on the competitive positions of the organization, an industry overview and the regulatory environment within which the organization normally functions. The auditor may also gather specific information about

HUMAN RESOURCES AUDIT

the present competitive strategy of the organization, the labour market conditions and shifts, the intensity of competition, the long-term threats and opportunities for the industry and the organization, the environmental constraints in the form of statutory regulation, the political factors, the socio-cultural factors and their impact on staffing and other HR functions. As regards the internal environment, the auditor may gather information about the corporate strategy, mission and vision, HR policies, and procedures. Similarly, information about and from the stakeholders of the organization, the key decision makers and the employees engaged in the HR department must be obtained. The purpose of gathering background information is to assess the general environment prevailing both within and outside the organization. The HR auditor may review the objectives and the rough HR audit plan on the basis of the background information collected and analysed.

Determining the Criteria and Technique of Data Collection The background data may help the auditor understand the organizational environment and decide who and what should be audited. Based on the background data, the auditor finalizes the nature of data to be collected and the time and duration of such collection. Most importantly, the organization decides on the criteria for evaluating the data. It is nothing but the benchmark for each HR activity which is to be measured. The criteria used to evaluate the company’s personnel and their action must reveal both its value and performance.14 At this stage, the organization also finalizes the instruments of data collection like the interview schedule, questionnaire, document reviews, focus groups and observation. Depending upon the nature, intensity and size of the data required, the auditor may choose a single or multiple tools for effective data collection. The selected tool should facilitate: • the accurate identification of performance gaps and impeding practices • the recognition of good practices which need to be strengthened • the detection of legal obligations and the organization’s risk of non-compliance with relevant workplace legislation • the identification of misalignment between corporate strategy and HR strategy. In short, the data collection tool must enable the auditor to gain a deep insight and credible perspective about the prevailing HR system and make a well-informed assessment of the strengths and weaknesses of the system. Regarding the data-collection tool, an organization may internally develop its own tool or may buy a tailor-made tool kit from outside for gathering data. In any case, it is necessary to test the relevance, validity and reliability of the tool ahead of its actual usage to ensure that the tool serves the intended purpose.

Finalizing the Audit Plan Based on the background information gathered and the experienced gained, the HR auditor may make final changes in the rough audit plan. This may include changes in the audit goals, sources of data, and techniques of data collection. After thoroughly revising the rough draft, the auditor should now firm up the tentative plan as the final audit plan. The final audit plan must have complete clarity on the audit objectives,

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the timeframe for auditing, the target departments and the people, the type of data needed, the data collection technique to be used for each source and the cost of the intended exercise. After finalizing the audit plan, the HR auditor would now proceed with the data collection process.

Gathering the Complete Audit Data The crucial phase of any audit process is data gathering. Guided by the audit objectives and plan, the HR auditor must compile all relevant information from different sources. The data collection process is influenced by the scope and focus of audit, the end-user requirements and the ultimate application of results.15 The HR auditor may conduct interviews with the senior management to gather the relevant information. The interview mode permits the auditor to interact with the management so that he can gain an insight into their thoughts and opinions about the various aspects of the HR management in the organization. As regards the line manager, the auditor may employ questionnaires and interviews both to assemble the necessary data. For instance, the auditor may first collect information from all the line managers through questionnaires, and then if he desires more information from a few line managers, he can conduct personal interviews with only those managers. Finally, the HR auditor may use comprehensive questionnaires for gathering necessary data from the employees of HR and other pertinent departments. The document reviews can also furnish a large volume of information to the HR auditor. In this regard, the auditor may examine personnel files, internal memos, training manuals, recruitment brochures, health and safety instruction manuals, employee handbooks and any other relevant documents. At this stage, the auditor would look for specific information on each of the HR functions he is investigating. For instance, in the case of staffing, the auditor might seek information on questions like whether the organization is adequately staffed or overstaffed or understaffed, whether there is adequate job rotation and job sharing among the staff, how recruitment is done, how objectively selection, retention, promotion, and termination were handled in the organization and how effectively job descriptions and job specifications are followed in hiring. In case of training, the HR auditor must get the information on the following questions: How effective was the training and orientation process? Were there adequate training and development opportunities for the employees? Was there any impact on productivity due to employee training? What was the actual cost of training in terms of manpower, money, time, and infrastructure usage? How useful were the training manual, instructor notes and software packages in the training programme? How convenient was the time and duration of the training for the participants? In case of wages and salary administration, the HR auditor would look for information to know how effective and competitive the compensation is, whether the compensation package is linked to merit, seniority or union agreement, whether there is any link between compensation and productivity, and how often the compensation package is revised. In case of performance evaluation, the HR audit may focus on questions like how effective the performance evaluation was, how often it is done, how happy the employees are about the evaluation process, and how effectively the wages and incentives are linked to the outcome of the evaluation process. In case of separation, the HR auditor may like to have information about how smooth the employee separation process is, whether there was any complaint about the violation of

HUMAN RESOURCES AUDIT

the statutory regulation, and how prompt the organization is in contributing the employer’s share of the provident fund to the appropriate authorities. In case of industrial relations, the auditor must find out whether there are unions in the organization, how cooperative they were, how peaceful the organization in the past was and how far the union attitude affects the productivity of the organization. Once the auditor gathers all relevant information about the various aspects of the HR management, he must now analyse those information on the basis of the final audit plan. The primary purpose of such an analysis is to identify the strengths and weaknesses of the existing system.

Developing an Audit Report After completing the review of relevant documents and personnel interviews at various levels, the auditor would begin the task of developing a comprehensive audit report. The audit report usually covers all the key areas of HR operation like hiring, training, compensation, performance evaluation and industrial relations. In addition to the above-mentioned areas, it may also deal with other HR-related factors like regulatory environment, global HR strategy, functional utilization of HR, strategic HR planning and management, work environment, legal environment, socio-technical integration, job designs, internal and external relations, decision-making style, communication style, the degree of decentralization, and the human resource information system(HRIS). Usually, the audit report provides information on three broad headings, namely the strengths of the existing HR system, the areas of concern to be addressed by the authorities, and the areas where more information is required for an effective audit in the future. While writing the report, the auditor may classify the information under a few broad categories as follows: • Urgent and important needs (UI) • Not urgent but important needs (NUI) • Neither urgent nor important needs (NUNI) • Important opportunities needs (IO)16 It is desirable if the auditor employs the SWOT (strengths, weaknesses, opportunities, and threats) technique for the analysis and presentation of information for a better exposition of facts and figures.

Act Based on the Audit Report This is the final stage in the audit report, and the entire purpose of the audit report would be served only through action taken on its basis. The organizational response to the audit report would depend on the HR auditor’s recommendations. The actions may emerge in different forms like changing the HR policies and practices, resetting the priorities of the HR department and HR activities, realigning the corporate and HR strategies and initiating necessary action against the people for lapses and performance gaps.

Approaches to HR Auditing Though the HR audit is a recent concept, it has emerged as an invaluable technique for improving the efficiency of the HR management of an organization. Due to the growth of service sector in the economy, the importance of human resources has increased enormously

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in the organizations, and this has hastened the process of the introduction of HR audit in those organizations. The role of the HR audit in these firms is to streamline the managerial control over HR activities. Based on the role and utility of the HR audit, two major approaches have been developed: (i) internal approach and (ii) external approach.17 We shall now see the various approaches.

Internal Approach In this approach, the HR audit focuses on examining the effectiveness of the contribution of the HR department to the internal operations of the organization. From this perspective, the emphasis of the HR audit is on the cost–benefit of the HR activities measured in terms of organizational productivity and overall cost. When the HR department is able to provide its services to the organization at the lowest cost, it is said to have achieved the required efficiency in its activities. Quantity, quality, cost, speed and reliability are some of the criteria used in measuring the performance of the HR department in this method.18

External Approach In this approach, the emphasis of the HR audit is on measuring the contribution of the HR activities to the external performance of the organization. For instance, the organization may obtain competitive advantage in the market through the efficiency of the HR department. When the HR department is able to reduce the cost of hiring, training and compensation, it provides the organization the opportunities to vary the prices of the goods or services to its advantage. Certainly, the ultimate benefit of efficiency of any operation must come only from outside the organization. In this method, the criteria would include external performance of the organization. In addition to these approaches, an HR audit can be also be classified on the basis of the people behind the HR audit operations. In this way, there are three approaches to the study of HR audit. These are (a) the self-directed team approach, (b) the task force approach and (c) the external consultant approach. We shall now see these approaches in detail.

The Self-directed Team Approach A self-directed team is a team of employees who combine themselves to work towards common goals without any external supervision. In this approach, a self-directed team is formed within an organization to audit its HR activities. The advantage of a self-directed team is that its members take all the decisions on their own and enjoy complete autonomy. Further, their decisions are time-bound and superior. In an internal HR audit, the self-directed team members’ actions are influenced more by principles and values, and less by departmental rules, supervisory direction, and management edict.19

The Task Force Approach In this approach, a task force with members drawn from various departments of the organization with different expertise is formed to carry out an HR audit in the organization. Usually, an HR task force is formed by including line managers as members with an internal HR expert as chairman or supervisor. This task force is a temporary group formed exclusively for the purpose of auditing the HR functions and HR department. Unlike a self-directed team, the task force functions in a supervisor-led environment. It is more formal than a self-directed team. The members of the task force gather and analyse data relating to the

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HR activities and evaluate the human resources of the organization. The task force makes recommendations which help the organization in getting rid of the weaknesses and building on the strengths of the HR activities.

The External Consultant Approach The two approaches mentioned are internal approaches to HR auditing since the auditors are basically the employees of the organization. In external consultant approach, the auditors are external HR experts appointed by the organization for the specific purpose of auditing its HR activities. Generally, the external auditors function more objectively and impartially as they are not connected with the organization in any way. The external HR auditors with their vast experience are able to locate the strengths and weaknesses of the system with ease. Their findings and recommendations usually meet less resistance from the employees as the latter cannot adduce motives to the actions of an external person. Besides these approaches, the HR auditors may also approach their task of auditing through a traditional method called legal approach. We shall now see the legal approach.

The Legal Approach Since an HR audit is derived from a financial audit, which is statutory in nature, the HR auditors may also follow the same legal approach to the task of HR audit. The focus of the legal approach is on ensuring whether the statutory provisions concerning human resource management are strictly complied with. The HR auditor, in this approach, verifies the implementation of relevant labour laws in different HR functions like hiring, compensation, dispute settlement, disciplinary actions and separation. The purpose of the legal approach is to prevent any form of discrimination and unfair practices so that the organization is protected from legal problems at a later stage.

Essential Conditions for an Effective HR Audit Many organizations now realize that their most important and expensive assets are their human resources. They recognize the need to exercise better control over these assets so that they make an optimum return on the HR investment. In this regard, the HR audit is seen by the organizations as an invaluable tool to inculcate discipline and accountability among the HR people. However, only effective HR audit practices can produce the desired results for the organization. An effective HR audit requires a few essential preconditions, which are explained as follows:

Top Management’s Commitment The support of the top management is essential for the success of an HR audit. The management must exhibit its commitment to the HR audit through its mission, vision and other statements and policies. Similarly, it must follow up the recommendations of the HR auditors sincerely; otherwise the employees would lose confidence in the HR audit practice.

Clarity in HR Audit Objectives The next essential requirement is clarity in the objectives of HR auditing. The HR audit objectives alone guide the HR audit plan and process. The organization must decide in advance whether it wants to have a comprehensive or programmatic or restrictive objective for the audit function.20 A comprehensive HR objective focuses on all HR activities, while a programmatic HR objective focuses on select HR functions like training, compensation and recruitment. A restrictive HR

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objective deals with a specific HR problem like an increase in industrial accidents. Thus, when the objectives are clear, the audit process would be smooth and effortless.

Auditor’s Integrity and Efficiency The HR auditors must be persons of high integrity, value and knowledge, especially in the case of internal auditors. Their recommendations must be highly objective and impartial in nature, otherwise they may not find acceptance among the employees. The organization may make use of the services of external consultants to pre-empt the accusations of bias and prejudice in the audit process and report.

Well-defined Authority, Responsibility and Accountability for the Employees The employees must know in advance what is to be performed as part of their job and how it is to be performed. Similarly, they must know in unambiguous terms the accountability for their acts of omission and commission. When the employees are not aware of their responsibilities in the job, they cannot be held accountable for their lapses. Thus, an effective audit requires clarity in the authority, responsibility and accountability of the employees.

Effective Communication The management must ensure that there is an effective flow of information at all levels of the organization. All information about rules, regulations, statutory provisions and policies concerning HR functions must be circulated widely among all the staff members connected with those activities. When the employees are not aware of the existence of laws and practices, they cannot be held accountable for non-compliance with those policies and regulations.

Feedback The results of an HR audit must be shared with the employees as feedback to them. Obviously, this would help the employees in knowing their areas of strength and weakness. The feedback would facilitate the employees in building on their strengths and working on their weaknesses.

Regularity and Continuity The HR audit should not be viewed as a one-time activity; rather, it must be done on a regular basis with prior information to the employees. Only when it is done routinely would it force the employees to observe self-discipline, otherwise, their actions are sure to be criticized by the HR auditor.

Summary 1. An HR audit is defined as a systematic inquiry into the efficacy of the philosophy, policies and practices concerning human resource management in terms of the organizational performance and its level of alignment with the overall organizational strategies.

2. The three levels of HR audit are the corporate level, managerial level and functional level. 3.

The steps in an audit process are: (i) determining the objectives of the HR audit; (ii) developing a rough audit plan and process; (iii) gathering the background data; (iv) determining the criteria

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and techniques of data collection; (v) firming up the audit plan; (vi) gathering the complete audit data; (vii) developing an audit report; and (viii) action based on the report. 4. There are several approaches to the study of the HR audit. These are: (i) the internal approach; (ii) the external approach; (iii) the self-directed team approach; (iv) the task force approach;

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(v) the external consultant approach; and (vi) the legal approach. 5. The conditions essential for an effective HR audit are the top management’s commitment, clarity in HR audit objectives, the auditor’s integrity and efficiency, well-defined authority, responsibility and accountability for the employees, effective communication, feedback, and regularity and continuity.

Review Questions Essay-type questions 1.

Evaluate critically the steps in an HR audit process using relevant examples.

2. What are the different levels covered by the HR audit in an organization? What information should be collected and how? 3.

4. Illustrate the conditions essential for an effective HR audit using examples. 5. “An HR audit is not statutory but still a necessity.” Discuss. 6. Evaluate the meaning, objectives, scope and features of HR audit critically.

Enumerate critically the various approaches to the study of an HR audit using appropriate examples.

Skill-development Exercise Objective – The objective of this exercise is to let you know how to conduct an HR audit in an organization in an effective manner through role-playing. Procedure Note – The class is divided into groups. Each group has (1) an HR manager, (2) an HR audit task force comprising three line managers, (3) two union representatives, (4) an external expert, and (5) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report them. Situation Twinkle Shoes is one of the leading manufacturers of footwear in western India. It also has the largest retailer network in the country. It has a strength of 4,200, which includes the employees placed in retail shops. It has been facing a troubled time for the past few months, especially on the market front. It has been losing customers continuously. The management was puzzled since there was no new competitor in the market, the general market trend was positive, and the products range sufficient. A customer-satisfaction survey conducted by the company cited some disturbing trends in

the employee attitude and behaviour. The management sensed some serious problems in the HR philosophy and policies of the organization and in the functioning of the HR department. Consequently, the company formed a task force under the leadership of the GM (Marketing) and with the production manager and the finance manager as members to look into the efficacy of the HR functions of the company. The task force was given blanket powers to inspect the necessary documents, interview the HR and other employees to prepare a report about what has gone wrong and what needs to be done. It was also given authority to seek the help of external experts. Steps in the exercise Step 1: The task force meets the HR manager and interviews him about the functioning of his department after inspecting the relevant personnel files and documents. Step 2: It interviews the two senior unionized staff of the HR department to seek their views on the problems of the company.

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Step 3: It consults external HR experts for developing solutions to the issues and finally prepares the HR audit report according to the recommendations. The report would be sent to the top management for necessary action.

Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Hi-Tech Engineering Services Ltd is a company engaged in the business of offering a broad spectrum of engineering, design and consultancy services ranging from concept to commissioning of all types of engineering projects. It has over 3,200 design engineers and technical personnel employed in various engineering disciplines. It offers the best of the industry compensation packages to its employees, and employee satisfaction is quite high with labour turnover under complete control. A few months back, the management of Hi-Tech Engineering Services approved a major expansion plan of the company. The General Manager (HR), Mr Mukesh, assured the management that the entire hiring process would be completed within three months. However, the General Manager of Marketing, Mr Ganesh, insisted on an HR audit of all the HR policies and practices of the company before embarking on a major recruitment drive of this nature. Mr Mukesh opposed the idea of HR audit on the ground that the existing parameters like labour turnover, industrial dispute and profitability showed no abnormality and, as such, the HR department and its practices were, according to him, up to the mark. But, Mr Ganesh stood his ground and insisted that the company must first benchmark the HR practices through an HR audit before determining the level of HR efficiency. The top management finally decided in favour of an HR audit and also decided to hire external consultants to conduct it. Accordingly, Maxweb Consultants were appointed to carry out the HR audit of the company and the necessary instructions were issued to the HR department to cooperate with them. The consultants found the HR practices of their client as fairly effective except in the areas of employee hiring and performance evaluation. The recruitment and selection processes, systems and procedures were identified as ineffective. The consultants observed that though the company offered compensation packages that were the best in the industry, the company was not so successful in attracting the best talents due to a few limiting factors in the HR policies and practices.

The HR audit report included a number of recommendations to improve the ability of the company to attract the best talents. For example, one recommendation was to revise the hiring philosophy of the company. One of the most immediate tasks set for the HR department was to redraft the job specification statement with increased emphasis on the multi-skills of the prospective applicants. The other major recommendation of the consultants was regarding the need to introduce modern techniques for evaluating the performance of the employees. In this regard, the consultants recommended the introduction of the 360-degree or even 720-degree evaluation for all the employees. The top management next sought the views of the HR department about the lapses identified by the external HR auditors. In a detailed response, the General Manager (HR) still defended the hiring and performance evaluation practices of the company and insisted on continuing with them, citing the positive results in traditional indicators like labour turnover ratio, productivity, and satisfactory corporate performance. The HR department also maintained that the whole HR audit was an exercise in futility. Though the top management resents the views of the HR people, it does not want to antagonize them. It is taking its own time to make its final views known to one and all. Questions for discussion 1.

How do you view the entire development at Hi-Tech Engineering Services Ltd?

2. If you were to be the GM (HR) of Hi-Tech, how would you have acted in this situation? 3. How should the top management proceed in the present situation? 4.

Is there any need for an HR audit in the company since it is not only a non-statutory requirement but also a fee-based service?

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Notes 1.

2. David Campbell, George Stonehouse and Bill Houston, Business Strategy: An Introduction (Boston, MA: Butterworth-Heinemann, 2002), pp. 48–49. 3. Rosemary Harrison, Employee Development (New Delhi: University Press, 2003), p. 215. 4. Eric G. Flamholtz, and Yvonne Randle, The Inner Game of Management: How to Make the Transition to a Managerial Role (New York: AMACOM, 1987). 5.

Jack J. Phillips, Ron D. Stone and Patricia Pulliam Phillips, The Human Resources Scorecard: Measuring the Return on Investment (Boston, MA: ButterworthHeinemann, 2001), p. 14.

6. Paul Banfield and Rebecca Kay, Introduction to Human Resource Management (New York: Oxford University Press, 2008), p. 182. 7.

Rosemary Harrison, Employee Development (New Delhi: University Press, 2003), p. 218.

8.

Rosemary Harrison, Employee Development (New Delhi: University Press, 2003), p. 216.

9. C. J. Fombrun, M. A. Devanna and N. M. Tichy (eds), Strategic Human Resource Management (New York: John Wiley & Sons, 1984), pp. 238–239. 10. William J. Rothwell and H. C. Kazanas, Planning and Managing Human Resources: Strategic Planning for Human Resource Management (Amherst, MA: HRD Press, 2003), p. 144. 11.

for Human Resource Management (Amherst, MA: HRD Press, 2003), p. 138 and Rosemary Harrison, Employee Development (New Delhi: University Press, 2003), p. 217.

Jack J. Phillips, Ron D. Stone and Patricia Pulliam Phillips, The Human Resources Scorecard: Measuring the Return on Investment (Boston, MA: ButterworthHeinemann, 2001), p. 5.

Rosemary Harrison, Employee Development (New Delhi: University Press, 2003), p. 217.

12. William J. Rothwell and H. C. Kazanas, Planning and Managing Human Resources: Strategic Planning

13.

E. J. Sarma, “HR Audit Ensures Compliance of Healthy Practices,” IT People Evolve, Express Computer, available at http://www.itpeopleindia. com/20020311/management1.shtml.

14.

M. G. Brown, “Human Capital’s Measure for Measure,” The Journal for Quality & Participation, 22, no. 5 (2000): 28–31.

15. William J. Rothwell and H. C. Kazanas, Planning and Managing Human Resources: Strategic Planning for Human Resource Management (Amherst, MA: HRD Press, 2003), p. 150. 16.

E. J. Sarma, “HR Audit Ensures Compliance of Healthy Practices,” IT People Evolve, Express Computer; available at http://www.itpeopleindia. com/20020311/management1.shtml.

17.

J. W. Walker, “Are We Using the Right Human Resource Measures?” Human Resource Planning, 21, no. 2 (1998): 7–8.

18. Marta Fossas Olalla and Miguel Angel Sastre Castillo, “Human Resources Audit,” International Advances in Economic Research, February 2002, available at http://www.entrepreneur.com/tradejournals/article/84303177_1.html. 19. Janet H. Zelenka, “Self-directed Audit Teams,” Internal Auditor, 1 April 1996, available at http://www.allbusiness.com/accounting-reporting/auditing/564660-1. html. 20. William J. Rothwell and H. C. Kazanas, Planning and Managing Human Resources: Strategic Planning for Human Resource Management (Amherst, MA: HRD Press, 2003), p. 139.

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The Human Resource Information System (HRIS)

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the objectives of a human resource information system (HRIS) 2 List the types and components of an HRIS 3 Enumerate the steps in the implementation of an HRIS 4 Discuss the applications of an HRIS in human resource management 5 Explain the benefits of an HRIS 6 List the conditions essential for an effective HRIS

Rallis India Limited is a leading agro-chemical company in India. The company is one of the subsidiaries of Tata Enterprises. It has nearly 150 years of experience in the rural markets of India. The HR philosophy of this company is “attract the good, retain the better and advance the best”. The approach of this company towards human resources can best be summed up through a single term PRAGATI— People Related Actions for Growth and Achievement through Transformation and Involvement. Rallis has a well-planned and comprehensive induction programme for its new employees. Besides, the company focuses on raising the skills and knowledge of the employees constantly. Rallis India has chosen an on-demand performance management system, EmpXtrack,

to manage the performance of its employees effectively. This web-based software of Saigun Technologies supports the HR department’s efforts to align its strategies with the organizational strategy. The performance management system is an element of the HRIS that enables employees to have complete control over their performance and goals. In fact, the primary reason for Rallis India’s automation initiative is to further reinforce its performance-driven culture. The efforts of Rallis India to enhance the efficiency of performance management through an HRIS clearly explain the importance of this new and emerging concept. We shall now discuss the importance of the various aspects of HRIS in this chapter.

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Introduction The human resource information system (HRIS) is basically a database system developed to assist HR in decision making and reporting. It is normally one of the elements of the overall management information system (MIS) of an organization. It is indeed an IT-enabled HR service available to the HR managers for data analysis and decision making. HRIS helps the HR managers in making a quality decision by ensuring them an adequate and timely availability of all relevant information. The scope of HRIS is so wide that it can provide information about every aspect of an employee, beginning with his recruitment and ending with his retirement.1 As such, HRIS facilitates the use of computer technology to streamline HR operations, cut costs and eventually enhance the effectiveness of human resource management. However, the utility and the elements of HRIS may not be identical for all organizations. Typically, the HRIS as a system has three elements, namely, input, process and output. The access to any HRIS can be available to the users through the intranet, extranet and portals. When HR services are made available online through Web pages, it is called e-HR.2 The scope of HRIS includes all the HR functions of the organization, namely, recruitment and selection, training and development, wages and salary administration, incentives and benefits, grievance resolution, human resource planning and succession planning. The different systems dealing with the HR functions are the job evaluation system, the job analysis system, the HR planning system, the applicant tracking system, the employee benefit system, the attendance control system, the performance management system, the employee career planning system and the grievance management system. The goal of bringing these HR functions into the ambit of HRIS is to enhance the efficiency of these functions. However, any HRIS would be effective only when the information available for decision making is timely, accurate, concise, relevant and complete.3 Systematizing and streamlining the HR operations and enhancing the efficacy of the HR department are the focus of the definitions of HRIS. Box 26.1 lists some of these important definitions. We may define an HRIS as an automated system for gathering, storing, retrieving, analysing and disseminating HR-related data for facilitating operational, managerial and strategic decision making that impacts human resources.

Box 26.1

Definitions

“HRIS is defined as interrelated components working together to collect, process, store and disseminate information to support decision making, coordination, control, analysis, and visualization of an organization’s human resource management activities.”4 —Anthony Hendrickson “An HRIS is meant to systematically collect, organize, store, maintain, retrieve and validate all human resource related data that may be needed in the process of managing employment relationships.”5 —Ben Swanepoel

“HRIS is defined as a technology-based system that is used to acquire, store, manipulate, analyze, retrieve, and distribute pertinent information regarding an organization’s human resources.”6 —S. I. Tannenbaum “HRIS is defined as a systematic procedure for collecting, storing, maintaining, retrieving, and validating data needed by an organization about its human resources, personnel activities, and organization unit characteristics.”7 —K. A. Kovach and C. E. Cathcart, Jr

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Objectives of an HRIS The primary purpose of an HRIS is the application of technology for enhancing the efficiency of human resource management. Initially, the purpose of an HRIS was just to transform the manual information-keeping system into a computerized form. As the years progressed, the applications and utility of an HRIS increased manifold, and now, there is a broad-based and self-contained HRIS available with numerous rich features. The present-day advanced HRIS can do several more functions with the features and options available in it.8 We shall now see the objectives of an HRIS. • To enhance the ability of the human resource management to leverage and absorb new and emerging opportunities and challenges in the business horizons. • To ensure efficient collection, storage and distribution of HR-related information in a paperless work environment. • To create an HR information hub for the whole organization which facilitates effective people-to-people and people-to-information contacts. • To establish an integrated system for achieving an efficient and purposeful integration of various human resource functions and effective deployment of strategic human resources. • To facilitate faster processing of information and more effective decision making to make the optimum use of the available human resources. • To enable the HR managers to devote more time to strategic issues by relieving them from routine operations through the employee self-service system (ESS). The ESS in the HRIS lets the employees have direct access to select information without disturbing the HR manager. • To facilitate employees’ direct and online access to information on training, payroll and other relevant matters. • To maximize the accuracy, reliability and validity of workforce records and eliminate the cost and wastages associated with the manual maintenance of HR records.

Components of an HRIS A human resource information system performs three inter-related activities as a database. These are (i) receiving inputs in the form of data from different sources; (ii) storing and processing data with the purpose of transforming them into meaningful information; and (iii) generating output in different forms, as required by the users. The working of an HRIS is diagrammatically explained in Figure 26.1.

Input Input refers to all employee-related data, HR policies, procedures, corporate goals and information about the statutory provisions entered into the HRIS for conversion into the

Input

Data storage and processing

Figure 26.1 The Working of an HRIS

Output

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desired form of output. At present, even the scanned images of documents and signatures can be entered as input.

Data Processing Data processing refers to the storing and processing of data by a computer with the help of the software that issues instructions for processing. This stage involves the methodical performance of operations like handling, merging, sorting and computing of data. The end result of data processing would be data conversion. The success of data transformation depends critically on the validity, reliability and utility of input data.

Output Output refers to the generation of reports in the form desired by the users. This is the final stage of an HRIS process. The quality of the report indicates the efficiency of the HRIS performance. In order to make the output valuable to the user, the HRIS must process the output and format its presentation in a way that is easily understandable to all the users of the report.9

Types of HRIS Since the latest versions of HRIS software have wide applications in organizations, it is up to the management of an organization to decide the purpose for which and the level at which it intends to use the HRIS. For instance, some organizations may use HRIS only for data storage and report generation, while some others may use it for decision alternatives’ generation, decision making, and even for simulation. Generally, the HRIS supports management at three levels of an organization. These are: (i) the electronic data processing (EDP) level, (ii) the management information system (MIS) level and (iii) the decision support system (DSS) level.10 We shall now discuss these three methods in detail.

The Electronic Data Processing (EDP) Level The purpose of an HRIS at the EDP level is collecting, storing, manipulating, analyzing, retrieving and distributing relevant information regarding the human resources of an organization. This is primarily used at the operational levels of the organization. The users of EDP are normally the basic-level operators. The goal of EDP in an HRIS is to computerize the routine HR activities of the organization like attendance, payroll and basic employee information, skill inventory, applicant tracking, employee training data, career profile, employee insurance, income tax details and other routine reports. In its early stages of development, the HRIS was primarily used only for the EDP-level operations.

The Management Information System (MIS) Level The next level of HRIS is called the management information system, in which the HRIS has much wider and advanced applications. An MIS is basically a system that provides information to managers, who use it for decision making. In an MIS, the relevant data are converted from storage to knowledge and this ultimately helps the manager in directing and controlling human resources effectively.11 The reports produced by an efficient MIS are (1) informative, (2) relevant, (3) sensitive, (4) unbiased, (5) comprehensive, (6) timely,

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(7) action-oriented, (8) uniform, (9) performance-targeted, and (10) cost-effective.12 The MIS is primarily used by the middle-level managers for information retrieval, data analysis and report generation. The MIS is used for a few specific data analyses like recruitment analysis, selection analysis, position analysis, manpower analysis, training needs analysis, post-training effect analysis, promotion analysis, performance evaluation analysis, attitude survey, productivity analysis, personnel cost analysis and compensation analysis.

The Decision Support System (DSS) Level The last level of an HRIS is called the decision support system (DSS). The primary users of a DSS are top managers and executives. The DSS is basically an interactive software-based model that helps the users in simulating situations and making decisions. It works on the basis of the “what if ” analysis and simulation of the future scenario. This model is capable of generating several decision alternatives for the users in the decision-making process. DSS is useful in staffing simulation, succession management simulation, career management simulation, training administration and evaluation simulation, performance management simulation, and compensation management simulation.

Implementation of an HRIS Many organizations have realized the need to apply technology to human resource management in order to develop human resources as strategic tools to survive and grow in an intensely competitive market. In fact, there is a general expectation that the future success of human resource management depends on how effectively it is integrated with technology.13 HRIS is known to play a major role in planning, administration, decision making and control activities of the human resources management. Thus, organizations, both big and small, show a keen interest in installing an HRIS. Since the installation of HRIS is generally an irreversible and expensive process, organizations need to be careful in deciding about its installation. Each organization can have its own approach towards the process to be adopted for implementing HRIS. As mentioned in Figure 26.2, the installation of a typical HRIS may involve the following stages: (i) determination of the need for HRIS; (ii) constitution of a project team; (iii) development of the project plan; (iv) designing and developing system specification; (v) identification and training of user groups; (vi) implementation and maintenance; and (vii) evaluation of effectiveness.14 We shall now see these steps in detail.

Determination of the need for HRIS Before implementing an HRIS, the management must clearly decide about the need for an HRIS in the organization and in the HR department in particular. In this context, it should first assess the present HR operations that require system-enabled support and then the extent to which these operations require such support. Factors like the size of the organization, the strength of the workforce, the corporate and HR philosophies, the present level of HR efficiency, and the existing bottlenecks in the HR operations should be considered carefully before any decision is taken regarding the HRIS implementation. The existing HR practices, the degree of centralization, the present mode of report generation and the future HR information requirement can also influence the HRIS installation decisions. As part of assessing the HRIS needs, the views of the managers and the employees can be ascertained through interviews with the HR and other connected staff and through observations and document

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Determination of the need for an HRIS

Constitution of the project team

Development of a project plan

Designing and developing the system specifications

Identification and training of the user groups

Implementation and maintenance

Evaluation of the effectiveness of the HRIS Figure 26.2 The Steps for the Implementation of an HRIS

reviews. When the management is convinced that the HRIS can make a substantial difference to the organization in terms of efficiency and productivity, it may go ahead with its implementation in the organization.

Constitution of a Project Team Once the management decides about the implementation of the HRIS, the next step is to choose a specialized team for this specific purpose. The main task of this team is to supervise the entire operation from the planning to the execution of the project, including post-installation monitoring. Since the project is associated closely with HR operations, the HR professionals must be involved in the task force in substantial numbers along with technical people.

Deciding the Project Plan Normally, the first assignment of the task force is to evolve a comprehensive plan regarding how and when the team should begin its task, how it should proceed with the task, and so on.

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The preparation of an exhaustive plan can help the team in foreseeing the likely challenges in the process clearly and in developing strategies for surmounting these challenges. In any case, the plan developed by the task force must be practicable and well focused. As part of the project plan, the team members may also develop guidelines for order placement and evaluation.

Designing and Developing System Specifications In this stage, the task force should develop a precise system design and specifications for the proposed HRIS after examining and defining the users’ data requirements. Certainly, identification of data needs and applications is critical for developing the design and programming specifications. For this, the task force members must have adequate knowledge of the concepts, methods and techniques of computer system design and specification preparation. They must also be aware of the techniques for flow chart preparation, program coding, compilation and testing. Since the HRIS software would be controlling the processing part of the HRIS, it is essential to consider the input data characteristics and the desired quality of output information.

Identification and Training of User Groups This is the most sensitive stage in the entire HRIS planning process because employees would now be involved in the HRIS implementation. At this stage, the probable users of the HRIS are identified and imparted the necessary training for handling an HRIS. The task force must anticipate vocal or subdued resistance from the existing employees for two reasons. One, they may oppose automation due to the fear of job losses in the organization and the compulsion to forgo their skills and abilities learnt from the existing practice. Two, they may fear and doubt their own ability to learn and master the new technology and techniques. The task force, along with the management, must act judiciously in dispelling the fears of the employees and in imparting training to make them fit for working in an HRIS work environment. A timely acquisition of information system capabilities by the HR staff is essential for a seamless introduction of HRIS in the organization.

Implementation and Maintenance of an HRIS Once the HRIS software is procured from the vendor, it should be properly installed under the careful supervision of the task force as per its plan and guidelines. The team must conduct performance testing to ensure that the HRIS fulfils all the system specifications and user requirements. It is important for the team members to analyse the real-time functioning of the system and decide the critical system performance to ensure that the system performance meets user needs. In this regard, the team must have adequate knowledge of the tools and techniques used for testing the software. In fact, they must develop the test data for checking the efficacy of the entire system. Once the testing phase is over, the task force must make the HRIS available to the actual users in the HR department. The performance of the users in the HRIS environment must be observed closely. The task force must also ensure the availability of the user operational and program manuals. When any complaint and trouble is reported about the HRIS, it must be ready for troubleshooting. Similarly, it must ascertain the views and suggestions of the users for improvements in the system functions. The HRIS must be properly maintained to

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ensure that it produces optimum results throughout its life. If the task force is permanently responsible for maintaining the HRIS throughout its lifetime, it must keep a watch on its performance and maintenance constantly.

Evaluation of Effectiveness The organization must undertake periodic evaluation of the performance of the HRIS to ensure that it is fit and adequate to meet the present and future information requirements of the users. When the HRIS is found to be inadequate in its present form, the management may update it with new features. In contrast, if the present form of the HRIS has become obsolete due to technological and other changes in the environment, the organization should begin its search for a new HRIS by replicating the whole HRIS implementation process.

Applications of an HRIS in Human Resource Management Due to a manifold increase in the number of employees and the HR functions performed by the HR department, it became imperative for many organizations to bring almost all HR activities under the HRIS environment. Incidentally, the contemporary HRIS software programs are capable of handling nearly all kinds of HR functions like applicant searching, training management, succession planning, flexible benefits administration, risk management, financial planning, turnover analysis, compliance with statutory regulations, attendance reporting and analysis, human resource planning, accident reporting, performance evaluation, promotion, wage management and separation. Yet, the importance of and urgency for an HRIS might differ from one organization to another, depending upon the size, nature of operation, affordability and managerial philosophy of the organization. With a wide variety of applications available through an HRIS, the management must be careful in prioritizing the HR activities for HRIS applications. Figure 26.3 depicts the different applications of an HRIS. We shall now see these applications in detail.

Applicant Tracking System (ATS) Many big and small organizations are now gradually automating their recruitment process by installing an applicant tracking system software. The purpose of the applicant tracking system is to streamline the complete recruitment process and offer a unique support for all forms of candidate applications. The applicant tracking system normally assists the organization in screening applicant capabilities. It facilitates the accomplishment of the hiring goals of the organization in a fast and cost-effective manner. The applicant tracking system compares the job requirements of a vacant position with the applicants’ resumes posted by the prospective candidates to decide the suitability of the candidates. When the employee resume matches with the job requirements, the information about the candidate is forwarded to the recruiting officer or HR manager for further processing. Normally, the applicant tracking system seeks information about name, age, qualification, previous experience, technical competence and even names for reference checks. Some organizations may outsource the applicant tracking by employing external manpower consultants or Web sites. Box 26.2 outlines the utilities of applicant tracking systems in a recruitment process.

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Benefit administration system Manpower planning system

Training and development management

Grievance management system

Applicant tracking system

HRIS Applications in HRM

Personnel information and identification system

Compensation management system

Position control and budgeting system

Succession planning system

Performance management system

Figure 26.3 Applications of an HRIS in Human Resource Management

Training and Development System The purpose of a training and development system is to help the employees gain new knowledge in a time-bound manner and prepare them for future assignments. The training system or module helps the user to track the qualifications and competency levels of the employees constantly. Then the training module uses the job codes to link job requirements with employee competencies to determine the training needs through a process called competency matching. Based on its assessment of the training needs, the training system schedules and registers the employees for training courses. Once the training programme is over, it automatically updates the employee profile by recording the result of the training programme in their profiles. Moreover, the training module can provide information about the availability of the training and development programmes both within and outside the organization and also about the time, duration and cost of these programmes. The employees, by accessing the training module, can choose the training packages suitable in terms of timings, duration and cost.

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Box 26.2

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Simplifying Recruitment Through ATS

Many Indian organizations are steadily moving towards the process of integrating information technology with human resources. This is due to the growing realization among these companies about the short- and long-term effects of information technology on the development of the invaluable human resources. In fact, many organizations view an HRIS as a sure bet to optimize the human resources and achieve a competitive advantage in the market. The applicant tracking system (ATS), which is also known as the candidate management system, is a software program available to the organizations to manage the hiring process better. ATS normally simplifies and streamlines the recruitment and selection process and achieves cost-effectiveness in the hiring process in the long run. Several software companies are offering easy-to-operate

and flexible applicant tracking systems for enhancing the effectiveness of recruiting and accomplishing the recruitment goals in a hassle-free mode. The role of Microsoft in supporting the applicant tracking system software is worth mentioning. It offers an automated system, such as an applicant tracking system, to help the organizations manage their typical recruiting process. In this regard, it has developed recruiting solutions like Outlook, InfoPath, and Windows SharePoint Services which help the organizations in candidate tracking, candidate relationship management, interview management and feedback gathering and other automated hiring activities. Adapted from http://www.microsoft.com/office/showcase/recruiting/default.mspx.

HRIS also facilitates workplace e-learning by the employees as part of their training programme. In e-learning, necessary learning and other supportive resources are made available to the users through computer network. In fact, e-learning enables the employees to gain new skills and knowledge in their spare time or at a time most convenient to them without disturbing their regular work schedule. In e-learning, contents are usually delivered to the users through the electronic media, which may include, among others, the Internet, intranet, extranet, interactive TV and satellite broadcasting. Electronic Performance Support System (EPSS) As an alternative to the formal training system, an increasing number of organizations have of late introduced the Electronic Performance Support System (EPSS) to increase the employees’ skills and productivity. In fact, an EPSS is a computer-based system that improves worker productivity by providing on-the-job access to integrated information, advice, and learning experiences.15 It provides employees with direct, immediate and individualized online access to the full range of job-related information necessary for effective job performance. Thus, it enables the employees to learn and perform the job almost independently. As such, it supports employees in several ways like providing information about the processes and procedures involved in performing a job, making available a huge job-related database, helping in locating the required information and providing information through multimedia for faster and effective learning.

Compensation Management System The compensation management system aims at computing employee payments through an integrated payroll system. It makes a flexible module available for the processing of pay and all related financial transactions. This compensation system normally considers employee working hours, attendance and productivity for computing the salary of the employees. The structure of the pay slip can be altered to include any number of “income” and “deduction” heads in the compensation module. Some compensation systems even have automatic

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cheque-writing facility for the payment of compensation. Similarly, a few compensation management modules can send relevant notifications to the employees, seeking pay-related information like tax savings, preferred tax deduction, etc. The other facilities generally available with the compensation management modules are bonus and incentive computation, earned leave computation, stock option computation and other pay-related computation.

Performance Management System The main goal of the performance management system is to track employee performance reviews and the due dates for next reviews. It aims to develop, motivate and retain a high-performance workforce all year round. It permits the management to streamline the entire performance planning and review process by centralizing workflows and increasing the visibility levels of performance management. The latest versions of the online performance management system permit the organization to automate the review process. The performance management system also allows the managers to have instant access to current and correct employee information while writing performance reviews. It provides a performance evaluation report “on demand” to the higher authorities while deciding the career and succession plans for the employees. Besides, the performance management module protects the confidentiality of the performance reviews by restricting their accessibility. Obviously, it facilitates the HR department in securing complete control of the employee performance data. The critical requirements for effective implementation of the performance management system are effective communication, clear accountability from top to bottom, necessary training, suitable alignment, and accurate measurement.16

Manpower Planning System The primary purpose of a manpower planning system is to ensure that an organization has the right number of employees working in it at any point of time to complete the organizational goals. The manpower planning module automates the manpower requests based on the long- and short-term goals of different departments. For instance, the system will first check for the available manpower in a department and then finalize the required manpower as per the goals and activities mentioned by the user, and finally, the manpower request for that department is generated automatically. The manpower planning system manages employee skill inventory and supports several other HR activities. For instance, it maintains a real-time inventory of the number of job positions vacant in different sections, units and departments of the organization. This module compares the manpower available with the manpower required to determine the variances. Similarly, it computes the labour turnover for the current year and, based on the past turnover rates, makes projections for the future. Manpower planning can also make retirement projection, which would help the firm in planning its recruitment and training activities in advance.

Succession Planning System The succession planning system facilitates the identification of key positions in the organization and their requirements in terms of skills, competencies, qualifications and experience profiles. In the next stage, it identifies the employees who meet the requirements for these key positions. Finally, the succession planning module brings the identified and selected employees into the succession channel. Generally, this system works in close coordination with other systems like training system, compensation system, and performance management system. As part of the succession planning process, this module acquires the necessary employee

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performance data from the performance management system, and the compensation data from the compensation management system. Similarly, the training profile of the employees is obtained from the training and development system for determining the suitability of the employees. Besides, the information about the time and nature of the training programmes available are also gathered through the training and development system. This helps in planning the training programmes for the employees identified as the successors. The succession planning module, in essence, simplifies and streamlines the complex succession planning process and makes it possible for the organization to keep the succession pipeline open for each one of its employees. A few succession planning modules assist the management in developing several succession channels for each key managerial position. For instance, each succession plan may indicate the short-, medium- and long-term successors for a key position in the organization. Further, a succession planning module usually monitors, records and reports any change in the career profile of these successors like the additional qualification acquired, transfers sought and sanctioned, and also their exit. Major changes in the career profile of the successors, like a resignation, may warrant a complete revision of the succession planning.

Position Control and Budgeting System The purpose of position control is to manage the position structure of an organization. This system maintains all information about each position in a separate database. This database maintains information about position descriptions, education and skill requirements, requisitions, incumbent history, reporting relationships, and budgeting information for each job in the organization. This positional control and budget system is also integrated with other databases. A position control module helps the firm in tracking the amount of time spent by the employees in each position when they have to hold more than one position at a time. It provides businesses with a framework for staff planning, human resource development, and budgetary controls. Understandably, it is capable of enhancing the effectiveness of the manpower planning and budgeting process. The position control and budgeting system also helps in labour cost planning and management, evolving meticulous staffing plans and budgets, keeping a historical data for different position levels, and creating critical staffing decision reports.

Benefits Administration System This system manages all the current and historical employee benefit information for the entire organization. A few examples of employee benefits are retirement plans, medical and life insurance plans, vacation pay, holiday pay, maternity leave, and employee stock ownership plans. The benefits administration system keeps information about the beneficiaries and the details of the benefits. It specifies the eligibility criteria, waiting periods, cost, billing cut-off and other relevant information for all benefit plans. It may also provide information about the enrolment rules and regulations for new entrants and for the dependents of the employees. It can also generate statements about the benefit particulars of the employees and forward these to them for information and approval. Finally, it would also maintain necessary forms for admission, discontinuation from any plan, and for making claims.

Personnel Information and Identification System A basic personnel information system is usually the foundation of any HRIS. This may also be called a central staff database. The purpose of a personnel information system is to manage,

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report and analyse employee information. This system provides almost all information about the employees. It contains general staff data like name, address, family details, identity number, date of appointment, job position and location in the organizational structure, job classification, job specifications and descriptions, and disciplinary action taken. It can also automate reporting, notification, and forms generation relating to human resources operations. It is usually linked with all other systems in the HR department and functions in an integrated manner. For instance, it feeds general employees information to the other systems and also gets back specific information about the employees from the other systems for updating employee records. Apparently, the compensation management, succession planning and management, training and development, and performance management systems depend critically on basic personnel information system for inputs and share their output with it.

Grievance Management System An effective grievance identification and redressal is an important prerequisite in improving employee satisfaction and labour–management relations. The grievance management module can effectively track and analyse the grievances of the employees. Since the management is normally required to complete the redressal within a specified timeframe, an automated grievance management system enables it to gather all relevant information about the grievances quickly and in a cost-effective manner. A grievance management system often deals with questions like “who, why, what, where” and also strengthens the position of the management through a systematic recording of information just in case the grievance becomes a dispute and is referred for arbitration.17 Finally, the grievance management system assists the management in pre-empting employee grievance by analysing the nature, sources and frequency of earlier grievances and by acting on the sources of those grievances.

Benefits of an HRIS An HRIS, which is an interaction between human resource and information technology, is an important tool for developing competitive advantage out of human resources. These two major elements of an HRIS are capable of producing synergy effect in organizations.18 In fact, an HRIS has emerged as an effective tool to manage the routine employee activities through an impersonal and automated approach. It has relieved the work pressure on the HR managers considerably. Through an HRIS, the management also gets real-time information on the HR activities performed by the HR department. Consequently, an HRIS keeps the organization healthy by monitoring and optimizing the human resources available in the organization constantly. We shall now see the important benefits of HRIS.

Effective Use of Human Resources The chief benefit of an HRIS is the optimum and strategic use of human resources in an organization. Since there is a complete visibility in all the activities performed by the employees, it prevents duplication in the employee efforts by tracking people as they move through the system. It also ensures that all their activities are aligned to the enterprise objectives properly. Finally, an HRIS standardizes the processes for key HR functions which ensure that there is uniformity in the performance of the HR activities in the entire organization.

THE HUMAN RESOURCE INFORMATION SYSTEM (HRIS)

Ability to Manage Voluminous Data The inherent ability of an HRIS is its capacity to store, manipulate, retrieve and distribute large volumes of data within the shortest possible time. It is certainly unmatched in analysing complex, voluminous and heterogeneous data and in guiding their interpretation and reporting. In fact, an HRIS is variedly described as a transaction processor, editor and record-keeper. An HRIS can handle large data. This requires reconciliation with high speed and great accuracy, which is very difficult to accomplish in any manual operation.

Reduction in Labour Cost An HRIS has the ability to reduce the labour requirement in the HR department significantly. When there is a decrease in the labour requirement, the labour cost, which is a recurring cost to the organization, is kept down. For instance, automating the HR processes, like hiring through the applicant tracking system, lowers the time-to-hire and cost-per-hire considerably.

Faster and Effective HR Decisions Since the decision support system of an HRIS is capable of generating as many alternative decisions as possible for solving a problem, the managers can make the best decisions quickly and precisely. Certainly, a timely decision enables the organization to capitalize quickly on the opportunities rising in the business environment.

Better Supervision and Control over Human Resources The effectiveness of supervision and control exercised by the managers over the employees is certainly superior in an HRIS environment as compared to that in a manual environment. This is because all the activities of the employees are monitored round the clock on a realtime basis through HRIS. Besides, the managers are also spared of any physical supervision of the employees. Since supervisory requirements are less, the organization can also save on the cost of supervision.

Optimum Security and Confidentiality Preserving the security and confidentiality of the employee data is a major problem for many organizations. They can keep their employees’ records safer through an HRIS by limiting access to such information. They can use password and other authorization requirements to prevent any unauthorized access to valuable and sensitive information about the employees.

Anytime, Anywhere Access HRIS enables its users to have anytime, anywhere access with multiple channels for task performance and reporting. It removes the need for the users to be within the premises to have access to the information available in the HRIS. Email, Web, Windows forms, SMS and Voice are some of the forms used prominently for accessing an HRIS in normal circumstances.

Better Focus on Strategic Activities by Managers The automation of HR managers’ routine administrative activities like attendance tracking, work scheduling, etc., allows them to devote more time to strategic planning tasks. HRIS enables the HR manager to perform from the top levels of the management by involving

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themselves in strategic decision making processes. In fact, the HRIS has drastically changed the job characteristics and job expectations of the managers with a growing strategic role pressure.19

Better Statutory Compliance Since all statutory provisions are usually incorporated in an HRIS, it ensures that these provisions are strictly adhered to. When employees overlook any of the regulatory provisions even unintentionally while performing HR activities, it may invite legal troubles for the organization. This can be completely avoided when employees perform through the HRIS. For instance, if there are statutory provisions regulating the recruitment, these provisions must be included as in-built features in the applicant tracking system. The system would automatically seek this information and consider it while determining the suitability of the applicant for the job. As a result, costly and time-consuming litigations can be avoided by the organization.

Meeting the Future Challenges and Changes of HRM The historical role of HR managers has undergone drastic changes in the recent past with the changes in the labour market characteristics. With the increasing presence of knowledge workers in organizations, the role of HR managers has undergone tremendous changes and so have the management’s expectations from the HR department. Besides, the mergers and acquisitions along with globalization have simply internationalized the HR operations, bringing in a sharply diversified workforce. Certainly, the role of HR managers receives an increased status in organizations when compared to earlier years.20 Thus, the HR managers should be prepared to perform more complex administrative operations in future for which they should inevitably depend on the sophisticated HRIS. In fact, these systems increase administrative efficiency and produce reports capable of improving decision making.21 In addition to these advantages obtaining from the HRIS, A. M. Beckers and B. Z. Bsat22 have identified a few reasons for justifying its introduction in organizations. According to them, an HRIS (i) has the ability to increase the number and variety of HR operations; (ii) facilitates competitive advantage through improved HR practices; (iii) ensures that HR is moved from transaction processing to strategic planning; (iv) greatly integrates the employees with the system; and (v) revamps and reengineers almost all HR functions of a business organization. Box 26.3 lists a few benefits and beneficiaries of HRIS.

Conditions Essential for an Effective HRIS There is a growing realization among the HR managers and the business organizations that an HRIS is no longer optional for them but a basic necessity. This is because an effective HRIS is now capable of supporting all HR functions such as recruitment, selection, attendance, payroll, benefits, and performance management in a cost effective way. However, it is to be noted here that an effective HRIS alone can produce the desired output. We shall now see the factors that contribute to the effectiveness of an HRIS.

Developing the HRIS Leadership The success of an HRIS depends primarily on the expertise of the leadership assigned with the tasks of planning, executing and maintaining the HRIS in the organization. The HRIS

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Box 26.3

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Growing Popularity of HRIS in the Indian Corporate World

The features of human resource information system (HRIS) have captured the imagination of the corporate world. Many big and medium-sized companies belonging to entirely different industries are vying with each other in reaping the benefits of the automated human resource management processing. These companies are spending millions of rupees in identifying and installing sophisticated, easy-to-use, robust, flexible and feature-rich software to optimize their human resources and gain competitive advantage through seamless HR operations. Organizations of different sizes and hues like LG Electronics System India Ltd, Paramount Airways, Pearson Education (Singapore) Pvt Ltd, Electrolux, APW President Ltd, GEA Energy System (India), Swiss Agency for Development and Cooperation (SDC), Swiss Embassy, New Delhi, and Food World Supermarkets Ltd have successfully established HRIS to manage their human resources effectively. Among the Indian banks, the HRIS initiatives of the State Bank of India (SBI) are worth mentioning.

SBI, which has a total staff strength of 179,205, started the automation of its huge HR processes through SAPERP-HRMS software on 31 March 2008. It plans to serve more than 370,000 employees and retirees of the entire SBI group through its human resource management software (HRMS). The purpose of its HRMS move is to leverage information technology in human resource management. Once completely operational, the State Bank’s HRMS would be able to develop a central repository of all employees’ data, which would help the company in making a wide variety of services like online request submission and viewing of individual data available. Eventually, SBI employees would be offered facilities to access the data online and on a real-time basis. The HRMS would enable the bank to make employee-related decisions more rapidly and implement them effectively. Adapted from http://crpd.sbi.co.in/uploads/forms/ Human-Resources_20080610.pdf and http://www. jsmtechnologies.com/clientlist/clientlist_home.asp

leadership must be technically sound and have good negotiation and persuasion skills. It should be capable of providing strategic supervision and impetus for all HRIS-fortifying activities of the organization.

Ensuring Clarity of the HRIS Goals The next important prerequisite for the success of an HRIS is the presence of unambiguous goals for the HRIS programmes. In the absence of clear goals, the organization may end up wasting its time in the process or buying inappropriate software for automating its HR operations.

Strengthening the Infrastructure and other Supporting Systems An HRIS can function fruitfully only when it gets proper infrastructure support in the organization. The usual infrastructure requirements of an HRIS are hardware, software, adequate connectivity, networking, training and support.

Sustained Enhancement of the HRIS Capabilities With a continuous increase in the volume and sophistication of HR data, there is a need for constant capacity building in an HRIS. When the system capability is increased, it obviously requires proportionate changes in the supporting infrastructure facilities. Thus, a continuous capacity building is essential for the effectiveness of the HRIS.

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Ensuring Top-management Support Top-management support is a key prerequisite for the success of the HRIS implementation process. This is because top managers alone supply critical resources like funds, technologies, staff, and user training programmes. Their role and support is critical for change management and vision sharing. The HRIS leadership must work in close coordination with the top management.

Securing Absolute Control of the HRIS The major responsibility of an HRIS team is to ensure the security of the information stored in the system. It must put in place a foolproof security to avoid the risk of unauthorized intrusion, data theft and other potential dangers to the valuable and sensitive information.

Providing Adequate Training and Exposure to the Users Organizations must ensure that there is an ongoing training support available for the HRIS users so that there is the optimum use of HRIS resources. Each HRIS user must be required to complete necessary training to understand the different features of HRIS like HRIS Setup and Navigation, HRIS Drill Around, HRIS Broadcast Report, etc. These trainings may be provided either online or offline to the connected staff.

Ensuring Wider Participation and Better Cooperation It is the responsibility of the HRIS leadership to ensure that there is a wider consultation within the organization at different levels before the implementation of the HRIS proposal. The senior managers must also be actively consulted to ensure their active participation and support for the HRIS plans. In a unionized organization, there must be adequate information sharing with the union leaders to allay their fears about the HRIS, especially in respect of its impact on the existing staff. Thus, the cooperation and support of employees across the board is essential for the success of the HRIS.

Summary 1. An HRIS is defined as an automated system for gathering, storing, retrieving, analysing and disseminating HR-related data for facilitating operational, managerial and strategic decision making that impacts human resources. 2.

The three inter-related components of an HRIS are input, data storage and processing, and output.

3.

The various levels of an HRIS are (i) the electronic data processing (EDP) level, (ii) the management information system (MIS) level, and (iii) the decision support system (DSS) level.

4.

The steps in the implementation of an HRIS are: (i) determination of the need for an HRIS; (ii) constitution of a project team; (iii) development of the project plan; (iv) designing and developing system specifications; (v) identification and training of user groups; (vi) implementation and maintenance; and (vii) evaluation of effectiveness.

5. The applications of an HRIS in human resource management are in the applicant tracking system, the training and development management system, the compensation management system, the

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performance management system, the manpower planning system, the succession planning system, the position control and budgeting system, the benefits administration system, the personnel information and identification system and the grievance management system. 6. The benefits of an HRIS are: the effective use of human resources, the ability to manage voluminous data, reduction in labour cost, faster and effective HR decisions, better supervision and control over the human resources, optimum security and confidentiality, anytime and anywhere access to HRIS,

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better focus on strategic activities by managers, better statutory compliance, and meeting the future challenges and changes of HR management. 7. The conditions essential for an effective HRIS are: developing an HRIS leadership, ensuring clarity of the HRIS goals, strengthening infrastructure and other supporting systems, sustained enhancement of the HRIS capabilities, ensuring top-management support, securing absolute control of HRIS, providing adequate training and exposure to the users, and ensuring wider participation and better cooperation.

Review Questions Essay-type questions 1.

5. “HRIS is not a luxury but a necessity for an organization.” Discuss.

Evaluate critically the different types of HRIS using relevant examples.

6.

2. Discuss the steps involved in an HRIS process using appropriate examples.

State the future of an HRIS in Indian industrial organizations with real-life examples.

7.

Evaluate critically the applications of HRIS in human resource management.

8.

Describe the various components of an HRIS and the functions of each of them.

3. 4.

Examine critically the utilities of an HRIS for a business organization. Enumerate the conditions essential for installing an effective HRIS.

Skill-development Exercise Objective – The objective of this exercise is to show you how to plan and execute the installation of an application tracking system as part of HRIS in an organization. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) two applicant tracking system software vendors, (4) two office-bearers of a trade union, and (5) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report them. Situation Ashirvath Pharmaceuticals Limited is a medium-sized company engaged in the production of health-care products for the past 20 years. This company has been offering

competitive compensation packages to its employees and has an excellent array of HR policies and practices. Yet, its track record in employee hiring has not been very impressive for some time since some of the new entrants’ performance was simply dismal. The management was not impressed by the explanations provided by the HR department. So it appointed an external HR expert to look into the problems of the HR department. The external HR expert, who audited the HR policies, procedures and performance of the HR department, recommended the introduction of an HRIS in a phased manner. As a first response to the recommendation of the external HR auditor, the management decided to implement the applicant tracking system in the recruiting section of the HR department. It instructed the HR

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manager to plan and implement the system in a hasslefree way in close consultation with the trade union. Steps in the exercise There are four steps in the exercise: Step 1: The HR manager meets the office-bearers of trade union to ascertain their views about HRIS in general and the applicant tracking system in particular. He also explains the features of the applicant tracking system to them in order to get their cooperation.

Step 2: He convenes a meeting of his HR team to determine the terms and conditions for the applicant tracking software and develops the system specifications. Step 3: He meets the software vendors to brief them about the requirements of the company and to finalize the purchase. Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Good Health Products Limited is a diversified company engaged in the production of sugar, alcohol and biopesticides. This company is one of the major players in the sugar industry with a significant market share and a workforce of 8,200, with 4,800 unionized employees. It has full-fledged manufacturing information system and marketing information systems, which have ensured the complete automation of these departments’ operations. Its HR department is headed by the HR manager, Mr Atul, who is supported by 120 employees. Atul made a request to the management for installing an HRIS in order to enhance the efficacy of its operations but the request has been pending with the management. Meanwhile, the HR department released the performance evaluation reports of the employees. As per the general practice of the company, the line managers conducted performance interviews with the employees to hand over the evaluation reports and these decide the employees’ future financial benefits, including promotion. Due to its importance, the performance evaluation process and the reports often get embroiled in controversies and invite criticisms from those employees whose performances are found to be insufficient for good rewards. The protest over the performance evaluation process and results became more vociferous this time and the management asked for the details of the performance evaluation process and an explanation from the HR department over the results of the performance evaluation. The HR manager reminded the management about his long-pending request for the automation of the HR operations of the organization. He pleaded with the management to fulfil at least a part of his request by installing the performance management system (PMS) immediately, if not the complete HRIS. He strongly believed that the

introduction of the information system in performance management would improve the visibility in the measurement, communication and accountability in the entire evaluation process. For the HR manager, the introduction of PMS appeared to be the best solution to solve the recurring performance evaluation-related problems in the organization. However, the forceful arguments of the HR manager in favour of PMS were rejected by the management for four reasons. One, it was not cost-effective since the benefits are not tangible and substantial. Two, the labour reduction in the HR department on account of the introduction of the PMS is not possible due to strong unions. Three, it cannot be an immediate solution for the present problem. And four, the HR department has so far not chosen the most effective appraisal method for performance evaluation and this, according to the management, was the root cause of the problem. The HR manager is now contemplating his response to the observations of the management. Questions for discussion 1. What is your assessment of the entire situation at Good Health Products Limited? 2.

Do you agree with the stand and arguments of the HR manager regarding the introduction of an HRIS and a PMS?

3.

What have you to say about the arguments of the management of Good Health Products against the introduction of a PMS?

4.

If you were to be the HR manager of Good Health Products, what would you do now?

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Notes 1. N. J. Beutell and A. J. Walker “HR Information Systems” in Randall S. Schuler (ed), Managing HR in the Information Age, 6, (Washington DC: Bureau of National Affairs, 1991), pp.167–203. 2. A. Price, Human Resource Management in a Business Context, 2nd ed. (London: Thomson Learning, 2004), p. 69. 3. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ: Pearson Education, 2007), p. 113–114. 4.

5.

Anthony Hendrickson, “Human Resource Information System: Backbone Technology of Contemporary Human Resources,” Journal of Labour Research, 24, no.3 (Summer 2003): 381–395. Ben Swanepoel (ed), Barney Erasmus, Marius Van Wyk and Heinz Schenk, South African Human Resource Management: Theory & Practice, 3rd ed. (Cape Town: Juta and Company Limited, 2003), p. 785.

12. C. Austin Information Systems for Hospital Administration (Ann Arbor, MI: Health Administration Press, 1979). 13. C. Richards-Carpenter, “How CPISs Alter Personnel’s Role,” Personnel Management, 23, no. 8, (1991): 18–19. 14. M. J. Kavanagh, H. G. Gueutal and S. I. Tannenbaum, Human Resource Information System: Development and Application (Boston, MA: PWS-Kent, 1990), p. 98, and Pieter Grobler, Surette Warnich et al., Human Resource Management in South Africa, 3rd ed. (London: Thomas Learning, 2006), pp. 58–60. 15.

Barry Raybould, “Performance-Centered Design,” Training & Development, March 1996.

16.

Patricia Davis and Robert W. Rogers, “Getting the Most from Your Performance Management System,” White Paper, Development Dimensions International, Inc.; available at http://www.ddiworld. com/pdf/ddi_gettingthemost_wp.pdf .

17.

Al Doran and Glenn Rampton, “Making a Business Case for a New HRIS,” Phenix-ManagementInternational; available at http://www.pmihrm. com/how_to_cost_justify_a_new_hrms.html.

18.

M. L. Jenkins and G. Lloyd, “How Corporate Philosophy and Strategy Shape the Use of HR Information Systems,” Personnel, May 1985: 28–38.

6. S. I. Tannenbaum, “HRIS Information: User Group Implications,” Journal of Systems Management, 41, no.1 (1990): 27–32, 36. 7.

8.

K. A. Kovach and C. E. Cathcart, Jr, “Human Resource Information Systems (HRIS): Providing Business with Rapid Data Access, Information Exchange and Strategic Advantage,” Public Personnel Management, 28, no. 2 (1999): 275–281. Lloyd L. Byars, and Leslie W. Rue, Human Resource Management, 7th ed. (Boston: McGraw-Hill, 2004).

9. K. A. Kovach and C. E. Cathcart, Jr, “Human Resource Information Systems (HRIS): Providing Business with Rapid Data Access, Information Exchange and Strategic Advantage,” Public Personnel Management, 28, no. 2 (1999). 10. H. G. Gueutal, S. I. Tannenbaum, and M. J. Kavanagh, “Where to Go for an HRIS Education,” Computers in Personnel, 2, no. 3 (1988): 22–25. 11.

Diane Huber, Leadership and Nursing Care Management (Toronto: Elsevier Health Sciences, 2006), p. 272.

19. K. Ball, “The Use of Human Resource Management Systems: A Survey,” Personnel Review, 30, no. 6 (2000): 677–693. 20.

Zahid Hussain and Peter Prowse, “Human Resource Information Systems (HRIS) as the Means of Fulfilling Job Roles More Professionally for Human Resource (HR) Managers,” Working Paper No. 04/07; available at www.brad.ac.uk/acad/ management/external/pdf/workingpapers/2004/ Booklet_04-07. pdf.

21. Gerardine DeSanctis, “Human Resource Information Systems: A Current Assessment,” MIS Quarterly, 10, no. 1 (March 1986): 15–27. 22. A. M. Beckers and M.Z. Bsat, “A DSS Classification Model for Research in Human Resource Information Systems,” Information Systems Management, 19, no. 3 (2002): 41–50.

CHAPTER

27

Human Resources Accounting

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 List the objectives of human resource accounting 2 Enumerate the methods to evaluate human resources 3 Explain the strengths and weaknesses of human resources accounting

Infosys Technologies has made it a practice to publish the value of its human resources every year as a component of its annual report titled Human Resource Valuation. It introduced human resource accounting in 1995–96 and, thus, became the first software company in India to measure and publicize the value of its human resources. This company uses the Lev and Schwartz model to compute the value of its human resources. Infosys considers the current value of the future earnings of its employees for determining their value to the organization. The following points merit attention: (i) employee remuneration includes both direct and indirect benefits earned in India and abroad; (ii) the incremental

earnings were computed on the basis of the age/ group of the employees; and (iii) the future earnings of the employees would be converted into the present value with the help of the cost of capital. Based on its human valuation report (see Table 27.1), Infosys prepares unique HR-based ratios like total income/human resource value(ratio), employee cost/ human resource value (%), and value added/ human resources value (ratio) for making informed decisions. Having seen the importance of calculating the HR value of a company using human resource accounting, we shall now discuss the different aspects of human resource accounting in this chapter.

Introduction The fundamental aim of human resource accounting is to assist the management in planning and controlling human resources in an effective way. In fact, human resource accounting is a strategic tool available with the management that is used to estimate the cost and value of its aggregate workforce. The role of HR accounting in organizations is to quantify the value of the human resources and is just like assessing the value of physical assets. When human assets are quantified in some form, it helps the organization in understanding the true worth of its human

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Table 27.1 The Human Valuation Report of Infosys (in Rs crores unless stated otherwise)

Value of human resources (Year) Software professionals Support Total Total income Total employee cost Value added Net profit excluding exceptional items Value of human resources per employee Return on human resource value (%)

2009 95,600 6,533 1,02,133 21,693 11,405 19,073 5,988 0.97 5.9

2008 92,331 6,490 98,821 16,692 8,878 14,820 4,659 1.08 4.7

2007 53,592 3,860 57,452 13,893 7,112 11,879 3,861 0.80 6.7

2006 43,336 3,301 46,637 9,521 4,801 8,030 2,479 0.88 5.3

Source: http://www.infosys.com/investors/reports-filings/annual-report/annual/Infosys-AR-09.pdf and http://www.infosys.com/investors/ reports-filings/annual-report/annual/Infosys-AR-07.pdf. Reproduced with permission.

assets. Besides, the value of human resources estimated through human resource accounting becomes an important element of managerial decision making. The primary goals of human resource accounting are estimating the cost of each employee, the value of the total investment in human assets and, most importantly, the returns from human capital investments. Thus, human resource accounting helps the organization in knowing the “expected realizable value” of its employees. The determination of the value of human resources is influenced generally by factors like the compensation payable to the employees, promotability, skills and knowledge, age of retirement, and training opportunities available to the employees to acquire new abilities. As a matter of fact, the human resource accounting information is precious not only for management but also for external stakeholders like shareholders, creditors, and government agencies.1 In recent decades, human resource accounting has been gaining momentum in the business world due to the strong emergence of the service sector in the economy. The growing importance of human resources and the cost of their maintenance in these organizations prompted their managements to think seriously about human resource accounting. Of late, human resource accounting came to be viewed as a strategic tool to manage and control human resources effectively.2 Certainly, employees can also benefit out of human resource accounting because it helps the organizations recognize the skills, talents and knowledge of the employee and decide how to treat them appropriately. Even though human resource accounting is a relatively new concept in the industrial arena, it is capable of providing useful and relevant information required by the organizations to recruit, train, distribute, preserve, utilize, assess and compensate their human resources. In brief, human resource accounting facilitates the management in optimizing its human resources. The preparation of human resource accounting, however, is not statutory in the country and, as such, it is not recognized in the balance sheet of an organization. So far, human resource accounting has not succeeded in meeting the critical norms set by the generally accepted accounting principles (GAAP) to qualify as full-fledged accounting. Estimating the value of human resources and ensuring their effective utilization are the essence of the definitions of human resource accounting. We shall now see a few of these definitions in Box 27.1. We may define human resource accounting as a process of estimating the cost benefit of investments on human resources with a view to assessing their value to the organization.

604 Box 27.1

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Definitions

“Human resource accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties.”3 —American Accounting Association “Human resource accounting is an attempt to identify and report investments made in human resources of an organisation that are presently not accounted for in conventional accounting practice.”4 —R. L. Woodruff Jr

“Operationally defined, (human resource accounting) means measuring the cost, replacement cost, and economic value of people as organizational resources for facilitating human resource management, decision making, and control as well as the reporting of human capital in financial statements.”5 —Michael R. Losey et al.

Objectives of Human Resource Accounting Human resource accounting is capable of helping the management in various ways. For instance, it can support managerial decisions involving human resources allocation, projection and scheduling in the organization. This is possible because human resource accounting enables the management to assess the value of its human resources realistically. Thus, the general purpose of human resource accounting is to facilitate the managers in planning, supervising and controlling human resources in the most effective manner. In specific terms, human resource accounting aims to • provide quantitative information about the cost and value of human resources available within the organization • serve as a basis for decisions concerning the human resources of the organization • facilitate the preparation of the human cost or budget for performing human resource functions like acquisition, development and compensation of employees • provide methods and standards for evaluating the worth of people to the organization effectively • help the management in monitoring the utility of human resources constantly with the purpose of achieving the optimum utilization of labour • carry out planned and measured changes in the value of the human resources of an organization • provide an early warning to the management about the impending changes in the value of the human resources. This should enable the organization to act adequately and appropriately to conserve its precious human resources.6 • enable the organization to reward the employees on the basis of the assessment of their values within the organization • permit all the stakeholders of the business to have a fair knowledge of the value of the existing human resources • help in the development of managerial principles and practices by clarifying the financial effects of various practices7 • enable the managers to have human resource perspectives in all their decisions by sharing numerical information about human resources8

HUMAN RESOURCES ACCOUNTING

Approaches to Human Resource Accounting The traditional accounting practices simply ignored the value of human factors in the organization and preferred to treat it as an expense and expendable factors. This fundamentally lop-sided attitude towards human resources worked against the interest of the employees decisively. For instance, the cost of training incurred to update the skills and knowledge of the employees were treated only as expenses and not as investment.9 Although human resource accounting is still in its infancy as far as its development is concerned, there are a few approaches available to the study of human resource accounting. However, none of these approaches has so far found universal acceptance, because they have in-built contradictions, incompleteness or inability. These approaches have thus far failed to fulfil the basic requirements of traditional accounting concepts and practices like double-entry concept. In spite of the inherent weaknesses in the measurement of human resources and in human resource accounting, a few experts have succeeded in developing logically sound and widely accepted approaches to human resource accounting (see Figure 27.1). These approaches are basically classified into cost-based and value-based approaches. The costbased approach focuses on the cost of procurement of human resources, treating it similar to the historical cost of physical assets. This approach can also include the replacement cost or opportunity cost. On the other hand, the value-based approach to human resource accounting focuses on the income-earning capacity of the human resources. This is normally related to the future earnings of the organization received through human resources. We shall now see these approaches in detail.

Cost-based Approach This approach is also called human resource cost accounting (HRCA). It operates like a traditional financial accounting system. It assumes that the value of a human asset can be estimated properly through the historical (past) investment or cost incurred. There are four important cost concepts available to measure the cost of human assets: (i) historical cost, (ii) replacement cost, (iii) opportunity cost and (iv) standard cost. We shall now see these cost concepts in detail. Historical Cost Approach This approach was developed by Lee Brummet, Eric Flamholtz and William C. Pyle.10 According to this approach, the cost incurred for recruiting, training and developing the employees should be capitalized (converting the expenses into capital investment or asset). The total amount capitalized is then amortized (gradually reduced) over the estimated useful life of the human resources. This approach is similar to the accounting treatment of any physical asset in which the cost of an expired portion of an asset is written off from the assets as an expense. Unlike the physical asset, the acquisition cost of human assets is incurred gradually over a period of time and then aggregated to identify the historical cost of that asset. Then, a specific proportion of the historical cost of the human asset is written off every year throughout the life of that person in the organization as an expense against the income earned during that year. We shall now see a simple numerical example with imaginary data for a better understanding of this concept. Let us assume that the useful life of this employee in the organization is 10 years. If the capitalized value of the employee is Rs 700, 000 and his estimated life in the 700000 organization is 10 years, the annual amortization would be = 70,000 per year. 10

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Approaches to HR Accounting

Cost-based approach

Historical cost approach Replacement cost approach

Value-based approach

Present value of the future earnings model

Certanity equivalent model

Opportunity cost approach Standard cost approach

Stochastic reward valuation model

Unpurchased goodwill model

Causal, intervening and end-result model

Five-dimensional model

Aggregate payment model

Human asset multiplier model Figure 27.1 Approaches to HR Accounting

Thus Rs 70,000 per year ought to be deducted from the profit earned by the organization. In case the employee leaves the organization prematurely, the entire balance amount in the account is treated as an expense and written off completely. The important prerequisite for the historical cost approach is the systematic and objective recording of each cost associated with the procurement and development of human resources. The merit of this method is that it is simple to understand and easy to operate since it is mostly akin to the traditional accounting treatment of physical assets. However, there are a few major limitations seen in this method. These are: (i) This method is subjective and haphazard since it involves several tough estimations. For instance, it involves the estimation of the life of a human asset in the organization. This is very difficult as human beings can act

HUMAN RESOURCES ACCOUNTING

Example 27.1 Historical Cost of an Employee X (all values in Rs) Cost of recruitment

200,000

Cost of training

300,000

Cost of informal training (for example, the loss suffered by the organization due to faulty decisions made by the employee at the initial stage of employment)

200,000

Capitalized value of the employee

700,000

independent of the organization on matters like their premature exit from the organization for personal or professional reasons. (ii) It ignores the basic characteristic of a human asset. A human asset is the only asset that appreciates over a period of time; all other assets just depreciate. An identical accounting treatment of two contrasting nature of assets cannot be justified. (iii) This method suffers from all the weaknesses of the historical cost method of financial accounting like the non-consideration or non-inclusion of the inflationary cost in the books, the irrelevance of historical cost for future purchases, and so on. Replacement Cost Approach The major contributors to this approach are Rensis Likert and Eric G. Flamholtz.11 The aim of this approach is to suggest a more realistic accounting treatment to value the cost of an asset. This approach considers the aggregate cost of recruiting, training and developing persons as suitable replacements for the existing levels of expertise and experience available with the organization. The replacement approach can be classified further into personal and positional replacement. Personnel replacement—When the cost of replacing an incumbent (job holder) in a specific position of the organization is considered, it is known as a personnel replacement. In this case, the person who acts as a replacement should have all the skills and abilities possessed by the incumbent employee, irrespective of its direct relevance for the present job. This implies that even if the skills and abilities of the present incumbent are more than the job requirement, the replacements ought to possess all those skills and abilities. Positional replacement—In case of a positional replacement approach, only the exact skills and knowledge required for the job performance is considered. Obviously, this method does not take into account the other skills and abilities possessed by the position holder. The major merit of the replacement cost approach is that it is surely more practical and logical than the historical replacement cost approach. The limitations of this approach are: (i) It is a vague method since finding a similar replacement for a person or position is very difficult. (ii) The process of cost determination would be arbitrary since it is not possible to fix the future value of human assets objectively. Opportunity Cost Approach This method was introduced by Hekimian and Jones.12 According to this approach, an opportunity cost exists for all human resources that are in short supply. Basically, any decision that involves a choice from more than one alternative has an opportunity cost. This can be easily understood through a simple example. When an employee decides to resign his present job to pursue higher studies, he should consider not only the expenses (like fees) for the higher studies but also the salary loss due to leaving the present job. Thus, when he makes decision about his future course of action, he must consider both

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the costs. Clearly, the sacrifices made for choosing a decision are called the opportunity cost. However, there is no opportunity cost for any decision which has no alternatives. In human resource accounting, the opportunity cost arises for an employee when his services are required or bidden for by many divisional heads of a company. Thus, when divisional heads bid for the services of people whose talents are scarce, they may include a bid price for these people in the total investments for the division. Let us see a numerical example for opportunity cost. A company has invested Rs 4,000,000 in Division X for its operations and it expects the department to achieve a normal return of 16 per cent from its performance. However, the division at present could make a profit of only Rs 600,000 instead of the normal profit of Rs 640,000 (16% of Rs. 4,000,000). Now, the head of the division plans to improve the situation by requisitioning the services of a talented technocrat. The department head estimates a revised profit of Rs 720,000 for the department—an increase of Rs 80,000 more than the normal return. In this situation, the department head can safely conclude that the profit of Rs 80,000 is just due to the capability of the technocrat. As such, the department can fix the HR value of the technocrat at Rs 500,000 (80,000 × 100/16) by capitalizing the excess profit Rs 80,000 at 16 per cent. Finally, the HR value of the technocrat would be included with the investment base of the division. The merit of this method is that it provides a quantitative approach to the concept of human resource management. It also ensures the optimal allocation of scarce human resources. However, it has a few limitations. These are: (i) This approach is suitable mostly for people at the middle-level management but their services may not be available for auction. (ii) There is no guarantee that a person who performs well in one division or department can repeat the same performance in other departments. (iii) Since this approach discriminates between the employees on the basis of some vague concept, there is a possibility that it can demoralize the other employees and depress their performance. This can eventually neutralize the performance improvements achieved by the expert employees. Standard Costing Approach This approach was advocated by David Watson. As per this approach, human resource data is used for setting standard costs for various HR functions like hiring and training.13 In fact, standard costing is usually determined every year. In this method, employees of an organization are first classified into different groups/grades based on their hierarchical position. Then, the standard cost is fixed for each grade of employees and their value ascertained. For instance, an organization may decide the standard recruiting cost per grade of employees for a specific year and this may act as a cost guideline for all recruitments in that specific grade. Further, in the subsequent years, the standard cost may be revised depending upon the prevailing conditions. The aggregate standard cost computed for the entire workforce is regarded as the human resources value of the whole organization. This approach is obviously simple to understand and easy to operate. But the major limitation of this method is that it lacks objectivity in estimating the standard costing for human resources. Besides, determining the standard cost for every grade is a complex and time-consuming process.

Value-based Approach According to the value-based approach, the value of human resources depends primarily on its ability to generate revenues. The major difference between the cost-based and the valuebased approach is that the former focuses mainly on the total cost incurred by the organization in hiring and training employees, while the latter does not make much reference to the

HUMAN RESOURCES ACCOUNTING

historic cost but emphasizes more on the future earning capacity of the human assets. Since the valuation approach is based more on the conceptual proposals, it is difficult to practise it in real circumstances due to the complexities involved.14 The important human resources valuation models used for measuring the value of human resources are (i) the present value of future earnings model, (ii) the certainty equivalent model, (iii) the stochastic reward valuation model, (iv) the human asset multiplier model, (v) the unpurchased goodwill model, (vi) the causal, intervening and end-result model, (vii) the five-dimensional model, and (viii) the aggregate payment model. We shall now discuss these HR valuation models. The Present Value of Future Earnings Model This model for measuring the value of human resources was advocated by Brauch Lev and Aba Schwartz 15 According to this model, the value of human resources depends on the present value of the future earnings to be made from a person’s employment. It depends on the economic concept of human capital. Actually, this model aggregates the estimated present value of the future income of an employee from his remaining service after adjusting for the possibility of premature death or permanent disability. Lev and Schwartz suggest the following formula for computing the valuation of human resources. T

Vr = ∑ t =r

I (t ) (1 + R)t −r

where Vr = the value of an individual who is r years old I(t) = the individual’s annual earnings up to his retirement T = the retirement age R = the discount rate r = the present age of the individual According to this model, the remaining years of service of an employee is critical in determining his value in the organization. However, this model has quite a few limitations. These are: (i) It ignores the role and authority of the organization in deciding how the employee should be used in it. As such, the value of an employee cannot be measured merely by qualities and skills possessed by him but also by the opportunities available to utilize those skills in the organization effectively. (ii) It fails to adequately consider the prospects of employees leaving the organizations early for personal or professional reasons. (iii) It ignores the likelihood of job changes like promotions, and transfers in the career of employees, which may affect their earnings. Box 27.2 indicates the example of companies that practice human resource accounting. The Certainty Equivalent Model The proponent of this method is Pekin Ogan.16 The two major components of this method are (a) the net benefit and (b) the certainty factor, which provide the means for determining the net present value of the human resources. According to this model, the net benefit is the difference between the total investment made by the organization in acquiring, training, developing, integrating and maintaining the employees and the total benefits received out of the skills, ability and knowledge of those employees. Net benefit = (the total investment in hiring, training, developing, and maintaining the employees) – (the total benefits received out of their skills, ability and knowledge) Further, this model views compensation policies, promotion policies, industry averages, labour market conditions and the skill requirements of an organization as the major determinants of the cost of human resources. Similarly, factors like employees’ age and the remaining years of service, their educational levels and their performance levels influence the benefits

609

610 Box 27.2

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Human Resource Accounting: Still in its Infancy

Over the years, Indian companies have gradually been transforming their traditionally undervalued human resources into the core assets of their organization. This is due to the growing realization among the top managers that the physical assets hardly make any remarkable differences to the performance and future prospects of modern-day organizations. They also understand that contemporary knowledgeable employees enjoying a high degree of independence and mobility can make or mar the fortune of their business through their attitude and actions. It has thus become a necessity for the success-hungry management to evolve tailor-made and robust HR policies and practices to keep these care-free employees tied to the organization. In fact, the emergence of knowledge industries like IT has further augmented the position of the human resources in the organization. Apparently, the requirements for individual-specific HR policies compelled organizations to identify the value of each employee for their organization so that it manages cost-benefit analysis in its employee retention initiatives. In this regard, quite a few organizations consider human resource accounting as a realistic and strategic tool to assess the real worth of the employees.

Some organizations in India have already begun the practice of human resource valuation and also published reports about the value of their human resources. For instance, BHEL, Infosys, SBI, Reliance industries, Steel Authority of India Limited, Indian Oil Corporation, Cement Corporation of India limited, State Trading Corporation, Southern Petrochemical Industries Corporation Limited (SPIC), Mineral and Metal Trading Corporation of India (MMTC), Oil and Natural Gas Commission (ONGC), National Thermal Power Corporation Limited (NTPC) and Engineers India Limited (EIL) have evaluated their employees and made the results known to the public. Among these companies, BHEL was a pioneering company in introducing the human resources accounting system in India in 1974–75. Interestingly, most of these companies used the Lev and Schwartz model to compute the value of human resources in their organizations. Adapted from R. K. Malik, Human Resource Accounting and Decision-making (Delhi: Anmol Publications,1993), p.5; and www.indianmba.com/Faculty_Column/FC766/ fc766.html.

available from the employees. However, the uniqueness of this model is its certainty equivalent component. Certainty equivalent is classified into two categories—the probability of an employee’s continued employment in the organization and the probability of his physical survival. The probability of continued employment is influenced by his total satisfaction and his attitude towards changes. According to Ogan, the quantified variable of this model can be used to compute the current equivalent of net benefits. The Stochastic Reward Valuation Model (SRVM) This model was originally developed by Eric Flamholtz.17 According to this model, the process of fixing the value of an employee depends upon the variability of that person from four different perspectives and potentialities. These are: (i) productivity, (ii) promotability, (iii) transferability, and (iv) retainability.18 This model perceives that the value of an employee depends upon the value of each of these factors or positions connected with that person. However, the chances of the employee being in any of these positions (service states) depend on the law of probability. According to Flamholtz, this reward model can help the organization in deciding (i) an employee’s estimated tenure in the organization, (ii) the mutually exclusive position like productivity and transferability that an employee is likely to occupy, (iii) the value of each position to the organization, and (iv) the probability that the employee would occupy a position at some time in the future.19 This method has several limitations. These are: (i) The organization may find it hard to get specific and reliable data about the value derived by the organization when the employee

HUMAN RESOURCES ACCOUNTING

occupies a specific position in a very uncertain future period. (ii) The performance of an employee as an individual might be different from the performance of the employee as part of a group. This factor is not considered in this model at all. The Human Asset Multiplier model This method was advocated by W. J. Giles and D. F. Robinson.20 According to this approach, the valuation of human resources is normally made in the same way as other business assets are valued on a “going concern concept” basis. The “going concern concept” assumes that the organization would continue to function for an infinite period of time. In this regard, Giles and Robinson developed a human asset multiplier, which is applied on the gross remuneration of employees. This average multiplier is obtained from a financial formula which is based on the market value of the organization.21 These multipliers are then weighted for different grades of employees. In this regard, employees’ age, experience, qualifications, expertise, commitment, performance and promotion capabilities, replacement scarcity and the remaining period of services are used as weights. The gross value of the human resources of an organization can be computed by just totalling all the individual values calculated separately. The Unpurchased Goodwill Model The proponent of this method is Roger H. Hermanson.22 According to this method, the organization must ascertain its actual earnings and average it for the past few years. It should then identify the normal rate of return of the industry to which the organization belongs. In the next step, the organization must make a comparison between its actual average earnings and the normal earnings of the industry. In case the actual earnings are more than the normal earnings of the industry, the difference is known as super profit earned by the organization. When this super profit is capitalized with the help of the normal rate of return of the industry, the capitalized amount can be treated as the value of the human resources. This can be explained through a numerical example. Let us say: The actual capital invested by the organization is Rs 1,000,000. The normal rate of return of the industry is 16 per cent. The actual average earnings of the organization is Rs 280,000. We shall first find out the normal earnings of the industry. Step 1: The normal earnings of the industry is 1,000,000 × 16 = Rs. 160,000 Step 2: The super profit (excess profit) of the organization = Rs. 280,000 − Rs. 160,000 = Rs. 120,000 Step 3: Capitalization of super profit = Rs. 120,000 × 100/16 = Rs. 7,50,000 Now the human resource value of the organization is Rs. 750,000. Thus, the human resource value of the organization—Rs. 750,000—can be added to the existing capital of Rs 1,000,000. Then, the total value of the organization would be Rs. 1,750,000, of which human capital alone constitutes Rs 750,000. The major limitations of this method are: (i) It is based on the historical values which may affect the accuracy of the future predictions. (ii) It assumes that the entire super profit is earned out of the human resources and completely ignores the role of physical assets, which is a fallacy. The Causal, Intervening, and End-result Model This model was introduced by Rensis Likert and David G. Bowers.23 They advocated the need to develop a participative approach to human resource management. According to them, the development of the participative approach required the introduction of a new organizational structure and

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style of management behaviour. These are called as causal variables. The result of changes in the organizational structure and style of management behaviour would be an increase in productivity and performance and a decrease in cost and scrap levels. The ultimate outcome of the change would be increased earnings for the organization. These outcomes are called end-result variables. Likert also contends that there are a few critical variables that function in between the causal and end-result variables. These variables are normally called intervening variables. These variables are employees’ attitude, motivation, perceptions, job satisfaction and goals-oriented behaviour. According to Likert and Bowers, any change in causal variables affects the intervening variables and the net effect of these changes would be known through the end-result variables.24 The main limitation of this method is that it is suitable for interactive conditions and not for individual capabilities. The Five-dimensional Model This model was advocated by Myers and Flowers.25 According to this approach, the five dimensions of workforce determine the value of human resources critically and collectively. These five dimensions of the employees are (i) knowledge, (ii) skills, (iii) health, (iv) availability, and (v) attitudes. These dimensions are factoral (core factors) in nature and not additive. Since the value of human resources is the collective outcome of all these factors, even if one factor is not performing effectively, the other factors would also become proportionately ineffective. This means all aspects of an employee must be taken care of adequately by the organization for enhancing the value of the employees. If an employee is highly skilled but keeps poor health and is frequently absent, then the skills’ levels of the employee can not make the desired impact on the value of the employees unless his health condition improves substantially. Thus, the organization must focus on all the five dimensions to ensure that the employees’ contribution is effective and the value of the human resources is substantial. Aggregate Payment Model This model was developed by S. K. Chakraborty,26 who suggests that the capital base of an organisation should include the value of human assets. According to this method, the value of human resources is the function of the average salary of the employees and their average employment tenure in the organization. The model suggests that the ideal mode of identifying the value of human resources is group valuation and not individual valuation. A few steps in this model are: (i) segregation of employees into groups, (ii) ascertaining the average salary of the employees of each group on the basis of the wage structure and/ or pay scales, and (iii) measuring the average tenure of the employees based on past experiences. The employee turnover rate and other relevant labour records can be used to estimate the average tenure of the employees in the organization. Now, the average salary is multiplied by the average tenure of the employees to know the gross value of the human resources of the group. Finally, the gross value is discounted at the expected average after the tax return on capital that was employed to know the present value of the human resources.

Uses of Human Resource Accounting Human resource accounting has formed the basis for the assessment of the efficacy of human resource management. The primary use of human resource accounting is the assignment of a quantitative value to the human resources. It helps the organization in measuring the abilities

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of employees working at different levels so that it can ascertain the value of its human resources. Though there is no universal recognition for theories and practices associated with human resource accounting, it indeed helps the organization in several ways. We shall now see the important uses of human resource accounting in the field of human resource management. • Human resource accounting helps the organization in identifying the changes occurring in human resources over a period of time and its impact on the value of those human resources. In fact, the organization can determine the cost of labour turnover through changes in the value of human resources.27 • It facilitates the organization in keeping track of the investment made in its human resources and the likely cost of their replacement in the future. • It provides useful information to the management for determining HR activities like manpower planning, recruitment planning, training and development planning, and career and succession planning in a cost-effective way. • It enables the organization to evaluate the returns earned from the investment made on the individual employees. It also enables it to understand the problems of human resource management better. • It helps the organization allocate the human resources to its various activities properly and thereby ensures the optimum utilization of the available human resources. • It helps the organization identify and retain the high-value employees by offering them better facilities and emoluments. • It assists the organization in measuring the worth of the money spent on HR functions like training programmes to decide about continuing them in the future. Indeed, human resource accounting records the improvements in the value of the employees periodically. Any recorded difference can be attributed to skill acquisition by the employee through the training and development programmes. • Human resource accounting helps the organization proclaim the value of its human resources confidently. When the HR accounts indicate high values for human resources, it obviously implies the existence of excellent HR philosophy, policies and practices in the organization. This may help the organization earn goodwill in the labour market. • Human resource accounting enables the employees to possess the feeling of self-worth whey they become aware of their value to the organization. Thus, it helps the firm improve employee motivation and morale. • When the managers are aware of the worth of their subordinates, they would provide due respect and recognition to them. Further, the availability of quantitative data about the employees would enable the managers to have an employee perspective in the decision-making process. They would also change their perception about the employees from being a replaceable expense to an invaluable resource. • Human resource accounting helps external stakeholders like shareholders, creditors and other agencies make a comprehensive assessment of the worth and performance of the human resources in the organization.

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Weaknesses of Human Resource Accounting In many organizations, the importance of capital shifts gradually from the financial capital to intellectual capital. This has necessitated the development of an accounting system to measure the value of the human resources and distinguish the high-value employees from others. However, the efforts to make a universally acceptable system have not succeeded due to the inherent weaknesses of the existing systems of accounting. Even the generally accepted accounting principles (GAAP), which issue the standard framework of guidelines for financial accounting, does not recognize human capital in the financial books. It continues to treat the expenses on employees as expense only and not as capital. Due to this trend, the organizational expenditure on human resources, like training and development and compensation only pushes up the expenses and brings down the income of the organization proportionately. So far, the generally accepted accounting principles (GAAP) have declined to treat the expenses on human resources as capital investment for a few solid reasons. These reasons are: (i) violation of conservatism concept, (ii) an uncertainty about the future benefits, and (iii) the absence of initial investment in the acquisition of human assets. We shall now see a few other weaknesses of human resource accounting.

Lack of Real Ownership Unlike other resources, the human resources can not be owned by the employers physically. When there is no ownership, these cannot be claimed as an asset by the employers.

Lack of Guiding Principles, Concepts, Conventions and a Regulatory Body Unlike financial accounting, human resources accounting is not regulated by any authority, principles, conventions or concepts. In the absence of concepts and principles, it is difficult to develop a universally acceptable human resource accounting model that complies with the requirement of objectivity, validity and reliability.28 As such, there is no universally accepted method of valuing the available human resources.

Lack of Recognition by the Tax Authorities So far, the tax authorities have not recognized human resource accounting and its assumption that the money spent on employees is a capital acquisition by an organization. It is still viewed only as expenses.

Possible Opposition from Employees and their Union Human resource accounting leads to the possibility of discrimination between employees on the basis of their values determined by the management. There is a possibility of employees being exploited by low salary being offered to those who fare poorly in the accounting estimation. Consequently, human resource accounting has been opposed strongly by many trade unions and sections of the employees.

Absence of Adequate Awareness and Research Since human resource accounting has no direct relevance and immediate necessity, organizations have not devoted adequate attention to developing it as a full-fledged and viable concept.

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Similarly, organizations have not cared to provide wide publicity to human resource data. Companies take too little initiative to inform their shareholders and the general public about the value of their human resources.29

Summary 1. Human resource accounting is the process of estimating the cost benefit of investments on human resources with a view to assessing its value to the organization. 2. There are two approaches to the study of human resource accounting: cost-based approach and value-based approach. 3. The cost-based approach includes (i) historical cost, (ii) replacement cost, (iii) opportunity cost, and (iv) standard cost. 4. As per the historical cost approach, the value of HR is the cumulative cost incurred on recruiting, training and developing the employees. 5. As per the replacement cost approach, the value of HR means the aggregate cost of recruiting, training and developing persons as suitable replacements. 6.

As per the opportunity cost approach, the value of HR calculates the sacrifices made for choosing a decision pertaining to human resources.

7.

According to the standard costing approach, the value of HR is the standard cost fixed for various HR functions like hiring and training.

8. The value-based approach includes (i) the present value of future earnings model, (ii) the certainty equivalent model, (iii) the reward valuation model, (iv) the human asset multiplier model, (v) the unpurchased goodwill model, (vi) the causal, intervening, and end-result model, (vii) the five-dimensional model, and (viii) the aggregate payment model. 9.

According to the present value of future earnings model, the value of human resources depends on the present value of the future earnings to be made from a person’s employment.

10. The certainty equivalent model has two major components: (a) the net benefit and (b) the certainty factor. 11. The stochastic reward valuation model perceives that the value of an employee depends upon the variability of that person from four different perspectives and potentialities. 12. According to the human asset multiplier approach, the valuation of human resources is normally made in the same way as other business assets are valued on a “going concern concept” basis. 13.

As per the unpurchased goodwill model, the value of HR is the capitalized value of the difference between the actual average earnings and the normal earnings of the industry.

14. As per the causal, intervening, and end-result model, the purpose of human resource accounting is to measure the causal and intervening variables in some way so as to measure the value of the human resources. 15. The five dimensions which determine HR value are (i) knowledge, (ii) skills, (iii) health, (iv) availability, and (v) attitude. 16. According to the aggregate payment model, the value of human resources is the function of the average salary of the employees and their average employment tenure in the organization. 17. The weaknesses of human resource accounting are: lack of real ownership, lack of guiding principles, concepts, conventions and a regulatory body, lack of recognition by tax authorities, possible opposition from employees and their union, and the absence of adequate awareness and research.

Review Questions Essay-type questions 1. Explain the meaning, objectives and importance of human resource accounting critically.

2. Discuss the cost-based approaches to human resource accounting using relevant examples.

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3. Enumerate the value approaches to human resource accounting using suitable examples.

5. “Human resource accounting system is an inevitable tool for the future.” Discuss.

4.

6.

Describe the strengths and weaknesses of human resource accounting.

Enunciate the role of human resource accounting in Indian industrial organizations.

Skill-development Exercise Objective – The objective of this exercise is to show you how to plan and choose a human resource accounting model to assess the value of the human resources Procedure Note – The class is divided into groups. Every group has (1) an HR manager, (2) an external HRA expert, (3) two high-level office-bearers of a trade union and (4) two observers of the interview. The primary role of the observers is to analyse the various aspects of the role-playing session and provide their feedback.

must be done before the acquisition in order to have a synergy effect upon acquisition. The management of Windsurf Limited accepted the recommendation and instructed its HR department to assess the value of the workforce though an appropriate human resource accounting model. For this purpose, the top management permitted the HR department to requisition the services of the external experts. Steps in the exercise There are four steps in the exercise:

Situation Windsurf Limited is an automobile company engaged in the production of car accessories and spares. It is a major supplier of auto components to almost all leading car manufacturers of the country. It produces several auto accessories like the car alarm, car glass, wing mirror and power steering. The board of directors of this company recently approved a major proposal to acquire a rival accessories manufacturer, Gentech Limited, as part of a horizontal integration process. An expert panel appointed by Windsurf Limited to evaluate the acquisition proposal recommended the assessment of the value of human resources of not only the transferor company, Gentech Limited, but also of that of Windsurf Limited. They suggested that both evaluations

Step 1: The HR manager meets the office-bearers of the trade union to ascertain their views on human resource accounting and explain to them the need for fixing values for the employees. Step 2: He contacts the external expert to discuss and decide about the appropriate human resource accounting model and implementation strategy. Step 3: He convenes a meeting of his HR team to choose the human resource accounting model after due consideration of the relevant reports and guidelines. Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Genfox Pharmaceutical Company is a fully integrated pharmaceutical company in India. This company is a fast-emerging global pharmaceutical with its production capabilities located in three countries and its markets across nearly 21 countries. Its HR department is headed by Mr Sunil Kumar. Genfox maintains harmonious industrial relations and a labour turnover rate of 4 per cent, which is well within the industry average of 7 per cent. Recently, however, Mr Rajnath Hegde joined as the Vice-President (General) of the company, and the HR department, along with a few other departments, was brought under his control. After joining the

company, he conducted a review of the all the departments which came under his jurisdiction. In a subsequent meeting with the general managers, he shared his impressions of their departments. The Vice-President made a critical observation about the prevailing rate of labour turnover. He observed that the labour turnover of 4 per cent could not be considered an indication of good labour practices even if it was nearly half of the industry average. He further observed that a fair conclusion about employee turnover can be made only when the cost of labour turnover is assessed and insisted on the human resource accounting process to assess the

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value of the employees and also the value of those who had just left the organization. He also dwelt at length on the virtues of human resource accounting and on the need for annual assessment of the employees. However, the GM (HR) differed with the contention of the vice-president. He insisted that the percentage of employee turnover was a fairly good indicator of the performance of the HR department and claimed that the organization had a consistently positive report regarding labour turnover. But, Hegde overruled the objections of the GM (HR) and instructed the HR department to undertake human resource accounting to know the value of the employees in general and that of the justresigned employees in particular. He also generally supervised the entire human resource accounting activities. The organization applied the Lev and Schwartz model to determine the worth of the existing and the former employees. The results made startling revelations about the cost of labour turnover. The report showed that though the overall percentage of labour turnover for the organization was low and well within the industry average, several high-value employees had left the

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organization in recent times. It also found the cost of replacement for these employees to be very high. Mr Hegde discussed the matter with Mr Sunil Kumar and sought his opinion about the developments. He also asked him to explore the options for retaining the high-value employees and the chances of bringing back the employees who exited recently. However, Sunil Kumar remains unconvinced about the reliability, objectivity and validity of the whole exercise. He has made up his mind to raise this issue with the appropriate authority as he felt wronged in the whole episode. Questions for discussion 1. What is your assessment of the whole situation in Genfox? 2.

Do you justify the actions of the Vice-President, Mr Rajnath Hegde, pertaining to employee turnover? State your reasons clearly.

3.

If you had been the HR general manager, what would your approach have been from the beginning?

7.

Rose Di Carlo, “Human Resource Accounting— A Synthesis,” Cost and Management (July–August 1983): 57–60.

8.

Rose Di Carlo, “Human Resource Accounting— A Synthesis,” Cost and Management (July–August 1983): 57–60.

9.

Ben Swanepoel (ed), Barney Erasmus, Marius Van Wyk and Heinz Schenk, South African Human Resource Management: Theory & Practice, 3rd ed. (Cape Town: Juta and Company Limited, 2003), p. 763.

Notes 1.

Eric G. Flamholtz. Human Resource Accounting, 2nd ed. (New York: John Wiley & Sons, 1985).

2.

Eric G. Flamholtz. Effective Management Control: Theory and Practice (Boston: Kluwer Academic Publishers, 1996).

3. American Accounting Association Committee of Accounting for Human Resources, “Report of the Committee on Human Resource Accounting,” The Accounting Review Supplement to Vol. XLVIII, 1973. 4.

R. L. Woodruff Jr, referred by Arvindrai N. Desai in Management Strategies and Organizational Behaviour (Delhi: APH Publishing, 1989), p. 150.

5. Michael Losey, Sue Meisinger and Dave Ulrich (eds), The Future of Human Resource Management: 64 Thought Leaders Explore the Critical HR Issues of Today and Tomorrow (Alexandria, VA: John Wiley & Sons, 2005), p. 269. 6.

Eric G. Flamholtz, Human Resource Accounting: Advances in Concepts, Methods, and Applications (New York: Springer, 1999), pp. 17–19.

10. R. L. Brummet, E. Flamholtz, W. C. Pyle, “Human Resource Management: A Challenge for Accountants,” The Accounting Review, (April 1968): 217–24. 11.

Eric G. Flamholtz. Human Resource Accounting, 2nd ed. (New York: Wiley, 1985). Also see Eric G. Flamholtz, and George Geis, “The Development and Implementation of a Replacement Cost Model for Measuring Human Capital: A Field Study,” Personnel Review 13, no. 2 (1984): 25–35.

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12.

J. S. Hekimian and C. Jones, “Put People on Your Balance Sheet,” Harvard Business Review 43 no. 2, (1967): 105–113

13.

R. Lee Brummet, Eric G Flamholtz and William C. Pyle, “Human Resource Management—A Challenge for the Accountant,” The Accounting Review, (April 1968): 218–219.

22.

R. H. Hermanson, “Accounting for Human Assets,” Occasional Paper No. 14., (East Lansing, MI: Bureau of Business and Economic Research, Michigan State University, 1964).

23.

Rensis Likert and David G. Bowers, “Organizational Theory and Human Resource Accounting,” American Psychologist 24, (June 1969): 585–92. Also, see David G. Bowers’ review of Rensis Likert’s, “Improving the Accuracy of P/L Reports and Estimating the Change in Dollar Value of the Human Organization,” Michigan Business Review, (25 March, 1973).

14. William O. Cleverley, Handbook of Health Care Accounting and Finance (Sudbury, MA: Jones & Bartlett Publishers, 1989), p. 173. 15. B. Lev and A. Schwartz, “On the Use of the Economic Concept of Human Capital Financial Statements,” The Accounting Review (January 1971): 103–12. 16.

Pekin Ogan, “A Human Resource Value Model for Professional Service Organizations,” The Accounting Review, (April 1976): 306–20.

17. E. G. Flamholtz, “A Model for Human Resource Valuation: A Stochastic Process with Service Rewards,” The Accounting Review, (April 1971):666–78. 18. Jac Fitz-Enz, The RoI of Human Capital: Measuring the Economic Value of Employee Performance, 2nd ed. (New York: AMACOM, 2009), p. 134. 19. Jac Fitz-Enz, The RoI of Human Capital: Measuring the Economic Value of Employee Performance, 2nd ed. (New York: AMACOM, 2009), p. 135.

24. Robin Roslender, Sociological Perspectives on Modern Accountancy (London: Routledge, 1992), p. 105. 25. M. Scot Myers and Vincent S. Flowers, “A Framework for Measuring Human Assets,” California Management Review, 16, no. 4, (Summer, 1974). 26.

27. Raj Kumar Gupta, Human Resource Accounting: Managerial Implications (New Delhi: Anmol Publications, 2003), p. 5. 28.

Ben Swanepoel (ed), Barney Erasmus, Marius Van Wyk and Heinz Schenk, South African Human Resource Management: Theory & Practice, 3rd ed. (Cape Town: Juta and Company Limited, 2003), p. 766.

29.

Punita Jasrotia, “The Need for Human Resource Accounting,” IT People, available at http://www. itpeopleindia.com/20021216/cover.shtml.

20. W. J. Giles and D. F. Robinson, Human Asset Accounting (London: IPM and ICMA, 1972). 21. Andrew Mayo, The Human Value of the Enterprise: Valuing People as Assets: Monitoring, Measuring, Managing (Naperville, IL: Nicholas Brealey Publishing, 2001), p. 77.

S. K. Chakraborty, New Perspectives in Management Accounting (New Delhi: McMillan, 1979).

PART VIII:

CHAPTER

28

HR Special Topics

Ethical Issues in Human Resource Management

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the meaning of ethics and the need for ethical policies and codes 2 Enumerate the factors influencing ethical behaviour at work 3 Explain the role of human resource management in promoting ethical values 4 Present an overview of international business ethics

Enron was a popular energy company in the United States with diversified operations in different parts of the world. It had a presence in India through its subsidiary, the Dabhol Power Company (DPC), a joint-venture power-producing unit at Maharashtra. The Enron group had a strong workforce of 22,000 employees at the global level. Its employee-centred HR policies and procedures were well-known for their long-term beneficial schemes. Besides, the company had the rare distinction of winning the coveted “America’s Most Innovative Company” award presented by Fortune for six successive years. Despite all these impressive feats, the company incongruously filed a bankruptcy petition with an American court at the end of 2001. The Enron bankruptcy case eventually revealed a shocking institutionalized and

premeditated accounting fraud and ethical code violations perpetuated by its authorities. Strangely, the employees of Enron remained silent spectators when rules and ethical values were being violated and illogical proposals and moves being made by those occupying the highest ranks in the company. Tragically, this sordid event did not spare any one as it rendered the employees out of work, led to the imprisonment of the unethical officers, and, finally, forced others to learn the relevance of practising ethical values in corporate and personal lives the hard way. In fact, this case highlights the consequences of the erosion of ethical values and the need to inculcate ethical values among members for the long-term health of an organization. We shall now discuss the different aspects of ethics in human resource management in detail.

Introduction Value-based management, which means behaviour based on ethical principles and values, is a good formula for the long-term health and success of every organization. In fact, the practising of ethical values in management is an essential prerequisite for both individual success and organizational

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efficiency. However, when individuals practise ethical values within an organization, it does not mean that the entire organization is ethical. Only when the entire organization practises fairness and justice in a systematic way can it be called an ethical organization. The foundation of the ethical organizations is mutual trust and respect. Employees in any organization work hard not only for economic benefits but also for social and psychological well-being. A violation of ethical principles in decision making by an organization can have a deep impact on the employees’ life and character. For instance, the lack of fairness in HR issues like promotion and compensation can affect the career plans and choice of employees and thereby severely undermine their satisfaction, self-esteem and performance. A written statement of the policies and principles that guides the behaviour of all the persons is called the code of ethics. But the fact is that no amount of written rules can achieve ethical behaviour among the employees unless the organizational leaders conduct themselves in a fair, moral and legal manner. Ethical leadership is essential for creating an ethical workforce. The employees of an organization view their leadership as role models to determine their own behaviour. Indeed, those organizations where employees reported fair treatment by management showed proportionately less unethical behaviour.1 Today, the survival and success of organizations in a globalized market depends more on the ethical standards adopted by them. In ethical organizations, people can trust one other to back up their words with action. These organizations often have contented employees and are usually identified by their high productivity and effectiveness compared to that of their competitors. Box 28.1 depicts the relevance of value-based management as an element of corporate strategy. The term ethics is an abstract concept and can be measured only through principles and practices adopted by an organization in dealing with its members. Understandably, the definitions of ethics predominantly cover these principles, beliefs and practices. Box 28.2 lists some of the important definitions. We may, therefore, say that ethics refers to the ethical principles that determine the behaviour of an individual or a group.

Box 28.1

Value-based Management: An Integral Philosophy at Abbott India

Values are the basic beliefs about what is right and what is wrong. The important kinds of values are customer values, shareholder values, employee values, societal values and leadership values. Values are necessary for an organization as they can channelize the behaviour of the members in a desired way. The values espoused in the organization can have a decisive influence on the management of people. When the management preaches and practises cherished values, it will have a cascading effect on the behaviour of all the members of the organization. Similarly, when a company openly declares its commitment to values and value-based management in all its affairs with its stakeholders, the employees take a

cue from this and tend to adopt the same commitment in their own life. Abbott India is a case in point as it proclaims valuebased management as its integral philosophy and corporate strategy. Its value-based management includes, among others, stimulation for innovation, calculated risk taking, accepting mistakes as a part of the learning process, its assurance as an equal-opportunity employer, emphasis on teamwork to accomplish goals, and increased investments in human resources training and development to upgrade and broaden the skill base of the organization in harmony with the changing needs. Adapted from http://www.abbott.co.in/Aboutus.htm.

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Box 28.2 “Ethics are the principles of conduct governing an individual or a group.”2 —Manuel Velasquez “Ethics is a set of moral principles that govern the action of an individual or group.”3 —R. C. Appleby “Ethics is the discipline dealing with what is good and bad, or right and wrong, or with moral duty and obligation.”4 —R. Wayne Mondy

“Ethics is a set of standards or a code or a value system worked out from human reason and experience by which free human actions are determined as ultimately right or wrong, good or evil. If an action agrees with these standards, it is ethical. If is does not agree, it is unethical.”5 — P. S. Bajaj and Raj Agarwal “Business ethics is a study of good and evil, right and wrong, and just and unjust actions of businessmen.”6 — George A. Steiner and John F. Steiner

Types of Ethics Ethics can broadly be classified into three types, namely, descriptive ethics, normative ethics and interpersonal ethics. A brief explanation of these is provided as follows.

Descriptive Ethics It is mostly concerned with the justice and fairness of the process. It involves an empirical inquiry into the actual rules or standards of a particular group. It can also mean the understanding of the ethical reasoning process.7 For instance, a study on the ethical standards of business executives in India can be an example of descriptive ethics.

Normative Ethics It is primarily concerned with the fairness of the end result of any decision- making process. It is concerned largely with the possibility of justification. It shows whether something is good or bad, right or wrong. Normative ethics cares about what one really ought to do and it is determined by reasoning and moral argument.8

Interpersonal Ethics It is mainly concerned with the fairness of the interpersonal relationship between the superior and the subordinates. It refers to the style of the managers in carrying out their day-to-day interactions with their subordinates. The manager may treat the employees either with honour and dignity or with disdain and disrespect.

Ethics and Human Resource Management Though business ethics can be examined from the perspectives of the employees, the organization, and the society as a whole, it is, of late, seen more as an internal concern of the organizations. Human resource management plays an important role in building an ethical

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environment in an organization. In fact, nearly 37 per cent of all ethics inquiries in an organization involve HR issues and require interpretation of rules and regulations, and resolution of conflict by the HR people.9 If it is important for employees to adhere to ethics, it is equally important for HR managers to build the standards for ethics. To create the appropriate atmosphere, every action taken by the HR people must comply with the ethical standards of the organization strictly. The alleged violations of the ethical norms by the HR people can vitiate the whole ethical environment of the organization. For instance, the decisions that result in the promotion of one and the refusal of another, selecting one and rejecting another in recruitment, and redressing the grievances of a few while spurning others’ can expose the organization to the charges of ethical improprieties unless understood properly by the employees. The specific role of the human resource management is to deal with those ethical issues that define the employer–employee relationship, namely, the rights and duties of employers and employees. In fact, the management of human resources often calls for decision-making where fairness occupies an important role. The issue of ethics normally arises in situations where there is a conflict between one or more of the parties on issues like fairness of the employment contract, balance of power between employer and employee, implementation of labour law, employee and employer privacy, among others. The key role of ethics in an organization is the coordination and resolution of conflicting interests in a just and fair manner. It is the responsibility of the HR managers to ensure that every action taken by the organization conforms to the ethical standards. The function of the HR manager is to preserve the ethical standards of an organization and reversing the slip, if any, in ethical standards. Obviously, his role as the intermediary between management and employees puts him in a special position to steer the organization cleared of ethical slides.

Need for Ethical Policies and Codes Business ethics is concerned mainly with the relationship between business goals and execution techniques. Its focus is on the manner of execution of these business goals towards an anticipated result. We shall now discuss the need for the presence of ethical policies and codes in an organization. • A code of ethics in place will enable an organization to create an ethical workplace. Each employee will understand clearly the standard of behaviour and his or her role in carrying out the principles and values of the organization. • The growing presence of knowledge workers in organizations has necessitated the introduction of strong ethical policies as they are more likely to violate laws and the code of ethics as compared to the earlier generation of workers. • Organizations have fewer levels of management and are pushing decision making down to line managers. As a result, any decision by an immediate superior can be viewed as personal and subjective by the subordinates and this situation may call for strict adherence to a transparent code of ethics. • Visible ethical policies and code can send a clear signal to the employees that the organization is serious about ethics and that it will make no compromise when it comes to dealing with ethical standards and violation.

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• Ethical policies will enable employees to evaluate quickly their proposed actions with the company’s code of conduct to determine whether these fit the existing ethical standards. • Generally, the public image for companies that practise ethical values will be high in the society. As a result, these companies can attract the best candidates in the labour market with ease. Similarly, consumers will keep their trust in those companies that ensure fairness in their dealing with the people and they may have a natural preference for their products. Thus, it is imperative for each organization to have a strong code of ethics that focuses on business practices and specific issues such as conflict of interest, accuracy of information, prevention of harassment, safety, environmental compliance, and rules and regulations. But the code of ethics should not be allowed to remain only on paper; rather, the whole organization, especially the top management, must follow it with all seriousness. Further, to instil ethical values among its employees, an organization can attempt the following measures: • Train the employees on ethical values through meetings, case studies, and role-playing on a sustained basis. • Post or exhibit a code of ethics at prominent places of the organization like restrooms, dining room, and recreation room. • Follow up the incidents involving ethical violations closely and deal appropriately with those who commit code violations. • Leaders should be the model of ethical behaviour so that employees do not feel it is forced on them but rather emulate it voluntarily. Box 28.3 describes the code of conduct of Ashok Leyland.

Approaches to Ethical Issues in Organizations Though many supervisors are interested in acting in an ethical manner, they often face a dilemma in determining what constitutes ethical actions. For instance, organizational politics is viewed as an unethical act by many organizations, yet it is widespread in our country. Indeed, the difficulty surrounding ethics makes it hard to distinguish right from the wrong.10 However, the management of an organization can ensure that its policy satisfies as many persons as possible in the organization. Similarly, it should provide for the recognition of the rights of an individual while determining the ethical proportion of its HR polices. Velasquez et al.11 have provided a proposition for determining whether a particular policy or action is ethical or not.

Utilitarian Approach In this approach, the HR policy is based on the philosophy of the utmost good for the greatest number of people. It evaluates the ethical quality of policies and practices in term of their effects on the general well-being. For instance, decisions like lay-offs in a difficult situation for the organization are justified on the grounds that they benefit the majority of the employees.

Approach Based on Rights This approach is based on the principle that an organization should respect an individual’s dignity and rights. Each employee is entitled to be treated with due respect and to be

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Box 28.3

Code of Conduct for the Board Members and the Senior Management

The members of the board and the senior management shall a) always act in the best interests of the company and its stakeholders. b) adopt the highest standards of personal ethics, integrity, confidentiality and discipline in dealing with all matters relating to the company. c) apply themselves diligently and objectively in discharging their responsibilities and contribute to the conduct of the business and the progress of the company, and not be associated simultaneously with competing organizations either as a director or in any managerial or advisory capacity, without the prior approval of the board. d) always adhere and conform to various statutory and mandatory regulations/guidelines applicable to the operations of the company, avoiding violations or non-conformities. e) not derive personal benefit or undue advantages (financial or otherwise) by virtue of their position or relationship with the company, and for this purpose shall i) adopt total transparency in their dealings with the company.

iii) not be party to transactions or decisions involving conflict between their personal interest and the company’s interest. f ) conduct themselves and their activities outside the company in such a manner so as not to affect the image or reputation of the company adversely. g) inform the company immediately if there is any personal development (relating to his/her business/ professional activities) which could be incompatible with the level and stature of his position and responsibility with the company. h) bring to the attention of the Board, chairman or the managing director, whoever is appropriate, any information or development either within the company (relating to its employees or other stakeholders) or outside it, which could impact the company’s operations and which in the normal course, may not have come to the knowledge of the board/chairman or managing director. i) always abide by the above code of conduct, and shall be accountable to the Board for their actions/ violations/defaults. Source http://www.ashokleyland.com/corporate.jsp. Reproduced with permission.

ii) disclose full details of any direct or indirect personal interests in dealings/transactions with the company.

provided with safe working conditions, a reasonable and equitable pay system, and relevant and unbiased performance evaluation. An individual’s privacy and integrity should also be respected by the organization.

Approach Based on Justice The focus of this approach is on equal treatment, adoption of due procedure, and consistency in application of policies and rules. The focal point of this approach is on the fairness in ensuring a balance between the benefits and the burdens of the job, like compensation and performance, compensation and job attendance. Similarly, HR policies should lay down a proper procedure for dealing with the employees’ discipline problems such as rule violation, absenteeism, and employee insubordination. To make the HR policy strong in ethical content, an organization should consider these approaches while framing the policies as well as in their implementation. However,

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Box 28.4

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The Code of Business Conduct and Ethics at Infosys: C-LIFE

In recent times, many Indian organizations have introduced whistle-blower policies to reduce the occurrence of unethical behaviours involving employers and employees as part of their code of ethics. Whistle-blowers are usually employees of the company who use procedural or legal channels to bring the incidents of unethical behaviour to the knowledge of the appropriate authorities. Sometimes, even those who are not part of the organization can act as whistle-blowers. Some organizations encourage whistleblowers by establishing ethics hotlines. Infosys has a whistle-blower policy as part of its code of business conduct and ethics, and it encourages

its employees to report on the corrupt and unethical behaviours of the individuals and units. Interestingly, the core value of the Infosys code of business conduct and ethics is C-LIFE, where C stands for customer delight, L for leadership by example, I for integrity and transparency, F for fairness, and E for the pursuit of excellence. Infosys’s code of business conduct and ethics deals with principles concerned with executives’ safety, workplace harassment, the conduct at customer location, maintaining confidentiality, and the code relating to corrupt practices. Adapted from www. infosys.com.

in practice, the HR policies hardly provide clear-cut guidelines on matters involving people and their job that can produce ethical dilemmas. In such cases, HR managers should apply their knowledge and experience in handling ethical dimensions in the decision-making process. Box 28.4 outlines the significance of whistle-blower policies in the early detection of unethical behaviour.

Factors Influencing Ethical Behaviour at Work Ethics represent values cherished by the members of an organization. The law alone cannot determine what is ethical or unethical since a legal act need not be an ethical act. Thus, the employees’ perception of ethical behaviour is influenced by a variety of factors (see Figure 28.1). It is essential for the HR managers to first understand the factors that shape the ethical behaviour of the employees in an organization.

Individual Factors The personal character and outlook of individuals can have a greater influence in determining their ethical choice. Independent of organizational environment, each employee has some notion about the dos and don’ts of life. This ethical attitude is shaped by one’s own personal experience, education and awareness. Obviously, the ethical propriety of a decision in business is determined more by personal disposition than by the environment, peer pressure, or organizational characteristics.12

Organizational Factors Sometimes, the employees’ ethical or unethical acts are determined by the organizational consideration. For instance, an employee may indulge in a window-dressing of financial results or filing of false statements with the government agencies, in the hope of protecting the interests of the company. In such cases, ethical lapses occur in the organization just because the employees feel pressured to do what they think is best to help their companies.13

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Individual factors

Organizational culture

Organizational factors

Factors Influencing Ethical Behaviour of Employees

Code of ethics

Supervisor's behaviour

Figure 28.1 Factors Influencing Ethical Behaviour at Work

The Supervisor’s Behaviour The notion of “boss is always right” may become a clinching factor in determining the ethical or unethical acts of the employees of an organization. By his words or deeds, the supervisor may transmit the signal to his staff about what is morally right or wrong in the organization. More than the written rules, it is the conduct of the supervisors that often influences the employees’ own behaviour. For instance, when the supervisor intentionally ignores a clear misconduct, takes undue credit for somebody else’s effort, or permits subordinates to adopt any means to achieve results, there is a fair chance that the employees’ behaviour may go wrong.14

Organizational Culture The organizational culture reflects the total characteristics, values, traditions and behaviours of the employees of an organization. It is capable of guiding the ethical behaviour of the employees closely. This is because the values of people often mirror their belief about good or bad, right or wrong, dos or don’ts in a situation. In managing the employees and fine-tuning their activities, the values promoted by an organization can play a key role as a behavioural guide. Thus, an organization’s culture, where values are a major component, can send a clear signal about whether the proposed act of an employee is right or wrong.

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Code of Ethics A code of ethics is a written statement of the ethical principles and policies adopted by an organization governing the ethical behaviour of its members. It can act as a standard for the employees to compare their behaviour with the available code to check whether their acts are right or wrong from an ethical point of view. It can also guide them when they face an ethical dilemma in the decision-making process. However, the mere presence of an effective code of ethics in an organization is not sufficient to call it an ethical organization. It is to be understood clearly that ethical or unethical behaviour need not be a direct outcome of the presence or absence of one or two isolated factors in the organization. Actually, the interaction of several factors creates an environment, which, in turn, breeds ethical or unethical conduct among the employees.

Role of HRM in the Development of Ethical Behaviour An organization cannot be expected to have a ready-made or instantaneous solution to overcome the ethical challenges emerging at its workplace. It should work in a systematic manner to initiate the necessary steps to create an ethical environment in general and inculcate good values among the employees in particular. In its endeavour to promote ethical behaviour among its members, the organization will have to utilize the HR professional’s knowledge and expertise effectively to achieve the desired results. That is where human resource ethics, which is the application of ethical principles to human resource relationships and activities, comes in action. The HR managers can perform the process of building an ethical environment through the management, the workers and the system. They should create a kind of environment where employees work to reduce ethical lapses throughout the organization.15 HR managers play a unique role in introducing ethical practices in an organization since they are an intermediary between the management and workers. Though it is not possible for them to suggest an appropriate ethical behaviour applicable for all situations, they can rightly balance between organizational interest and individual freedom. An ethically appropriate behaviour may lie between the legitimate business needs of an organization and the workers’ feeling of dignity and worth.16 HR managers can work through various HR functions to promote ethical behaviour among its members. It is imperative for HR managers to ensure that ethics and values fit into the design of key HR functions such as hiring, performance management, and reward systems. While designing performance management, training and development, and grievance-handling systems, the HR managers should ensure that the systems make leaders accountable for the ethical dimension of their leadership, fit the ethical dimension of leadership into all leadership training and development programmes, and, finally, discover ethical leaders and count on them for role modelling and mentoring others.17 Let us see those HR functions that provide a scope for promotion of ethical behaviour.

Recruitment and Selection The organization can adopt a two-pronged approach in recruitment and selection to promote ethical behaviour in the organization. The first one is to recruit more ethical people for the organization.18 The next one is to discourage unethical people from applying for the job in the organization. In this regard, the HR managers can make specific references to the ethical practices of the company in their advertising material concerning recruitment.

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The selection process can also be used effectively to inform applicants about the ethical practices of a company. The selection tool itself can speak about the fairness of the organization in hiring employees. For instance, if the hiring process does not treat people fairly, they may assume that ethical behaviour is not important in the company.19 In that case, any amount of assertion about fair treatment and ethical practices by the organization will hardly carry any conviction. To overcome this problem, organizations can seek to identify and employ those selection tools that are normally viewed by the employees or others as unbiased. For instance, job-related assessment tests and interactive interviews can serve this purpose. Similarly, the practice of providing feedback to the candidates about their performance can vastly enhance the fairness of the selection techniques and the ethical practices of the organization. However, the amendment of selection tools to ensure equal opportunities for the deprived persons of the society cannot be construed as an unfair practice.

Training and Development In today’s business environment, employees, in general, and managers, in particular, are often faced with a situation that requires decision-making intertwined with ethical dilemmas. Ethics training in organizations plays a significant role in helping the employees understand and resolve such ethical dilemmas successfully. The primary goal of these training programmes is to enable employees to recognize the situations posing ethical dilemmas and make a judicious use of the code of ethics to solve such problems. In this regard, organizations normally adopt a what-if analysis training to help employees identify the nature of the situation, understand the intricacies of the problems, and recognize conflicts of interest, which cause ethical predicaments, and, then, settle the issues amicably. While establishing an ethics training programme, it is necessary to first set standards for ethical behaviour in the organization and then the training goals to be accomplished in the programme. An ethics training programme can focus on matters like the code of ethics of an organization or an ethical decision-making model. Decision-making models will force employees to answer a few pertinent questions. The nature of response will show how far the employees are just and ethical in their decisions. For instance, decision-making models may involve asking questions like whether the proposed action is legal, whether it complies with the values of the company, and how one would feel after doing it. Many companies have now introduced ethics training after realizing its impact on employee morale, recruitment, and retention. Obviously, people would want to work for organizations they trust and respect for its values. This is applicable for institutions too as they would like to do business only with a trustworthy organization.

Performance Appraisal Performance appraisal is one of the sensitive HR functions prone to ethical slippages. Employees often view performance appraisals with distrust and suspicion. To gain the confidence and the cooperation of the employees, the management should, as far as possible, ensure transparency in the development and administration of the evaluation tool and in the assessment of the performance against standards. This is important since it proves that the firm adopts high ethical standards not only in assessing its employees but also in rewarding them objectively. Moreover, an organization can actually use performance appraisal as one more opportunity to prove its seriousness about upholding its ethical standards by ensuring objectivity and fairness in the performance evaluation process. D. Winstanley and

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K. Stuart-Smith20 have advocated the following ethical principles for a performance evaluation process: Respect for the individual: An employee should not be viewed as a mere tool or means to achieve ends. Rather, he must be looked at as an ends in himself. Mutual respect: It is imperative for all those involved in the performance evaluation function to have regard for each other’s wants and preoccupations. Procedural fairness: The procedures included in performance management must be followed justly and fairly to limit its adverse effect on individuals. Transparency: Each employee who feels wronged by the assessment of the performance management process should be given opportunities to examine the basis upon which decisions were arrived.

Compensation Compensation management is another area where organizations often find ethical dilemmas due to the complexity involved in the pay-fixation process. In this regard, organizations can depend more on scientific tools like job analysis, job specification, and work measurement to base their wage administration policies on and to avoid ethical conflicts. Besides, while framing HR policies pertaining to compensation packages, the HR managers must make adequate provisions for recognizing and rewarding those employees who exhibit high ethical values like honesty and integrity. Similarly, the policies should discriminate and discourage those employees who display unethical behaviour like work evasion and slowdown, frequent absenteeism, insubordination, misconduct, dishonesty, pilfering, disloyalty, negligence, drug and alcohol abuses and other rule violations.

Discipline and Disciplinary Procedure The HR managers should ensure that the disciplinary procedure of the organization provides for equal protection and fair treatment to all its erring members while dealing with matters involving indiscipline. This can make employees feel confident about the fairness of the system and the rights of the employees. A strong code of ethics will enable employees to evaluate the ethical dimensions of their own behaviour without any externally imposed procedure. The different dimensions of ethical issues involved in a managerial decision-making process concerning employees were identified as:21 • Extended consequences: Ethical decisions can have consequences far beyond the decisions. For instance, relocating a plant from the existing place to a new place to reduce the strength of a regionally concentrated but militant union can have an impact on the employees, their families, and the ancillary units also. • Multiple alternatives: Since several alternatives usually exist in nearly all decisionmaking situations, an organization has to decide how far it will bend rules to accommodate the chosen decision. An example of this would be accommodating the request of employees with family problems for exemption from night shifts, even while denying the same request of other employees, which may require considering a variety of alternatives.

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Six Core Principles of the SHRM Code of Ethical and Professional Standards in Human Resource Management

4. Fairness and justice: As HR professionals, we are ethically responsible for promoting and fostering fairness and justice for all employees and their organizations.

1. Professional responsibility: As HR professionals, we are responsible for adding value to the organizations we serve and contributing to the ethical success of those organizations. We accept professional responsibility for our individual decisions and actions. We are also advocates for the profession by engaging in activities that enhance its credibility and value.

5.

2. Professional development: As professionals, we must strive to meet the highest standards of competence and commit to strengthen our competencies on a continuous basis.

Conflict of interest: As HR professionals, we must maintain a high level of trust with our stakeholders. We must protect the interests of our stakeholders as well as our professional integrity and should not engage in activities that create actual, apparent, or potential conflicts of interest.

6.

Use of information: HR professionals consider and protect the rights of individuals, especially in the acquisition and dissemination of information, while ensuring truthful communications and facilitating informed decision-making.

3. Ethical leadership: HR professionals are expected to exhibit individual leadership as a role model for maintaining the highest standards of ethical conduct.

Adapted from http://www.shrm.org/ethics/ code-of-ethics.asp

• Mixed outcomes: Decisions with ethical proportions frequently involve weighing positive results against negative ones. For example, laying off a few employees to keep the business on track and thereby preserving the jobs of other workers would result in both positive and negative outcomes for the organization. • Unclear consequences: The effects of decisions with ethical dimensions are usually unpredictable. For instance, the influence of the employees’ personal variables like lifestyles and family conditions on promotions and transfers are often not known. Box 28.5 shows the Society for Human Resource Management’s (SHRM) Code of Ethics.

International Business Ethics As a result of globalization, there has been a tremendous increase in the number of companies conducting business across national boundaries. Indeed, intense competition forces companies of different natures and sizes to enter global markets, in some cases with absolutely no knowledge about the diversity of business standards and practices in the host country (country of operation). Organizations now have to learn how to adapt to diverse national cultures and socio-economic conditions, and new and diverse ways of communicating and of managing people.22 This trend is posing new challenges for the companies on the ethical front. For instance, organizations tend to exploit the divergent situation by adopting double standards in wage fixations and environmental compliance, mostly to the disadvantage of the less developed countries. This raises questions on ethical validity of the actions of the global business enterprises. Box 28.6 outlines the relevance of ethical values in a global scenario.

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Box 28.6

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International Business Ethics: The Ethical Values of the Adani Group

In a globalized era, almost all organizations are confronting tough challenges and serious problems to survive and grow. Even in this environment, companies must be committed whole-heartedly to certain core ethical values as part of their long-term strategy to ward off external and internal threats and challenges. In fact, ethical values are definitely not frills but an integral element of business strategies for an organization to be successful. The Adani Group, which is engaged in international trading and infrastructure development, declares that its core values are fundamental to its operations worldwide and

will continue to be at the core of its business activities in all circumstances. Its core values are: (i) Trust: Its word is a bond. (ii) Courage: Supporting all its decisions and actions with conviction. (iii) Innovation: Thinking laterally and never feeling diffident about embracing big ideas. Adapted from http:www.adanigroup.com/ vision_mission.html.

Although knowledge of business ethics is important for every manager, those with responsibility for foreign operations are confronted with many ethical issues that do not usually arise in domestic business. The typical ethical problems of global businesses arise from factors like diverse ethical traditions and political and legal systems; the different forms of economic organizations; the different stages of economic progress; insufficient or incompetent rules and regulations; the conflicts between national and regional economic and political interests; the absence of guidelines for international business; the ability of multinational corporations to evade tax obligations and other regulations; and the large-scale corruption in some countries. We shall now see some of the guidelines that can help the managers handle ethical issues that normally arise in global concerns.

Guidelines for International Business Organizations on Ethical Issues When the existing ethical standards of the multinational companies are inadequate, these companies can adopt any one of the following guidelines to develop ethical standards for evaluating the decisions of their employees operating at global levels.

Human Rights Obligation This guideline is based on the fundamental human rights. The proponent of this guideline, Thomas Donaldson,23 advocates that organizations have an obligation to recognize and respect certain rights as fundamental international rights. These rights are The right to freedom of physical movement; the right to ownership of property; the right to freedom from torture; the right to a fair trial; the right to non-discriminatory treatment; the right to physical security; the right to freedom of speech and association; the right to minimal participation; the right to political participation; and the right to subsistence. Donaldson declares that each company is morally bound to discharge these fundamental rights, and any persistent failure to observe them would deprive the company of its moral right to exist.

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Welfare Obligation Based on moral considerations, Richard T. De George24 proposes a few guidelines for international organizations with the twin aims of preventing damage and providing benefits to the host countries. These guidelines are: • Multinational companies should desist from committing any intentional direct harm to the host countries. • They should ensure that they create more good than harm for the host country as a result of their operations. • They are morally bound to contribute to the growth and progress of the host country by their activities. • They must see to it that their activities are, as far as possible, in compliance with the local practices and culture. They should also strive hard to respect the human rights of their employees in the host countries. • They have a moral and legal responsibility to pay a fair share of taxes to the governments of these nations. • They should work together with the local government in developing and maintaining institutions with a just and fair background.

Justice Obligation It deals with the fairness of the activities of a multinational company in the host country. Multinationals have an obligation to help in the development of the host country, in addition to their business activity. They should be not only efficient but also responsible business houses. Foreign companies often attempt to avoid the payment of proper taxes by resorting to transfer pricing, which refers to the values assigned to raw materials and unfinished products that one subsidiary of the multinational company sells to another subsidiary in another country. Since pricing is done as an internal mechanism independent of market forces, companies tend to manipulate it to show profits in counties where taxes are low.

Ethical Dilemma in Global Wage Payment As regards the payment of wages and salary by multinationals, there are many questions that require to be answered. For instance, they often face ethical dilemma in deciding between the host country and the parent country (country of origin) wage standards to pay the wages of the employees of the host country. Applying parent-country standards in the host country may not be ethically necessary. At the same time, adopting host-country standards on matters like wages and working conditions, especially in the less developed countries, may be ethically unacceptable. Sometimes, the wage standards of both countries may prove to be inadequate in dealing with the situation. In such a situation, the organization may warrant special standards for the conduct of international business. Organizations need to decide the extent to which market forces should be allowed to operate in the determination of wages and the extent to which principles of human rights

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have to be allowed in wages determination.25 On the one hand, higher wages for workers can become counter-productive for a nation as the competitive advantage of lower costs may be lost and the further economic development of the country may be hindered, On the other hand, paying less than living wages would amount to exploiting the labour force unethically. Thus, organizations have to find appropriate means to balance between the market rate for labour and the minimum or living wages. The solution lies in developing international agreements and a code of ethics to deal with the ethical issues arising in the international operations of the organization. Apparently, the principal task of international organizations is to adopt a code of conduct pertaining to the HR aspects for their own operations and for their agents operating in a host country. While deciding the code of conduct, the organizations should consider the local conditions adequately. The International Labour Organization (ILO) has provided a set of international standard for ethical practices concerning multinational corporations. Similarly, the Organization for Economic Cooperation and Development (OECD) has advocated OECD guidelines for multinational companies.

Summary 1.

2. Ethics is classified into descriptive ethics, normative ethics and interpersonal ethics. 3. The different types of approaches to ethical issues in organizations are the utilitarian approach, the approach based on rights, and the approach based on justice. 4.

supervisor’s behaviour, organizational culture, and code of ethics.

Ethics refers to the ethical principles that determine the behaviour of an individual or group. 5.

Ethical behaviour can be developed through recruitment and selection, training and development, performance appraisal, compensation, and discipline and disciplinary procedure.

6.

The guidelines for global organizations on ethical issues are human rights obligation, welfare obligation and justice obligation.

4.

“Value-based management is an essential prerequisite for the long-term health and success of every organization.” Discuss.

The factors influencing ethical behaviour at work are individual factors, organizational factors, the

Review Questions Essay-type questions 1.

Evaluate the factors influencing ethical behaviour at work critically.

2.

Discuss the various HR functions that provide scope for the promotion of ethical behaviour.

3.

Enumerate the guidelines followed by international business organizations for ethical issues.

5. Examine the various approaches to the study of ethics in human resource management using relevant examples critically. 6.

Explain the various ways and means by which an organization can inculcate ethical values among its workforce.

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Skill-development Exercise Objective – The objective of this exercise is to provide you with an experience in developing a strong code of ethics to help employees evaluate the ethical component of their proposed action. Procedure Note – The class is divided into groups. Each group has: (1) an HR manager, (2) a union representative, (3) two line managers, (4) two members of the HR team, and (5) an observer. The last role is important for the analysis and feedback aspects of the role-playing session. Situation Atul Vikas Limited is a medium-sized cement-producing company with an annual turnover of Rs 4 billion. The company has a workforce of 2,100 employees. Of late, it has been facing a moderate financial crunch due to stiff competition in the industry and stagnant sales performance. Recently, the company has bagged a huge and prestigious order from a business conglomerate after agreeing to supply cement worth several millions within a short period. This is to be used for the construction of a state-of-the-art airport. To achieve the target, the managers made a proposal for the introduction of a compulsory overtime policy in which workers can be fired when they refuse a supervisor’s order to work overtime. But, the union opposed this on the ground that workers can not be treated like tools of production and there is a limit to their physical endurance and energy.

The management was inclined towards the overtime idea as a successful completion of this order could improve the image of the company in the industry besides fetching it good returns. However, it was not sure about the ethical issues involved in the managers’ proposal. As the company does not have a code of ethics, it could not evaluate the ethical components of the decisions and the actions of its members of the organization. It acutely felt the need for a code of business conduct and ethics for the organization. At this stage, the top management asked the HR manager to evolve a code of ethics after due consultations with the stakeholders and send the code to them for approval. Steps in the exercise There are four steps in the exercise: Step 1: The HR manager meets the line managers to get to know about their views on a uniform code of ethics. Step 2: He meets the union representative to gather his opinions and ideas on the code of ethics. Step 3: He calls a meeting of his team members to finalize the code. Step 4: The observer analyses the performance of the members in the role-playing session and gives his feedback.

Case Study Future Tense is a medium-sized electronic company located in a metropolis. It markets popular brands of home appliances like air conditioners, refrigerators, washing machines and microwave ovens, and undertakes postsales maintenance. The policy of the company is to attend to the faults within 24 hours if the customer is within the city limits and within 36 hours if the customer is located outside the city limits. Obviously, the maintenance department is completely stretched and always works against stiff targets. Mr Anil Kumar is working as one of the executives in the post-sale maintenance department. He has twelve mechanics in his team. It is his responsibility to depute mechanics to attend to the complaints of the customers after they report for duty in the morning.

The other day, Rahul, one of his most trusted and efficient employees, was assigned the duty to attend the complaint of one of the long-standing customers, Mr Suresh, whose air conditioner had developed a fault. At the end of the day, as part of his duty, Anil Kumar made a surprise visit to some of the select complainants, including Suresh, to know how satisfied they were with the performance of the mechanics. To his shock and surprise, he found that Rahul had not visited Suresh. When contacted on phone, Rahul informed Anil that the sudden illness and the subsequent hospitalization of his daughter was the reason for his inability to call on the customer. He also pleaded with Anil Kumar to help him out in this matter. However, the company has uncompromising rules that view dereliction

ETHICAL ISSUES IN HUMAN RESOURCE MANAGEMENT

of duty by employees for any reason as a major offence warranting immediate suspension. Adhering to the rules, Anil Kumar reported the matter to the higher authorities, who promptly suspended Rahul pending a full-fledged enquiry. The news of Rahul’s suspension created widespread resentment among other employees, who sympathized with Rahul. But Anil Kumar justified his action by saying that any compromise on that rule would have undermined not only the ability of his team to meet the stiff targets set by the company but also the rule itself. He also felt that this kind of behaviour would set a bad precedent, eventually bringing disrepute to the company.

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Questions for discussion 1. How do you view the whole incident that resulted in the suspension of Rahul? 2.

If you were Anil Kumar, how would you deal with Rahul’s lapse?

3.

Do you see any lacuna in the ethical component of the rule that imposes suspension for dereliction of duty, irrespective of the cause?

4. What are the policy measures required for the company to deal with such situations in the future?

Notes 1.

Gary Weaver and Linda Trevino, “The Role of Human Resource in Ethics/Compliance Management: A Fairness Perspective,” Human Resource Management Review, 11 (2001): 115.

2. Manuel Velasquez, Business Ethics Concepts and Cases (Upper Saddle River, NJ: Prentice Hall, 1992), p. 9. 3.

R. C. Appleby, Modern Business Administration, 6th ed. (London: Pitman Publishing, 1994).

4. R. Wayne Mondy, Human Resource Management (Upper Saddle River, NJ: Pearson Education, 2007), p. 30. 5.

11.

Manuel Velasquez, Dennis J. Moberg and Gerald F. Cavanagh, “Organizational Statesmanship and Dirty Politics: Ethical Guidelines for the Organizational Politician,” Organizational Dynamics (Autumn 1983):65–80.

12. Sara A. Morris, K. A. Rehbein, J. C. Hosseini and R. L. Armacost, “A Test of Environmental, Situational and Personal Influences on the Ethical Intentions of CEOs,” Business and Society, 34, no. 2 (August 1995): 119–146. 13.

Gary Dessler, Human Resource Management (Delhi: Pearson Education, 2005), p. 520.

P. S. Bajaj and Raj Agarwal, Business Ethics: An Indian Perspective (New Delhi: Biztantra, 2004), p. 11.

14. Guy Brumback, “Managing above the Bottom Line of Ethics,” Supervisory Management (December 1993): 12.

6. George A. Steiner and John F. Steiner, Business, Government and Society: A Managerial Perspective (New York: McGraw-Hill, 1997), p. 180.

15. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ: Pearson Education, 2007), p. 37.

7.

John R. Boatright, Ethics and the Conduct of Business, 4th ed. (Delhi: Pearson Education, 2005), p. 35.

16.

8.

John R. Boatright, Ethics and the Conduct of Business, 4th ed. (Delhi: Pearson Education, 2005), p. 35.

9.

“Ethics and HR,” available at http://www.megaessays.com.

10. Joanne B. Ciculla, reference cited by Terry L. Leap and Michael D. Crino, Personnel and Human Resource Management (New York: Maxwell Macmillan International Editions, 1990), p. 692.

Edward C. Baig, Marcia Stepanek, and Neil Gross, “Privacy”, Business Week, (5 April, 1999): 84–90.

17. Linda K. Trevino, “The Key Role of HR in Organizational Ethics,” available at http://www. rtbrain.com/ethics/today/. 18. J. Krohe Jr, “The Big Business of Business Ethics”, Across the Board, 34 (May 1997): 23–29. 19. Gary Weaver and Linda Trevino, “The Role of Human Resources in Ethics/Compliance

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Management: A Fairness Perspective,” Human Resource Management Review, 11 (2001): 115. 20.

D. Winstanley and K. Stuart-Smith, “Policing Performance: The Ethics of Performance Management,” Personnel Review, 25, no. 6 (Summer 1996): 66–84.

21. Robert L. Mathis and John H. Jackson, Human Resource Management, 10th ed. (Cincinnati, OH: Thomson Learning, 2003), pp. 21–22. 22. “Developing a Corporate Ethic to Serve a Global Organization,” 2005, available at http://www.hr. com/sfs.

23. Thomas Donaldson, The Ethics of International Business (New York: Oxford University Press, 1989), p. 62. 24. Richard T. De George, Business Ethics, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 1995). 25.

John R. Boatright, Ethics and the Conduct of Business, 4th ed. (Delhi: Pearson Education, 2005), p. 435.

CHAPTER

29

International Human Resource Management

CHAPTER OBJECTIVES After reading this chapter, you should be able to: 1 Understand the features of international human resource management 2 List the factors differentiating between international and domestic human resource management 3 Discuss the challenges facing international human resource management 4 Understand international human resources practices 5 Explain strategic international human resource management

IBM is an international company engaged in the production and distribution of computer services, hardware and software. Operating in India since 1992, it is one of the leaders in the Indian information technology industry today. The company has global HR standards that are applicable to all its employees in different countries and regions of the world. These standards aim at creating a common corporate culture with due regard to local or regional culture and in compliance with all applicable laws and regulations in force in the country of operation. The major HR activities covered under the global employment standards of IBM include among others: (i) Wages and benefits: All applicable wage and hour laws and regulations are followed. (ii) Working hours: The global workforce will not be required to work more than 60 hours a week, including overtime. (iii) Nondiscrimination: IBM guarantees a work environment which is free of discrimination and

harassment. (iv) Health and safety: Employees are provided with a safe and healthy workplace in compliance with all applicable laws and regulations. (v) Protection of the environment: IBM is committed to worldwide leadership in environmental protection. (vi) Freedom of association: The legal rights of its employees to join or refrain from joining trade unions are assured. Another unique idea of IBM in terms of developing consistent HR practices is the introduction of the global reporting initiative (GRI) index to inform all the employees across different locations and regions about the various aspects of the company. The HR management of this internationally renowned company shows the relevance of global HR policies in ensuring the success of an organization in the international arena. In the light of this discussion, we shall now see the various HR aspects of international organizations.

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Introduction When human resource management assumes a global perspective, it becomes international human resource management. Several factors like new technologies and new markets are driving changes in the various aspects of an organization. But the advent of globalization in recent decades has provided a decisive momentum to international human resource management as an increasing number of companies are realizing that their future success and growth depend on their ability to internationalize their operations. Consequently, companies are globalizing their business operations, which bring about changes in their size, shape, scope and characteristics of the business in accordance with the nature and scale of the global operations. Certainly, human resource management has also undergone changes in its outlook and approach as a result of these changes. However, the management of human resources in international companies is more complex than their management in domestic companies. This is because the multinational companies may find it difficult to implement consistent HR policies and practices across all locations or nations where they have business interests. Besides, a foreign company needs to be more sensitive to the local government regulations, public and employee concerns. These phenomena are posing new challenges to the HR managers in international companies. Managing global human resources is an intricate task as multiculturalism and geographic dispersion of labour can pose unconventional challenges to the companies. Each global company may have to deal with employees belonging to three kinds of countries. These countries are: (i) the host country, where the company is located, (ii) the parent or home country, where the company is headquartered, and (iii) the third country that may be the source of labour for the company.1 As long as a company operates within the boundaries of a nation, it may find it easier to deal with the economic, cultural and legal variables. Once it begins to operate at international levels, it would be forced to deal with inter-country differences in these variables. Thus, multinational companies need to adopt HR policies and practices to level the differences among nations. A few key global factors affecting international human resource management practices have been identified.2 These are: • Deployment: The ability to spot and get the right skills at the appropriate places with ease, irrespective of the geographic location. • Knowledge and innovation dissemination: The ability to spread high-tech knowledge and practices throughout the company, regardless of the source of origination. • Spotting and developing talent on a universal basis: The ability to identify the persons who can work efficiently in a global organization and developing their abilities. However, multiculturalism and geographic dispersion have also brought several benefits to organizations. For instance, international operations enable the HR management to bring in the best talents from everywhere, breed creativity and innovation in HR management and help the HR management in choosing the best from all the cultures to form one superorganizational culture.3 Performing HR operations with an international perspective is the essence of international human resource management. We shall now see some of the definitions of international HRM in Box 29.1.

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Box 29.1

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Definitions

“International human resource management involves carrying out, on a worldwide basis, activities like candidate recruitment and selection, assignment terms and documentation, relocation processing, and vendor management, immigration processing, cultural and language orientation and training, compensation administration and payroll processing, tax administration, career planning and development, and handling of spouse and dependent matters.”4 —Nancy Wong

“International human resource management is the process of employing and developing people in international organizations which operate globally. It means working across national boundaries to formulate and implement resourcing, development, career management and remuneration strategies, policies, and practices applicable to international workforce.”5 —Michael Armstrong

We may define international human resource management as a process of procuring, developing, compensating and retaining people in organizations operating beyond national boundaries at the global level.

Features of International HRM (IHRM) Based on its definitions, a few features of IHRM have been derived. These are: • IHRM involves employment of the right people at the right positions, irrespective of geographic locations. • It requires the development of a long-term HR plan to make sure of an effective alignment of the HR strategies with the corporate objectives. • It requires the development of a diversified range of skills for employees, especially for those who need to work beyond national boundaries. • It necessitates the determination of compensation for host-, home- and third-country nationals on the basis of country-specific factors. • It requires the creation of centralized reporting relationships around the world for faster information sharing. • It requires the introduction of formal and informal methods to integrate the different parts of the global business effectively. • It requires the development of a well-organized evaluation system to assess the performance of employees across different locations and nations. • It is necessary to understand the cultural dimensions of host nations that influence the HR operations. • It is essential to maintain good communication among all the parts and people of the organization at the global level. • The perceived value of HR activities generally varies across the different locations of international companies.

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Differences Between IHRM and Domestic HRM Even though there are no fundamental differences between the HR functioning of domestic companies and international ones, Peter J. Dowling6 states that a few distinguishing factors make IHRM more complex. We shall now see those factors that differentiate domestic HRM from IHRM.

Additional HR Activities In the case of IHRM, in addition to the usual HR activities, HR professionals need to perform additional HR functions like international relocation and orientation for employees, administrative services for expatriates (parent country employees working in host countries), host government relations, international taxation and language translations services. In the case of expatriate relocation, the HR department may have to attend to the travelling, staying, shopping, medical, training and other needs of the expatriate employees posted in the host country. Similarly, the HR department must finalize the compensation and special allowance, if any, for the expatriates and the mode of transfer of such compensation to them. Besides, the HR department must consider the tax liabilities of the expatriates as they may face taxes in both the host and parent countries. In such a case, the HR department must ensure that the employee is not unduly affected due to double taxation and there is a policy available in the company to deal with such a situation.

International Perspective on HR Functions Unlike a domestic company, where the HR managers keep a single compensation policy for all its employees, the HR managers of an international company should have to prepare different compensation policies for employees belonging to different countries—host country, home country and third country. This is despite the fact that all of them may be working together in the same place. If practical and possible, the company may fix either the home-country or the host-country compensation package for all the employees, irrespective of their country of origin. However, in reality, the company would be unwilling to offer the expatriate pay to employees of a host or third country, which is normally higher. Thus, pay differentiation becomes a necessity in international companies.

Greater Attention to Expatriate Employees’ Personal Needs The lifestyle, cost of living and healthcare requirements are different in the host country for the home- or third-country employees, therefore, it is essential for the HR department to take special care of the personal lives of these employees. The HR department must ensure that the expatriates understand the situations and problems of the host country properly and are prepared to handle those situations. In this regard, the HR department may be required to have an “international HR service” to coordinate the various requirements of the expatriate employees.7

Gradual Shift in Focus Once a company stabilizes its operation in a foreign country, it normally endeavours to replace the expatriates with the local employees to save on cost. In such a situation, the funds hitherto allocated for relocation, orientation and compensation payable to the expatriates may be diverted for training and developing the host-country (local) employee. Besides, the

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HR department may have to offer higher wages to compensate the well-trained and highly skilled local employees so that they remain with the company for a long time.

Greater Risk Exposure International organizations normally face higher risks when they operate in foreign countries. For instance, when the business operations on a foreign soil fail, the loss would be heavy as the company may find it difficult to relocate the business operation to the parent country. It may suffer in terms of exchange rate fluctuation while withdrawing the investments. It may also suffer on account of terrorism and other upheavals.

Other Factors In addition to these factors, IHRM may also be affected by sudden political developments, economic situations and changes in the laws and regulations of the host country. Similarly, labour market conditions and the nature and type of trade union activities in the host country may also influence the IHRM activities of an organization.

Reasons for the Growth of IHRM Although IHRM is a recent concept, it has seen a remarkable growth over the last few decades. Several researches have been carried out and sophisticated theoretical frameworks developed. We shall now see the factors that have contributed to the growth of IHRM.8 • The advent of globalization has increased the growth of multinational companies and international business operations, which has contributed to the global mobility of human resources. • A growing shortage of human resources with international exposure and experience affects the companies’ global preparedness in human resource management. This has forced the international companies to assign a larger role for global human resource management activities in their organization. • In a significant number of cases, the successes of international operations of companies are determined by the performance of the expatriates and other employees working in a foreign country. This has made the organizations attach a greater significance to IHRM activities. • Since the failure of international operations often proves costly to the organization, companies take additional precautionary measures in training and compensating human resources. This necessitates the establishment of a full-fledged international HR department. • Differences in the people, process, tax computation, organizational structure, and culture of different nations force the companies to undertake several complex HR activities like tax planning, orientation, training, and compensation fixation. Consequently, the role of the international HR department becomes all the more important to a company.

Challenges Facing IHRM A successful IHRM requires a careful understanding of the cultural, legal, political, ethical and economic differences among nations and its people. The HR managers must be aware of

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the factors that motivate people from different countries and their influence on international assignments. Thus, IHRM is more challenging than HR management within the boundaries of one country. The issues IHRM have to deal with are as follows:

Management of Cultural Diversity Culture, which means the shared beliefs, values, norms and assumptions, influences the behaviour of the people of a nation. In brief, it determines the ways of doing things by people. Countries differ widely in their cultures. These cultural differences necessitate the introduction of country-specific HR management practices.

Management of the Complexity of the Workforce When companies employ people from both the host and home country, it may create difficulties in HR practices and compensation fixation. The HR managers may find it hard to balance the interests of the local communities and the demands of the parent-company employees.

Management of Communication Channels The HR managers may have problems in conducting face-to-face communication at field levels as part of the management of employees at the global level. Apparently, the requirement of face-to-face communication cannot be replaced even by a sophisticated communication system in international operations.

Management of Divergent Economic Systems Different economic systems like free enterprise and regulated economy necessitate different HR practices. The economic systems also influence labour costs, working hours, the nature and number of holidays, employer and employee rights, and so on. The HR managers in global concerns should take into consideration the country-specific economic environment and system while determining the HR policies and practices.

Management of Legal and Industrial Relations Issues Each country has unique legal and industrial relations practices. For instance, legal systems in some countries permit hiring, firing and employee lay-off at will. But, in some others, separation of employees may be a time-consuming, expensive and cumbersome process. Similarly, factors determining industrial relations may differ from one country to another. In some countries, HR policies on subjects like wages and benefits are determined by employers alone or in consultation with the workers’ union. In other countries, labour laws largely determine the nature of HR policies. These challenges compel international companies to undertake unique steps to recruit, train, develop and compensate their global employees. Typically, better internal coordination can help an organization to gradually reduce the adverse effects of cultural and other differences on the operating environment.

International HR Practices Every nation has a distinct culture that influences the management style and corporate culture of the organizations functioning in that country. Similarly, countries may have developed their

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own sets of institutions that might reflect their traditions and influence the way HR is practised. Further, every country has a unique set of intricate laws that govern employment and industrial relations.9 When HR practices are brought from abroad (home country HR policies) without adopting them to the local conditions, they may meet with employee resistance and eventual failure. Thus, organizations are required to develop need-based, nation-specific HR practices after considering the specific laws, culture and language of the country. We shall now discuss the important HR practices of the international companies (Figure 29.1 lists the HR practices of international companies).

International Human Resource Planning HR planning is vital for international organizations. In fact, proper recruitment, retention and utilization of universal talents are important ingredients of modern-day corporate success.10 While estimating the supply of labour with requisite skills, companies have to take into consideration not only their own internal sources but also the local and international labour markets. W. F. Cascio identified a few critical factors relevant for international HR planning:11

International performance evaluation International employee benefit

International industrial relations

International employee health and safety

International compensation

International HR Practices

International training and development

International HR planning

International selection Figure 29.1 International HR Practices

International recruitment

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• Recognizing top-management potential for international operations at the earliest • Identifying the critical success factors for the future global managers • Offering development opportunity to global managers • Tracking and sustaining commitments to individual employees in international career paths • Tying strategic business planning to HR planning and vice versa • Dealing with multiple business units while attempting to achieve internationally and regionally focused strategies. While operating in different nations, when international companies face a shortage of qualified managers and skilled workers, they must devise appropriate plans to develop the required skills from among their own employees as a first choice before exploring external labour markets.

International Recruitment While recruiting people for international operations, the international HR managers must identify the global competitiveness of the potential applicants at the time of the recruiting process. It is essential that the workforce of an international organization is aware of the nuances of international business. Understandably, the company must keep international knowledge and experience as criteria in the recruitment and selection process.12 Besides, the international HR department must have a fairly good idea about the skills and availability of human resources in different labour markets in the world. The HR department must have the capacity to foresee the changes in these markets and exploit those changes productively. A truly international HR department would insist on hiring people from all over the world and place them throughout the international business operations of the organization. Approaches to Recruitment in IHRM Though the general aim of any recruitment policy is to select the right people for the right task at the right time, the HR department of international companies may adopt one of the following three specific approaches available for recruiting employees for global operations. Ethnocentric approach—When a company follows the strategy of choosing only from the citizens of the parent country to work in host nations, it is called an ethnocentric approach. Normally, higher-level foreign positions are filled with expatriate employees from the parent country. The general rationale behind the ethnocentric approach is that the staff from the parent country would represent the interests of the headquarters effectively and link well with the parent country. The recruitment process in this method involves four stages: self-selection, creating a candidate pool, technical skills assessment, and making a mutual decision.13 Self-selection involves the decision by the employee about his future course of action in the international arena. In the next stage, the employee database is prepared according to the manpower requirement of the company for international operations. Then the database is analysed for choosing the best and most suitable persons for global assignments and this process is called technical skills assessment. Finally, the best candidate is identified for foreign assignment and sent abroad with his consent.

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Polycentric approach—When a company adopts the strategy of limiting recruitment to the nationals of the host country (local people), it is called a polycentric approach. The purpose of adopting this approach is to reduce the cost of foreign operations gradually. Even those organizations which initially adopt the ethnocentric approach may eventually switch over to the polycentric approach. The primary purpose of handing over the management to the local people is to ensure that the company understands the local market conditions, political scenario, cultural and legal requirements better. The companies that adopt this method normally have a localized HR department, which manages the human resources of the company in that country. Many international companies operating their branches in advanced countries like Britain and Japan predominantly adopt this approach for recruiting executives to manage the branches.14 Geocentric approach—When a company adopts the strategy of recruiting the most suitable persons for the positions available in it, irrespective of their nationalities, it is called a geocentric approach. Companies that are truly global in nature adopt this approach since it utilizes a globally integrated business strategy. Since the HR operations are constrained by several factors like political and ethnical factors and government laws, it is difficult to adopt this approach. However, large international companies generally adopt the geocentric strategy with considerable success. For international recruitment, especially on foreign soil, organizations generally use manpower agencies or consultants with international connections and repute to source candidates, in addition to the conventional sources. For an effective utilization of the internal source of recruitment, global companies need to develop an internal database of employees and an effective tracking system to identify the most suitable persons for global postings.

International Selection Even though cultural differences influence the selection procedure to some extent, organizations tend to follow similar criteria and methods worldwide. This is due to the fact that the end objective of any selection process is to choose the most capable persons for the job. The selection criteria for international jobs usually revolve around the five core areas of behaviour, attitudes, skills, motivation and personality. More specifically, the focus of selection for international operations normally includes cultural adaptability, strong communication skills, technical competence, professional or technical expertise, global experience, country-specific experience, interpersonal skills, language skills, and family flexibility.15 Employers around the world usually rank personal interviews, technical competency and work experience in similar jobs as important criteria for selection.16 International firms, while choosing employees for overseas operations, usually prefer people with • highly developed technical skills • good language and communication skills • tolerance towards other culture, race, creed, colour, habits, and values • high level of motivation • stress resistance • goal-oriented behaviour

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Finally, at the time of selection for international assignments, an organization should consider the previous overseas experience, family circumstances and cultural-adaptability level of the candidates aspiring for the global jobs.

International Training and Development The main purpose of employee training remains the same for all companies, regardless of the region or country where they are located. In fact, employers everywhere rank “enhancing technical abilities” as the main objective of providing employees with training. Thus, the goals of training programmes are usually similar across countries.17 Global training is absolutely essential since jobs, people and organizational structures vary from one nation to another. International companies usually aim at standardizing business and HR practices across the world through necessary employee training and development programmes. They can provide training to expatriate employees in three stages: (i) pre-move training, (ii) continual training and (iii) repatriation training.18 (i) Pre-move training: This refers to training the employees who are shortlisted for foreign assignments. Usually, these trainings are provided for expatriate employees and at times for their family members also just before their actual placement in a foreign country. The purpose of such training is to familiarize the employees with the culture, language, customs and other unique features of the country to which they are posted. (ii) Continual training: This is just a continuation of pre-move training. At this stage, the HR department at the head office continues to train the expatriates even after they have joined duty in the foreign country. The purpose of such training is to help the expatriates clarify their doubts, overcome their skills and knowledge deficits, plan their career and manage their stress. (iii) Repatriation Training: Once the expatriates complete the foreign assignment and are ready to return to their home country, a brief training is provided to refresh the employees’ memory about the home-country workers, workplaces and work practices. The cost and quantum of training usually differ from one country to another. For instance, the training expenditure per employee in many Asian countries, including India, is very low when compared to America, where the training cost is quite substantial. Similarly, the total hours of training in a year is also low in Asian countries as compared to Europe. While shaping international training programmes, care must be taken to ensure that the impact of diverse cultural, legal and social factors and value concerns are addressed adequately in the training process. Talent Development In addition to these training programmes, reputed global companies also undertake global talent development programmes to meet the future leadership requirements of the company in the global domain. In this regard, organizations often align their talent development plans with the overall corporate strategies. Long-term talent development enables the global companies to find successors for the critical positions without much difficulty. Similarly, it also enables them to maintain a strong line-up of reserve leaders to face any contingencies like abrupt resignation by managers operating in the global environment and poaching by rival companies. As part of their talent development programme, global

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companies identify high-potential managers and offer them diversified as well as challenging assignments at national and international levels to sharpen their skills and familiarize them with the global environment. Finally, the talent development programmes enable the talented managers to plan and guide their own future.

International Compensation International compensation may be defined as the provision of monetary and non-monetary rewards including base salary, benefits, and perquisites, long- and short-term incentives, valued by employees in accordance with their relative contribution to MNC performance.19 Compensation policy is a tricky issue for international HR management. This is because the wage level for the same job may differ between nations due to exchange rate fluctuation, cost of living, local laws governing wages, among other factors. Thus, matters relating to compensation naturally call for the involvement of the top-level management. The nature and number of persons required, the compensation policy of the organization, its ability to pay and the economic environment of the host country are some of the factors which greatly influence the compensation decision of international companies. Besides, the compensation scales must be fixed in such a way that there is equity and easy mobility of employees throughout the organization. Regarding international compensation fixation, W. R. Sheridan and P. T. Hansen have prescribed the following objectives for the compensation policy of global concerns:20 • Attract and retain employees who are qualified for overseas service. • Facilitate transfers between foreign affiliates and between home country and foreign locations. • Establish and maintain a consistent relationship between the compensation of employees of all affiliates, both at home and abroad. • Maintain compensation that is reasonable in relation to the practices of leading competitors. International Compensation Approaches The international compensation is usually decided on the basis of one of the two important approaches, namely, the balance sheet approach and the going rate approach. We shall discuss these two approaches in detail. Balance sheet approach—A popular technique of determining international compensation is called the balance sheet approach (also known as the build-up approach). The basic rationale behind this approach is that the expatriate pay must equalize the purchasing power across countries.21 The home-country pay and benefits of the expatriate employee forms the basis of this approach. In addition to the home-country benefits, the expatriate employees are also provided with substantial financial inducements to make the compensation package complete and attractive. The basic assumption of this approach is that the expatriate employees must continue to enjoy the same standard of living they would have enjoyed in their parent nation. In this approach, the company compares four groups of expenses between the home country and the host country and compensates the expatriates if they are adversely affected by the differences in these expenses. These four groups of expenses are income taxes, housing, goods and services, and discretionary expenses. The major advantages of this approach are: (i) It ensures equity in the fixation of compensation for expatriates belonging to the same nation. (ii) It motivates the employees

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to undertake expatriate assignments. (iii) It ensures almost the same standard of living for the expatriates, irrespective of their place of employment. However, this method has a few limitations. These are: (i) It may lead to discrimination in the pay fixation of employees who perform identical jobs but belong to different nations. (ii) Compensation administration could be difficult and cumbersome. Going rate approach—When the compensation packages of the expatriates are determined on the basis of the salary structure prevailing in the host nation, it is called the going rate approach or market rate approach. Typically, the salary in this method is decided on the basis of the survey undertaken in the host country where the business is located. However, international companies usually grant additional pay and benefits to expatriates if they happen to work in nations where their pay is low. The major merits of this method are: (i) It ensures equity in pay scale for employees performing similar jobs, irrespective of their nationalities. (ii) It is simple and easy to administer. (iii) It keeps the morale of the host-country employees high as they suffer no discrimination. However, this method suffers from a few limitations. These are: (i) There may be discrimination between the compensation packages of the home-country nationals working in different host countries. (ii) The pay determined by this method may discourage employees from undertaking expatriate assignments in low-pay countries.

International Employee Benefits As regards benefits provided to expatriate employees, many international companies usually adopt the best-of-both-worlds benefits model. Under this model, an expatriate employee is given home-country benefits coverage. However, if any benefit is not available in the homecountry plan, he may join the host-country plan. The purpose of most global companies providing this model of benefits is to provide for the differences between the cost of living in the home country and that in the host country. International benefits usually include housing allowance, education allowance, income tax equalization allowance, and home leave.

International Performance Evaluation The development of an appropriate system of performance management is one of the critical tasks in IHRM. Performance evaluation, in general, refers to evaluating the employee’s current and/or past performance against his standard performance with the aim of identifying and eliminating performance deficiencies and improving the employee’s current performance. International performance evaluation primarily aims at evaluating the expatriates and foreign employees of third countries and the host country. International performance management helps the company in determining pay increase, individual job assignments, development planning, and training requirements.22 In addition to evaluating the general performance, international performance management should asses the ability of expatriates to (i) manage a workforce with sharp cultural differences, (ii) understand the complexities of international business, and (iii) understand the reciprocal relationship between the interdependent local and foreign operations of the company. In the global scenario, the results of performance evaluation are used for different purposes by companies in different countries.23 For instance, companies in countries like America primarily use performance appraisal for determining the pay scales, while in Japan appraisal is mainly used to recognize a subordinate. Documenting the employee’s performance is the major purpose of performance evaluation in countries like Australia

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and Taiwan. However, international performance management generally suffers from a few inadequacies. These are: (i) inaccurate selection of performance evaluators to evaluate the expatriates; (ii) failure to fix separate and appropriate performance objectives for foreign operations; (iii) application of the parent-country model of performance evaluation technique in the host country, where the performance norms and culture may be different; (iv) the absence of adequate contact between the parent-country performance evaluator and the host-country employee; and (v) inadequate recognition for the overseas experience of expatriates in performance evaluation.24

International Industrial Relations Labour relations laws and practices differ significantly among countries. In some countries, the management may dictate terms and conditions, while in a few others, the government may decide the conditions of employment. Obviously, the issues and principles relevant in one situation may not be the same in others. Similarly, the strength and nature of unions may differ from one country to another, with unions ranging from simply non-existent in some countries to relatively strong in some other countries. The HR policies and practices of international companies must be well attuned to the global differences in trade union practices and collective bargaining system. The unions may find it difficult to deal with the international companies and hard to penetrate in terms of union representation.

International Employee Safety and Health Employee safety and health-care facilities in plants often differ from one country to another in their state of condition and modernization, depending upon the local laws and regulations. The multinational companies may either follow the local laws in providing health and safety facilities or adopt consistent health and safety policies across all locations without violating the prevailing laws. Since international companies are aware of the fact that safety and health aspects of jobs are important for the long-term health of the company, they normally ensure that their employees work in a safe environment and keep good health. Certainly, healthy employees alone can be productive in and committed to their job. However, in international companies, the responsibility for the health and safety of employees is normally transferred to the local HR department of the foreign subsidiaries, which decides it on the basis of the local customs, culture and laws.25 In addition to these practices, the international HR practices also prohibit child labour, forced labour, and all forms of discrimination as part of corporate social responsibility. Box 29.2 outlines the global HR practices of international companies.

Strategic International Human Resource Management The primary aim of strategic human resource management (SHRM) is to link the HR strategies with the corporate strategy. In the case of domestic human resource management, the purpose of SHRM is to identify the effectiveness of the linkage between the human resource strategy and the corporate goals and then understand how domestic human resource management contributes to the achievement of the corporate goals of a company operating in a single nation. On the other hand, the intention of strategic international human resource management (SIHRM) is to understand the effectiveness of the linkage between a number of internal and external factors determining strategic international human resources (SIHR) and the strategic components of

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Global Employment Practices and Reporting Initiatives at Nokia

In spite of the variances in the social, political and economic environment of different nations, multinational companies strive to make their HR practices consistent across all locations and offices. The purpose of creating universal HR practices is to build a common corporate culture and enhance the efficacy of HR functions in all the operational centres. The other universal HR goals of multinational companies are leadership development and controlling employee attrition across all locations. The HR actions of international companies are geared towards the establishment of consistent HR practices across different countries and normally include the development of the common HR mission statement, long-term HR plans and programmes that align well with the corporate objective, identification of the best HR practices in every location and incorporating the same as standard HR practices applicable for all locations. Besides, the companies may also build centralized reporting across all locations, develop standardized training and orientation practices, and establish global performance management and pay system for creating globalized HR practices. Each multinational company may adopt a different strategy for developing global HR practices and the degree of success in establishing those global HR practices across regions may also vary. The strategies adopted by Nokia in achieving global HR practices are unique and worth mentioning. Nokia has employed approximately 68,000 employees representing 120 nationalities. The company believes that employee diversity and inclusion in the workplace brings competitive advantage because employees from diverse cultures and backgrounds offer insights into the characteristics of the customer base around the world, adding value to the business. Nokia makes no compromise in ensuring that the labour conditions at all its production sites in different countries conform to the recognized international standards. In fact, Nokia has set global employment guidelines to be followed invariably

by all its production sites and these cover employment issues such as compensation, working time and location, employee well-being, and so on. Some of the unique features of Nokia’s global HR practices are (i) Training and development programmes that offer an integrated package of classroom training, on-the-job learning, individual coaching, and mentoring to develop the employees both personally and professionally; (ii) Performance Recognition: Nokia rewards employees competitively through a global reward framework designed to recognize individual contribution and achievement. However, the quantum of compensation is usually determined by factors like the local labour market conditions and the individual and company performance. (iii) Employee Survey: Nokia conducts an annual employment survey known as “Listening to You” to get feedback from the employees about the company and its various HR practices. (iv) Communication: It has several channels to communicate with the employees. For instance, it has the Nokia News Hub, which is Nokia’s global intranet news service; an environmental e-magazine, which is an e-mail bulletin issued to raise awareness of environmental issues among employees; a Jazz Café portal, a popular intranet site where employees can discuss different topics anonymously; and AskHR, an online employee assistance service which constantly responds to employee enquiries. (v) Health and safety: This is managed by the Global Occupational Health and Safety (OHS) unit, which is part of the company’s HR department. The Global OHS team coordinates and facilitates health and safety arrangements in individual countries, each of which usually follows its own health and safety services. The OHS team also develops standard operating procedures to help all production sites standardize the procedures for hazard identification, risk assessment and incident reporting across their global operations. Adapted from http://www.nokia.com/ corporate-responsibility/cr-report-2007/ employees/labor-practices.

an international business organization. In a nutshell, the aim of SIHRM is to study the efficiency of HR practices in accomplishing corporate goals in multinational enterprises. SIHRM is defined as human resource management issues, functions, and policies and practices that result from the strategic activities of multinational enterprises and that impact on the international concerns and goals of those enterprises.26 According to Schuler et al., SIHRM is influenced by those exogenous (external) and endogenous (internal) factors of

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Exogenous Factors • Global, national and regional characteristics • Industrial and sector characteristics

Endogenous Factors • Organizational culture, life-cycle strategy, structure • International orientation of management • Corporate governance

SIHRM HR strategies, functions, practices, and policies

Organizational Goals and Strategies • Efficiency • Competitiveness • Survival skills • Flexibility

Figure 29.2 The Strategic International Human Resource Management Framework Adapted from H. De Cieri and P. J. Dowling, “Strategic Human Resource Management in Multinational Enterprises: Theoretical and Empirical Developments,” in P. M. Wright, L. D. Dyer, J. W. Bourdeau, and G. T. Milkovich (eds), Research in Personnel and Human Resource Management: Strategic Human Resource Management in Twenty-First Century Supplement 4 (Stamford, CT: JAI Press, 1999), p. 318.

an international company which normally influence the realization of organizational goals and concerns. The most complex task of SIHRM is to balance the need for global integration of business activities and the local responsiveness, sustainability and flexibility of human resources. The framework of SIHRM can be explained diagrammatically, as given in Figure 29.2. The internal or endogenous factors which influence the SIHRM of a multinational company are strategy, its international experience, organizational structure, organizational life cycle and the international orientation of the top management. Similarly, the external or exogenous factors which influence the SIHRM of the company are global, national, regional, local characteristics, industry and sector characteristics, interorganizational network and alliances. These internal and external factors influence the HR policies, practices, functions and strategies of the multinational firms collectively and individually. In turn, these HR practices and strategies facilitate the accomplishment of organizational goals. Finally, the same factors which influence the HR strategies and practices also influence the overall performance of these companies expressed in terms of efficiency, competitiveness, survivability and flexibility.

Cross-culture Management in IHRM Since culture is a complex phenomenon, the cross-cultural environment of a global company is capable of producing both positive and negative results for it. For instance, the organizations that keep a culturally diverse workforce may achieve better creativity, productiveness and wider business opportunities, but the same cultural differences may also act as a stumbling-block to the success of global HR operations due to communication bottlenecks. In all these, the effectiveness of communication in the cross-cultural environment makes the

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critical difference between success or failure. To reduce the cross-culture-related troubles and barriers, global managers must be well trained to understand, acknowledge and adapt to cultural differences. Since companies operating at the global level continuously need people who can operate in a cross-cultural environment, the IHRM should focus on aspects like cultural awareness, multiple communication techniques and styles, language familiarization and application of relevant technology necessary for the successful management of the diverse group of employees in the cross-cultural environment of the company. Specifically speaking, the international HR department can organize cross-cultural training to expose the employees to other cultures in a planned and deliberate manner to enable them to acquire functional and communication skills essential for the cross-cultural environment. Since cultural differences invariably influence HR policies and practices,27 it is therefore imperative for the international HR managers to factor them in while devising HR practices, policies and procedures.

Factors Determining the Outcome of International Assignment of Employees There are several reasons which combine to determine the success or failure of the international assignment of an employee. Typically, an international HR department is made responsible for the success or failure. However, the term failure cannot be defined easily and normally means different things at different times to different people. Some of the symptoms of failures in expatriate missions are (i) early repatriation of the expatriate employees, (ii) reduced productivity, and (iii) strained customer–expatriate employee relationship in a foreign country.28 The researches carried out to identify the reasons for the success or failure of expatriate assignment revealed a few significant reasons. These are: • Personality of the expatriate employees: Emotionally mature and assertive persons are more likely to stay long in their mission.29 • Personal and family reasons like the incapability of spouse and/or children to adjust to the new situations may shorten the stay of the expatriates. • Intentions of the expatriate employees: When the employees volunteer for expatriate assignments, the chances of their survival and success in overseas assignments are normally higher as compared to those who are pressurized to accept such assignments.30 • The incompetence of the employees assigned to the overseas duties to carry out larger responsibilities may influence the outcome of the overseas assignments negatively. However, an international HR department through a planned and careful screening and selection, training and orientation of employees for expatriate assignments can reduce the chances of human resource failure in overseas assignment considerably. For instance, the HR department can conduct adaptability screening to determine the likely success of an employee in expatriate assignment. Besides, the company can also prepare an international assignment inventory which typically reveals the characteristics and attitudes required for success in an international assignment. Similarly, the HR department can provide emotional support to the employees and their family members who may or may not accompany the employees in the overseas mission. Moreover, the international

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human resource department must also ensure improved expatriate benefit packages and cultural and language training to enhance the success rate of expatriate missions. Finally, the HR department must provide realistic previews to the expatriates about the likely problems and challenges in the overseas assignment and should enlighten them about the ways and techniques to be adopted for surmounting those challenges. Each expatriate must be aware of what is expected of him, how well he is performing in the job after taking up the foreign assignment, and what opportunities are available to him for developing new competencies in the foreign assignment.

List of Dos and Don’ts in Developing and Implementing Global HR Practices Ann Marie Ryan et al. prescribed a list of dos and don’ts in developing and implementing global HR practices.31

List of Dos • Proper integration of global HR practices and techniques into the local system; the global HR tools must have the capability to work well within the existing local systems. • The international company must develop a strong and resilient organizational culture. • Global companies must have a worldwide network for system development—global input and reporting are vital for faster and accurate decision making. • International HR policies must consider host country people as equal partners in the development of the global HR system. • It is essential for the company to identify the common HR elements or practices across regions and nations. • There shall be clarity and flexibility in performance measurement and management across nations. • There must be provision for local (country-specific) additions in the global HR practices beyond the core HRM elements. • The company must make a difference in HR practices and approach, if required. • It is absolutely essential to prepare host-country employees to make good and timely decisions about which HR tools are to be used and how. • Continuous and comprehensive communication throughout the international company is essential. • The company must set aside sizeable resources for global HR efforts. • The company must have people who possess knowledge or have access to people who know about the legal requirements in each country.

List of Don’ts • Applying the same HR model—that of the parent country—in the same way everywhere.

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• Succumbing to each and every claim of host-country employees who may say ‘we’re different’—in such a situation, they must prove their claim. • Imposing a global HR system on the local people without any flexibility. • Commanding the host-country employees to implement the HR policies and never involving them in the development of these policies. • Applying the same HR tools worldwide without proving that they actually work in a specific environment and are culturally suitable. • Paying no attention to cultural and custom differences between home and host countries. • Allowing technology to determine the system design—the company should never think that every location has the same level of technology development. • Possessing a perception and attitude that ‘if we build it, they will come’. Instead, the company needs to market its HR tools or system in each nation it operates and keep change management strategies ready to effect changes, if required.

Summary 1.

5. International recruitment system is classified into the ethnocentric approach, polycentric approach and geocentric approach.

International human resource management is defined as a process of procuring, developing, compensating and retaining people in organizations operating beyond national boundaries at the global level.

6.

2. The factors distinguishing international HRM from domestic HRM are additional HR activities, an international perspective on HR functions, greater attention to expatriate employees’ personal needs, gradual shift in focus from the expatriates to the local employees, greater risk exposure and other factors like political developments, economic situations and changes in the laws and regulations of the host country.

When an international company follows the strategy of choosing only from the citizens of parent company, it is called the ethnocentric approach. When it limits recruitment to the nationalities of the host country, it is called the polycentric approach. In the geocentric approach, it recruits the most suitable persons for the positions available in the company, irrespective of their nationalities.

7.

International training and development includes three stages: (i) pre-move training, (ii) continual training and (iii) repatriation training.

3. The challenges facing international human resource management are the management of cultural diversity, the management of the complexity of the workforce, the management of communication channels, the management of divergent economic systems, and the management of legal and industrial relations issues. 4.

International HR practices are human resource planning, international recruitment, international selection, international training and development, international compensation, international employee benefits, international performance evaluation, international industrial relations and international employee safety and health.

8. International compensation may be defined as the provision of monetary and non-monetary rewards including the base salary, benefits, and perquisites, long- and short-term incentives, valued by employees in accordance with their relative contribution to the MNC performance. 9.

The factors determining the outcome of the international assignment of employees are the personality of expatriate employees, personal and family reasons, the intentions of expatriate employees and the incompetence of the employees.

INTERNATIONAL HUMAN RESOURCE MANAGEMENT

655

Review Questions Essay-type questions 1.

Distinguish between international HRM and domestic HRM.

2. Discuss the factors which have contributed to the growth of IHRM. 3.

Examine critically the challenges facing IHRM.

4.

Evaluate the various international HR practices with relevant examples.

5.

Enumerate the various approaches to IHRM.

6.

Enunciate the functioning of SIHRM with relevant examples.

7.

Describe the factors determining the success of international HR assignments.

8.

Write an essay on the future of IHRM in the context of globalization.

Skill-development Exercise Objective – The purpose of this exercise is to show you how to design and develop international HR policies in a successful manner for expatriate, host- and third-country managerial employees. Procedure Note – The class is split up into groups. Each group has (1) an HR manager, (2) two HR team members, (3) an external HR consultant, (4) two office-bearers of the managers’ association, and (5) two observers of the meetings. The role of the observer is to observe the various aspects of the role-playing sessions and report on them. Situation Anush Ayurveda is an integrated pharmaceutical company in India with interests in health care, skin care, oral care, hair care and personal care. It has been developing and marketing a range of ayurvedic products for the past 80 years. It has 8,800 employees. It has excellent HR policies and practices. Recently, the board of directors approved a major expansion plan for the organization. The company decided to directly market its products in 10 countries, all in the Middle East and South-East Asia, and its products would be available to the people of these countries through its outlets. In this regard, the company decided to depute employees from India to these countries to perform managerial

tasks for a period of three to five years. The top management entrusted the task of developing international HR policies and practices to the just-commenced international HR section of the company headed by an international HR manager. The HR section has been specifically instructed to develop selection, training, orientation, compensation and performance management plans for expatriate employees. Steps in the exercise There are four steps in the exercise: Step 1: The HR manager meets the officer-bearers of the managers’ association to know their views on the HR policies concerning overseas assignments. Step 2: He consults the external HR expert to hear his expert advice regarding international training, orientation, compensation and performance evaluation. Step 3: He conducts his departmental meeting to decide the exact HR programmes for expatriate and managerial employees. Step 4: The observers analyse the performance of the members in the role-playing session and give their feedback.

Case Study Rajesh Software Limited is a fast-growing software company in India. It defines, designs and delivers technology-enabled business solutions to its clients. It

has a global presence through strategic alliance with leading technology providers located in different parts of the world. In fact, it conducts its global operations through its

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22 overseas offices located in countries like the USA, UK, Australia, China, Poland, South Africa, the Philippines and Argentina. The company has 15,000 employees, of which 3,200 are expatriates on an international assignment at any point of time. It has an international HR division as part of the welldeveloped HR department to prepare, expatriate and repatriate the employees linked to foreign assignments. The HR department of this company is managed by Mr Pranav Kumar, director (HR). The International Human Resource (IHR) division, headed by AGM (IHR) Mr Srinivas Patel, is responsible for identifying, training, orienting and compensating the expatriate employees. It is also responsible for evaluating the performance of the expatriates on overseas missions. Since Rajesh Software gets a sizeable portion of its income from overseas operations, it has spent a considerable amount of time and resources to develop a global HR system. Yet, the international division of this company faces a few specific problems like high employee attrition among expatriates and a high cost of maintaining them on international assignments. An employee satisfaction survey conducted among the expatriates revealed employee dissatisfaction over performance evaluation and pay differentiation. Some of the expatriates complained that the IHR division was ignoring the dissimilarity in the expatriate assignments and foreign situation while evaluating the performance of the expatriate employees in the same positions posted to different countries. As such, the international performance management tools have failed to recognize the countryor region-specific difficulties in job performance. Another major problem associated with the expatriate assignment is the high cost of maintaining expatriates on overseas jobs. Rajesh Software estimated that the cost of using expatriates sent from the parent country is usually far greater than the cost of using local employees. The management also felt that the expatriates often overemphasized short-term results rather than the necessary long-term results since they were aware that they

would be working in the foreign assignment only for a few years. The management sought the view of the HR department about the expatriate problems and instructed it to develop strategies to surmount them. The HR department forwarded the letter to the IHR division for its views and responses. Mr Patel, in his reply, defended both the performance evaluation system for expatriates and the practice of deputing parent-country employees. Regarding performance evaluation, he maintained that a cross-section of the employees, including expatriates, was consulted while designing the international performance standards and evaluation techniques. Thus, the international performance management system was objective and comprehensive. As regards the high cost associated with expatriate employees, he wanted the present system to continue in the future despite the cost disadvantage in adopting this system for filling managerial vacancies. According to him, the expatriate system enabled the company to have a better and direct control over the foreign branches. When his response was placed before the management, there was a sense of disappointment among the top managers. This was because the response from the IHR division was devoid of any concrete solution. Understandably, the management was seriously pondering its next move. Questions for discussion 1. What is your understanding of the seriousness of the problem faced by Rajesh Software Limited in its overseas operations? 2. What is your opinion about the response of the IHR division to the queries raised by the management? 3. According to you, what should the management do now to address the problems of high attrition and cost in international operations? 4.

Had you been the AGM of the IHR division of Rajesh Software, how would you have handled the whole situation?

Notes P. V. Morgan, “International Human Resource Management: Fact or Fiction?” Personnel Administrator, 31, no. 9 (1986): 44.

3. Anne-Wil Harzing and J. van Ruysseveldt, International Human Resource Management, 2nd ed. (London: Sage, 2004), p. 35.

2. Karen Roberts, Ellen Kossek and Cynthia Ozeki, “Managing the Global Workforce: Challenges and Strategies,” Academy of Management Executive, 12, no. 4 (November 1998): 93–106.

4. Nancy Wong, “Mark Your Calendar! Important Tasks for International HR,” Workforce, 79 (April 2000): 72–74.

1.

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657

5.

Michael Armstrong, A Handbook of Human Resource Management Practice, 8th ed. (London: Kogan Page, 2001), p. 129.

18. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ: Pearson Education, 2007), pp. 462–463.

6.

Peter J. Dowling, “International and Domestic Personnel/Human Resource Management: Similarities and Differences,” in R. S. Schuler, S. A. Youngblood and V. L. Huber (eds), Reading in Personnel and Human Resource Management, 3rd ed. (St. Paul, MN: West Publishing, 1988).

19. Anne-Wil Harzing and J. van Ruysseveldt, International Human Resource Management, 2nd ed. (London: Sage, 2004), p. 308.

7.

Peter J. Dowling, Marion Festing and Allen D. Engle, International Human Resource Management: Managing People in a Multinational Context, 5th ed. (London: Thomson Learning, 2008), p. 7.

8. Anne-Wil Harzing and J. van Ruysseveldt, International Human Resource Management, 2nd ed. (London: Sage, 2004), p. 66.

20.

21. Charles W. L. Hill, International Business (New York: McGraw-Hill), pp. 519–520; Valerie Frazee, “Is the Balance Sheet Right for Your Expats?”, Global Workforce, (September 1998): 19–26; and Stephenie Overman, “Focus on International HR,” HR Magazine, (March 2000): 87–92. 22.

Dennis R. Briscoe and Randall S. Schuler, International Human Resource Management: Policy and Practice for the Global Enterprise, 2nd ed. (New York: Routledge, 2004), pp. 352–370.

23.

John Milliman, Stephen Nason, Cherrie Zhu and Helen De Cieri et al., “An Exploratory Assessment of the Purposes of Performance Appraisals in North and Central America and the Pacific Rim,” Human Resource Management, 41, no. 1 (Spring 2002): 87–102.

24.

Dennis R. Briscoe and Randall S. Schuler, International Human Resource Management: Policy and Practice for the Global Enterprise, 2nd ed. (New York: Routledge, 2004), p. 354.

9. The Global Employer: Global labour, Employment and Employee Benefits Bulletin, 5, no. (2) (May 2000): 1–43. 10. Jeffrey Pfeffer, “Recruiting for the Global Talent War,” Business 2.0, 6, no. 7 (1 August, 2005): 56. 11.

W. F. Cascio, “International Human Resource Management Issues, for the 1990s,” Asia Pacific Journal of Human Resources, 30, no. 4 (1992): 1–18.

12. Dennis R. Briscoe and Randall S. Schuler, International Human Resource Management: Policy and Practice for the Global Enterprise, 2nd ed. (New York: Routledge, 2004), pp. 51–57. 13. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ: Pearson Education, 2007), p. 460. 14. Dianne S. Jacobini, “Expatriate Administration: New Realities and HR Challenges,” Employee Benefit News, 19, no. 3 (1 March, 2005): 11. 15. R. Wayne Mondy, Human Resource Management, (Upper Saddle River, NJ: Pearson Education, 2007), p. 460. 16. Gary Dessler, Human Resource Management, 10th ed. (Delhi: Pearson Education, 2005), p. 659. 17. Ellen A. Drost et al., “Benchmarking Training and Development Practices: A Multi-Country Comparative Analysis,” Human Resource Management, 41, no. 1 (Spring 2002): 67–86.

W. R. Sheridan and P. T. Hansen, “Lining International Business and Expatriate Compensation Strategies,” ACA Journal (Spring 1996): 66–79.

25. Dennis R. Briscoe and Randall S. Schuler, International Human Resource Management: Policy and Practice for the Global Enterprise, 2nd ed. (New York: Routledge, 2004), p. 375. 26. R. S. Schuler, P. J. Dowling and H. De Cieri, 1993, “An Integrative Framework of Strategic International Human Resource Management,” International Journal of Human Resource Management, 4, no. 4 (December 1993): 717–764. 27.

Gary Dessler, Human Resource Management, 10th ed. (Delhi: Pearson Education, 2005), p. 695.

28.

Margaret A. Shaffer and David A. Harrison, “Expatriates’ Psychological Withdrawal from International Assignments: Work, Nonwork, and Family Influences,” Personnel Psychology, 51, no. 1 (1998): 88.

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29. Paula Caliguri, “The Big Five Personality Characteristics as Predictors of Expatriates’ Desire to Terminate the Assignment and SupervisorRated Performance,” Personnel Psychology, 53, no. 1 (Spring 2000): 67–88. 30.

Jan Selmer, “Expatriation: Corporate Policy, Personal Intentions and International Adjustment,”

International Journal of Human Resource Management, 9, no. 6 (December 1998): 997–1007. 31.

Ann Marie Ryan et al., “Designing and Implementing Global Staffing System: Part 2, Best Practices,” Human Resource Management, 42, no. 1 (Spring 2003): 93.

Index

b suffixed against page numbers indicates boxed items f suffixed against page numbers indicates figures t suffixed against page numbers indicates tables Italicized page numbers indicate illustrations.

A Abbott India Limited, 171 ability test, 156–157 achievement test, 157 aptitude test, 157 intelligence (IQ test), 156 ability test score, 214 absenteeism, 122–123 ACC, 502, 532 accident avoidance, 374 accident compensation fund, 368 frequency method, 383 prevention and management, 383–384 spot map method, 383 accident rate method, 383 achievement test, 157 action learning, 241 action plan, 257–258 action research, 255 Aditya Birla Group, 228b adjudication, 528–530 court of enquiry, 528–529 industrial tribunal, 529 labour court, 529 national tribunal, 529 administrative laws, 50 advertisements, 141 advisory panel, 214 agency theory, 317 aggregate payment model, 612 All India Railwaymen’s Federation (AIRF), 542 analysis, 29 external, 29 internal, 29 analytical job evaluation, 295, 298–301 analytical reasoning, 215 annual bonus plan, 333 anticipatory socialization, 183 anticipatory stress, 388–389 anti-poaching techniques, 143, 144b appeasement theory, 408

applicant tracking system, 589 application form, 153–154 guidelines for evaluating, 154b apprenticeship training, 218 aptitude test, 157 Arbitration and Conciliation Act, 1996, 526, 528 arbitration, 527 Arcelor-Mittal, 311 Article 14, 51 Article 16, 51 Article 22, 410 Article 23, 411 Article 23, 51 Article 24, 51 Article 25, 411 Article 39 (d), 51 Article 39(e), 51 Article 42, 52 Article 43, 52 Article 44, 52 Article 46, 52 assistantship, 218–219 attitude formation, 215 attitude survey, 213–214 audio-visual aids, 223 autonomous work group method, 426 autonomy, 89–90

B Bajaj Electricals Limited, 175b, 200b balance sheet, 195–196 bargaining. See collective bargaining BARS. See Behaviorally Anchored Rating Scale (BARS) Barth variable incentive plan, 357 basic pay, 314 basic salary, 333 Bata Shoe Company, 109b Bedeaux system, 356 Behaviorally Anchored Rating Scale (BARS), 285–286, 286t behaviour, 275

behaviour modeling, 240 behavioural outcomes, 382 behaviour-oriented compensation system, 317 benchmark jobs, 298 benefits administration system, 593 benevolence theory, 408 bias, 293 biographical information, 154 Blue Dart, 32b broad-graded pay structure, 319–320f budgeting, 328 burnout, 391 business ethics, 622 business games, 240 business unit, 32 business-level strategy, 32–33 business-oriented model, 26

C CAM. See computer-aided manufacturing (CAM) campus recruiting, 141–142 Canara Bank, 448b career anchoring, 194 cluster, 194 counseling, 194 guidance, 204–205 intervention, 204 forms of, 204t management, 194 path, 194, 197–198 success, 194 system, 193–194 career planning, 191–205 career-oriented skill-development exercises, 197 definitions of, 191b evaluation of career opportunities, 196 features of, 191–192 implementation and review, 197–198

660

INDEX

limitations of, 201–202 matching and decision-making, 197 measures to improve the effectiveness of, 202–204 merits of, 199–201 objectives of, 192 process of, 194–198 responsibility for, 198–199 self assessment, 195–196 career-related attitude, 202 casual labourers, 53 casual leave, 523 causal, intervening, and end-result model, 611–612 central government, 405 welfare facilities and, 405 central staff database, 593–594 centralized bargaining, 533 certainty equivalent model, 609–610 chalk-and-talk method, 222 change agent, 254 checklist method, 284 CIT. See critical incident method (CIT), 79 closed system, promotion, 447 coaching, 240 cost of living, 325 cost-benefit method, 283–284 code of conduct, 492 code of discipline, 497–498 code of ethics, 627 collaborative strategy, 36 collective bargaining, 325, 427–428, 525–526, 530–538 classification of, 531–534 definitions of, 531b essentials of, 537–538 features of, 531 process of, 534–536, 535f collective wisdom, 462 commitment strategy, 36 common metric questionnaire (CMQ) model, 78 communication skills, 13 compa ratio, 328–329 compensation, 9, 110, 314, 312–336 agency theory, 317 contingency theory, 317 definitions of, 312b equity in, 312–314 equity theory, 316 expectancy theory, 316–317 factors influencing, 323–326, 323f objectives of, 312–314 types of, 314–316 compensation administration, 317, 327–331 challenges in, 329–331

steps in, 327–329 compensation decisions, 274 compensation management system, 591–592, 629 competency, 276 competitive advantage, 110–111 competitive labour market environment, 113 competitors, 53 compliance strategy, 36 compulsory retirement scheme (CRS), 455 computer-aided manufacturing (CAM), 91 computer-based training, 228 computerized interview, 163 concentration strategy, 31 conciliation, 526–527 conciliator, role of, 526 confidential report (CR), 285 conflict, 519. See also industrial dispute connectedness, 462 constitutional laws, 50 Contemporary HRM Era (1980–onward), 47 contingency approach, 260 contingency theory, 317 continual training, 646 Contract Labour (Regulation and Abolition) Act of 1970, 402 contractual relationship, 254–255 conventional career path, 197 conventional wisdom, 133 core competency, 116–117 corporate culture, 91 corporate social responsibility (CSR), 378 corporate universities, 242 corporate-level committee, 424–425 joint management council, 425 worker-director, 425 workshop-level committee, 425–426 corporate-level strategy, 30–32 growth strategy, 31 parenting strategy, 32 portfolio strategy, 31 cost efficiency bonus plan, 359 cost prevention, 375 counselling and mentoring, 393–394 court of enquiry, 528–529 critical incident method (CIT), 283 Crompton Greaves, 106 CRS. See compulsory retirement scheme (CRS) cultural diversity, 472 customers, 54, 280 CVs. See electronic curriculum vitae (CVs)

D Dabhol Power Company (DPC), 619 Dabur India Limited, 175b Dabur India, 25b data collection, 76–81, 77f critical incident method (CIT), 79 dairy maintenance method, 80 interview method, 79–80 job performance method, 78 observation method, 78–79 questionnaire method, 77–78 task inventory analysis, 81 technical conference method, 81 data overload, 180 data processing, 585 data-driven approach, 259 decentralized bargaining, 533–534 decision support system (DSS), 586 deep muscle relaxation, 392 Delphi technique, 118–119 demographic structure, 472 demographics, 49 demotion, 448–450. See also promotion definitions of, 449b reasons for, 449–450 deployment, 638 descriptive ethics, 621 development programme, evaluation of, 243–244 controlling, 244 improving, 244 learning, 244 proving, 244 diary maintenance method, 80 differential piece rate, 350 direct compensation, 314–315 direct participation, 423–424 directive interview, 161 disablement benefits, 413 discharge, 491 disciplinary action, 490–494 outcome of, 490f steps in establishing procedure, 492–494 types of, 490–491 disciplinary system, 495–497 elements of, 495–497 discipline characteristics of, 479–480 definitions of, 479b Douglas McGregor’s hot stove rule, 497 objectives of, 480–482 steps to enhance, 494–495 types of, 482–486 dismissal, 455, 491 dispute, 519. See also industrial dispute distributed learning, 227 distributive bargaining, 532–533

INDEX diversification strategy, 31 Douglas McGregor’s hot stove rule, 497 Dr Reddy’s Laboratories, 66 DSS. See Decision Support System (DSS) dual skill path, 197 duty, definition of, 69

E e-commuting, 99 economic environment, 52 economic reforms, 16 EDP. See electronic data processing (EDP) educational qualifications, 154 effective interview process, 80 efficiency theory, 408 e-gripe box, 507b e-learning, 227–230 limitations of, 230 merits of, 229 types of, 228 electronic curriculum vitae (CVs), 142 electronic data processing (EDP), 585 electronic performance support system (EPSS), 591 Emerson efficiency plan, 354–355 emotional maturity, 14 emotional security, 545 empathy, 14 employee assistance programme (EAP), 373, 394 employee empowerment, 394 employee grievances, 503–516 characteristics of, 504 definitions of, 503b essentials of, 511–512 management policies and practices, 504–505 model grievance procedure, 513–514 procedure, 507–511 sources of, 503–504 stages in procedure, 509f techniques of grievance identification, 505–507 employee health, 387–388 mental health, 387–388 physical health, 387 employee motivation, 313 employee orientation, 172–174 purpose of, 173–174 employee provident fund, 368 employee referrals, 139 employee resistance, 293 employee retention, 313 employee safety and health, 380–381 statutory provisions concerning, 380–381

employee safety, 374–375 need for 377–378 objectives for, 374 employee safety programme, 375–377 essentials of, 378–380 steps in, 375–377 employee separation, 452–456 possible reasons for, 453–454 types of, 454–455, 454f Employee Share Purchase Plan (ESPP), 311 Employee Stock Ownership Plan (ESOP), 362–363 employee training, 215–217, 216f determination of training needs, 215–216 development of training objective, 216 evaluation of the training programme, 217 identifying the trainer, 217 implementing the training programme, 217 scope of, 214–215 selection of training techniques, 216–217 significance of, 210–212 employee welfare measures, 399–410 appeasement theory, 408 benevolence theory, 408 definitions of, 399b efficiency theory, 408 features of, 399–400 goodwill theory, 408 limitations, 409–410 merits, 408–409 non-statutory welfare facilities, 402–404 objectives of, 400 policing theory, 406–407 religious theory, 407 statutory welfare facilities, 401–402 employee welfare responsibility, 404 Employees’ Deposit Linked Insurance Scheme, 1976, 415 Employees’ Pension Scheme, 1995, 415 Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, 415 Employees’ State Insurance Act (ESI) of 1948, 412–413 employment application forms, 153–154 employment empowerment, 431–437 barriers to, 436–437 definitions of, 432b features of, 432–433 importance of, 435–436 steps in, 433–435, 434f employment exchange statistics, 141t

661

Employment Exchanges (Compulsory Notification of Vacancies) Act of 1959, 140 employment exchanges, 140 empowerment. See employment empowerment enacted environment perspective, 59 encounter stress, 388 enforced discipline, 483 entry tactics, 32 environment perspectives, 58–59 environment scanning process, 48f environment, 115 economic situation, 115 labour market, 116 legislatine measures, 115 technological advancements, 116 environmental forces, 115 environmental scanning, 59–62, 61f, 115 perceived environmental change, 61–62 purpose, 115 stages, 60 strategic change, 62 strategies, 61 EPSS. See Electronic Performance Support System (EPSS) equity plans, 315 equity theory, 316 ergonomics, 89 ESOP. See Employee Stock Ownership Plan (ESOP) essay method, 283 ethical behaviour factors influencing, 625–627 role of HRM in, 627–630 ethical code, 12 ethical dilemma, 632–633 ethical values, 215, 619–620 ethics, 620 approach based on justice, 624–625 approach based on rights, 623–624 definitions of, 621b discipline and disciplinary procedure, 629–630 human resource management and, 621–622 need for ethical policies and codes, 622–623 role in organizations, 622 types of, 621 utilitarian approach, 623 ethnocentric approach, 645 evaluation study, designing of, 224 time series design, 224 pre-test-post-test control group design, 224

662

INDEX

executive coaching, 241–242 executive compensation, 331–336. See also compensation criticisms of, 335–336 elements of, 334–335 objectives of, 331 executive orientation, 242–243 executive perks, 335 exit interview, 505–506 expectancy theory, 316–317 external environmental factors, 48–55 demographics, 49 economic environment factors, 52 educational status, 49 labour market, 52–53 legal environment factors, 50–52 nature of political organization and system, 50 political environment factors, 50 political stability, 50 prevailing political ideologies, 50 social environment factors, 49 technological environment factors, 49–50 external equity, 322 external interference, 522 external leadership, 558 external stressors, 390 extra-organizational stressors, 391 group-level stressors, 391 organizational stressors, 391 extra-organizational stressors, 391

F facilitators, 180 factor comparison, 300 Factories Act, 1948, 401–402, 513 Fair Wages, 318 Feedback, 89 360-degree, 286–291 720-degree, 291b field review method, 284 First World War and trade union, 553–554 five-dimensional model, 612 Fleishman job analysis system (FJAS) model, 78 flexitime, 100 forced choice method, 283 forced distribution method, 282–283 force-field analysis, 263 Ford motor company, 46b forewarning, 497 Formalized HRM Era (1960–1980), 47 free interview, 161 fringe benefits, 365–368 definitions of, 366b forms of, 367–368

objectives of, 367 functional job analysis (FJA) model, 78 functional-level strategy, 33

G gain-sharing, 315 Gandhian approach, 468–469 general career path, 193 general idea orientation, 174 general strike, 523 general union, 547 generally accepted accounting principles (GAAP), 614 generic strategies, 29 geocentric approach, 645 Gheraos, 524 Giri approach, 469–470 GlaxoSmithKline, 386b globalization, 17–18 globalization, 53 Gnat Task and Bonus system, 355–356 goal accomplishment, 275 going rate approach, 648 Golden Parachute Scheme, 336 goodwill theory, 408 go-slow (slow down) strike, 523 gratuity, 368 grievance. See employee grievance grievance management system, 594 grievance redressal procedure, 512–513 gripe-box system, 506 group incentive schemes, 359–361 group-based asynchronous e-learning, 228 group-based synchronous e-learning, 228 group-level stressors, 391 growth strategy, 31 guidelines oriented job analysis (GOJA), 81

H halo effect, 164–165, 292 Halsey Premium Plan, 357–358 hard planning technique, 109 Hawthorne Studies Era (1927–1932), 45–46 Hay Group, 299b Hayne’s incentive plan, 358 Herzberg Frederick, 98 Hewitt Associates, 565 Hierarchy of Needs theory, 47 high commitment management model, 34 high employee retention, 408–409 high involvement management model, 33 high performance management model, 34–35 high performance work design, 97 high performance work systems (HPWS), 18–19

high stress levels, 389 high-commitment practices, 34 Hindustan Unilever Limited (HUL), 220b honesty test, 158 horizontal enlargement, 96 horizontal integration, 31 housing facilities, 368 HPWS. See high performance work systems (HPWS) HR audit, 566–578 approaches to, 575–577 conditions for, 577–578 corporate level (board level), 569–570 definitions of, 566b features of, 566–567 functional level (HR department), 570 managerial level (line managers), 570 objectives of, 567–568 scope of, 568–569 steps in, 571–575 HR forecasting, 117–123 bottom-up approach, 119 Delphi technique, 118–119 estimation of availability, 121–124 human resource allocation approach, 120–121 managerial judgement, 119 normal group technique, 119 ratio analysis, 118 simulation model, 120 top-down approach, 119 trend analysis, 118 work study technique, 120 zero-base forecasting, 120 HR management (HRM) and personnel management (PM), 10–11 benefits of a strategic approach to, 36–37 definitions of, 4b future role of, 16–19 line versus staff authority of, 14–16 managerial functions, 6–7 objectives of, 4–5 operative function, 8–10 vs PM, 12 as profession, 11–13 scope of, 5–6 vs SHRM, 26t weakness of, 19 HR manager, 13–14 challenges, 16–17 as line authority, 16 line-staff responsibilities, 15f qualities, 13–14 as staff advisor, 16 HR planning, 71, 124

INDEX barriers to, 125 benefits, 124–125 requirements for, 124 HR statements, relevance of, 10 HR strategies, 35–36 collaborative strategy, 36 commitment strategy, 36 compliance strategy, 36 paternalistic strategy, 36 HR task force, 576–577 HRIS. See human resource information system (HRIS) human asset multiplier model, 611 human engineering, 71 human relations approach, 469 human resource accounting, 602–615 cost-based approach, 605–608 definitions of, 604b objectives of, 604 uses of, 612–613 value-based approach, 608–612 weaknesses of, 614–615 human resource allocation approach, 120–121 human resource cost accounting (HRCA), 605 human resource environment, 55 in select countries, 55b human resource information system (HRIS), 17–18, 583–598 applications of, 589–594, 590f benefits of, 594–596 components of, 584–585 definitions of, 583b essential conditions for, 596–598 implementation of, 586–589 objectives of, 584 scope of, 583 types of, 585–586 human resource management environment, 48–58 external factors, 48–55 internal factors, 56–58 human resource management interventions, 264 human resource planning, 107–126, 135 characteristics, 108 definitions of, 107b factors affecting, 107, 111–113 objectives, 107 process, 113–124, 114f significance, 108–111 human rights obligation, 631 hunger strike, 523

I IBM, 9b, 239b, 637 IBM, 637

immediate supervisor, 278–279 improshare, 361 in-basket training, 240 incentive programmes, 351–358 incentive schemes, 349–363 differential piece rate, 350 group incentive schemes, 359–361 indiviual incentive programmes, 351–358 merit rating, 351 organization-wide incentive plans, 361–363 straight piece rate, 349 task and time bonuses, 350 incident rate method, 384 income security, 545 Income Tax Act of 1961, 366 in-depth interview, 162 India Institute of Personnel Management, 146 India, 145 recruitment practices in, 145–146 selection process in, 166–167 social security schemes in, 412–416 Trade Union Movement in, 553 Indian Oil Corporation (IOC), 23, 274b Indian Society of Training and Development (ISTD), 23 indirect compensation, 315–316 indirect participation, 423–424 indiscipline, 486, 488–490 symptoms, 488b, 488 causes, 488–490 individual analysis, 216 individual attitude, 382 individual career path, 193 individual strategies, 392 individualized self-paced e-learning offline, 228 individualized self-paced e-learning online, 228 industrial accidents, 382–387 measures to reduce, 384–387 unsafe actions, 382–383 unsafe conditions, 383 Industrial and Human Relations Movement Era (1950–1960), 46–47 industrial democracy, 463 industrial dispute, 519–530 causes of, 520–522 characteristics of, 519 definition of, 519 investigation and settlement of, 524–530 objectives of, 520 outcome of, 522–524 types of, 522 Industrial Disputes Act of 1947, 456, 513, 520, 526

663

Industrial Employment (Standing Order) Act, 1946, 513 industrial engineering, 70 industrial relations aspect, 5–6 industrial relations, 460–474 approaches to study of, 465–470 characteristics of, 462 definitions, 461b essentials of, 473–474 factors influencing, 472–473 major players in, 463–465 objectives of, 462 trends in, 470–471 industrial relations, 73 Industrial Revolution Era (1780–1830), 45 industrial sociology approach, 470 industrial tribunal, 529 industrial union, 546 informal socialization programmes, 184 information security protocol, 143 Infosys Technologies , 1, 132b, 200, 243, 602 career development initiative at, 200b in-house development centre for competency enhancement at, 243b ING Vysya Life Insurance Company, 334b in-house development centres, 242 insurance premium, 378 integration, 9–10 integrative bargaining, 533 integrity test, 158 intelligence (IQ) test, 157 inter-departmental transfer, 451 interest disputes, 522 interest test, 158 inter-group comparison, 224 internal environmental factors, 56–58 business strategy, 50 HR system, 58 organizational culture, 50 organizational structure, 57 vision and mission of organization, 50 internal equity, 322 internal recruiting, 142, 143b internal recruitment, 137–140 internal stressors, 390 type A personality, 390 type B personality, 390 type C personality, 390 international business ethics, 630–632 human rights obligation, 631 justice obligation, 631 welfare obligation, 632 international compensation, approaches, 647–648 balance sheet approach, 647–648 going rate approach, 648 International Data Group Inc, 227 international employee benefits, 648

664

INDEX

international employee safety and health, 649–650 international HR practices, 642–650 international human resource management, 638–654 causes for growth of, 641 challenges faced by, 641–642 cross-culture management in, 652–652 definitions of, 639b features of, 639 international human resource planning, 643–644 international industrial relations, 649 International Labour Organization (ILO), 633 international performance evaluation, 648–649 international recruitment, 644–645 international selection, 645–646 international training and development, 646 continual training, 646 pre-move training, 646 repatriation training, 646 international workers, 558–559 Internet recruiting, 146 Internet-based instruments, 221 internship, 218–219 internship programmes, 110 interpersonal ethics, 621 inter-union rivalry, 558 intervention programmes, 260–264 interview, 161, 160–163 computerized interview, 163 objectives of, 161 strategy for, 163–164 structured interview, 161 unstructured interview, 161 weaknesses of, 164–165 intra-departmental transfers, 451 involuntary separation, 453 involuntary transfer, 451 Iowa merit employment system (IMES), 81

J J. K. Lakshmi Cement, 278b job analysis, 67–81 challenges affecting the effectiveness, 85–87 definitions of, 68b features of, 67–68 goals of, 69–73 steps in, 74–76, 75f techniques and data collection in, 76–81 types of data used in, 73t–74t uses of, 70f job analyst, 76 job classification, 71 job content, 87

job description, 71, 81–83, 302 aim, 81 definitions of, 82b job description statement, 73, 83t job design, 70–71, 87–100 benefits, 88 critical components, 92–97 defined, 87, 88b e-commuting, 99 environmental influence on, 88–92 flexitime work, 100 limitations of, 98 job duties, 82 job element method (JEM), 81 job enlargement, 96 horizontal enlargement, 96 vertical enlargement, 96 job enrichment, 92–93 aim of, 93 job evaluation, 70, 295–305, 301–302 benefits of, 302–303 characteristics of, 296 definitions of, 295 limitations of, 303–304 measures to enhance the effectiveness, 304–305 methods of, 298–302 objectives of, 296 job evaluation process, 296–298, 287f job family structure, 320f–321f job grading, 295, 301–302 job identification, 82 job instruction training, 220 job offer, 153, 166 job performance method, 78 job posting, 138 job redesigning, 393 job reengineering, 95–96 job relationships, 82 job rotation, 94–95, 218 uses of, 95 job security, 545 job sites, 142 job specification, 71, 83–85 definitions of, 84b education and training, 84 orientation, 174–175 physical strength and stamina, 84 skills and competencies, 84 special needs, 84–85 statement, 85t stress-coping ability, 84 work experience, 84 job summary, 82 job, definition of, 69 Johnson & Johnson, 373 justice obligation, 632 just-in-time training, 227

K knowledge, 214 knowledge, skills, and ability (KSA), 76 KSA. See knowledge, skills, and ability Kuder preference record, 158

L laboratory training, 221–222 labour court, 529 labour laws, 50–52 labour legislations, 324 labour market, 52, 116, 134, 313, 324 Larsen & Toubro Limited (L&T), 315b lateral career path, 198 layoff, 455 leadership commitment, 473 leadership development, 262 learnability, 132b lecture method, 222 merits, 222 limitations, 222 legal compliance, 375 lenient attitude, 293 line authority, 16 line manager, 14, 15, 134–135, 570 living wages, 318–319 lock-out, 524 Long-Term Incentive Plans (LTIP), 334 long-term response, 389–390 low stress levels, 389 LTIP. See Long-Term Incentive Plans (LTIP)

M Mahindra and Mahindra (M&M), 252 management by objectives (MBO), 291–292 management development programmes (MDPs), 25 management development, 236–248 action learning, 241 behaviour modeling, 240 business games, 240 coaching, 240 definitions, 235b executive coaches, 241–242 executive orientation, 242–243 goals of, 236–237 in-basket training, 240 in-house development centres, 242 mentoring, 239 significance of, 236 steps in, 237–238 university-based programmes, 241 Management Information System (MIS), 585–586 management position description questionnaire (MPDQ) model, 78

INDEX management succession planning, 244–248 impediments to, 246–248 need for, 245 requisites for successful succession management, 246 management’s attitude, 87 managerial commission, 334 managerial functions, 6–7 controlling, 7 directing, 7 organizing, 7 planning, 6 staffing, 7 managerial judgement, 119 manpower planning system, 592 market position tactics, 33 market pricing, 302 Marxist approach, 468 Maternity Benefit Act of 1961, 413 maternity benefits, 413 Mazda Moter Corporation, 43 MBO. See management by objectives (MBO) MBTI. See Myers-Briggs Type Indicator Assessment Technique (MBTI) medical and compensation facilities, 412 medical benefits, 413 meditation, 392 mentoring, 239 mentors, 199 merit rating, 351 merit, promotion criterion, 444 merrick multiple piece rate plan, 353–354 minimum wages, 318 Minnesota Multiphasic Personality Inventory (MMPI), 157 MIS. See Management Information System (MIS) mission and vision statements, 56 mock raids, 143 moderate stress levels, 389 modern orientation, 176 motorability, 156 multi-method job design questionnaire (MJDQ), 92 multipurpose occupational systems analysis inventory-closed ended questionnaire (MOSAIC) model, 78 multi-unionism, 558 Myers-Briggs Type Indicator Assessment Technique (MBTI), 196

N narrow-graded pay structure, 319, 320f National Institute of Personnel Management (NIPM), 11 national tribunal, 529 negative discipline, 482–483 characteristics, 492

consequences of, 483 negotiation, 525 network career path, 198 network Web-based learning, 227 New India Assurance Company Limited, 441 non-analytical, 295, 301 non-directive interview, 161 non-monetary benefits, 315 non-statutory welfare facilities, 402–404 canteen facilities, 403 e-commuting facilities, 403 education facilities, 403 extra-mural facilities, 404 flexitime facilities , 403 housing facilities, 403 insurance facilities, 403 intra-mural facilities, 404 recreational facilities, 403 transport facilities, 402 normal group technique, 119 normative ethics, 621 notional cost, 229

O objective environment perspective, 58 objectivity, 155, 292 observation method, 78–79 occupation, definition of, 69 occupational union, 546 OD intervention programmes, 262 benefits of, 264–265 force-field analysis, 263 leadership development, 262 process consultation intervention, 262–263 survey feedback, 261 team building, 260–261 third-party peacemaking, 263–264 total quality management (TQM), 264 training and development, 262 OD. See organizational development (OD) ODRS. See on-demand recruiting services (ODRS) off-the-job training, 220–223 case study method, 222 laboratory training, 221–222 lecture method, 222 programmed learning, 221 role-playing, 222 simulation method, 221 video-conferencing, 223 on-the-job training method, 218–220 apprenticeship training, 218 internship and assistantship, 218–219 job instruction training, 220 job rotation, 218

665

on-board development method, 242–243 on-demand recruiting services (ODRS), 143 one-upmanship, 521 ONGC, 508b online learning, 227, 228 online pre-employment testing programs, 158b open communication, 473 open-door policy, 426, 506–507 operation analysis, 216 operative function, 8–10 compensation, 9 development, 9 integration, 9–10 maintenance, 9 procurement, 89 oral reprimand, 490–491 organization analysis, 216 Organization for Economic Cooperation and Development (OECD), 633 organizational career management, 194 organizational culture, 56, 112, 381, 490, 626 organizational development (OD), 253–265 characteristics of, 254 concept of, 253 contingency approach, 260 data-driven approach, 259 definitions of, 253b objectives of, 255–256 system-design approach, 259–260 organizational development process, 256–258 organizational efficiency, 313 organizational socialization strategies, 184–185 fixed or variable strategy, 184 formal or informal strategy, 184 individual or collective strategy, 184 investiture or divestiture strategy, 185 sequential or non-sequential strategy, 184 serial or disjunctive strategy, 184 strategies, 393–394 stressors, 391 structure, 57 tournament-or contest-oriented strategy, 184–185 organization-wide incentive plans, 361–363 orientation programme development, 176–178 orientation programme, 178–180 orientation, 172–181 definitions, 172b general idea orientation, 174 job-specific orientation, 174–175 modern orientation, 176 problems in, 180–181

666

INDEX

vs socialization, 182t traditional orientation, 176 outcome-oriented compensation system, 317 outsourcing recruitment, 140, 141b overtime, 122–123 Oxford school approach, 470

P paired comparison method, 282 paired comparison, 301 panel interview, 162–163 participants impressions, 225 participative management, 96–97 paternalistic strategy, 36 pattern breaking, 95 patterned interview, 161 pay parity, 322 pay scale fixation, 304 pay structure, 319–323 essentials of, 321–323 kinds of, 319–321 Payment of Gratuity Act of 1972, 414 payment without work, 367–368 Pearson Education India, 86b peer group, 279 peer influence, 552 peer monitoring, 97 peer performance review, 97 pen-down strike, 523 People Capability Maturity Model (P-CMM), 38b perceived environment perspective, 59 performance appraisal, 271, 628–629 performance criteria, 277 performance evaluation, 270 concept of, 270 definitions of, 270b determination of criteria for, 275–276 issues in, 292–293 methods, 280–292, 281f objectives of, 271–272 process of, 276–278 selection of evaluator, 278–280 steps to overcome problems, 294 uses of, 272–275 performance management, 271, 592 periodic reviews of, 377 personal career management, 194 personality test, 157 personalized learning practices, 229 person-based career system, 194 personnel aspect, 5 personnel information system, 593–594 personnel management (PM), 5, 10–11, 12 personnel replacement, 607 personnel replacement chart, 122 physical examination, 153, 165

physical resources, 1–2 physical security, 545 picketing, 524 pilot scheme, 289 placement, 185–186 challenges in, 185–186 defined, 185 pluralist approach, 467 poaching, 143, 245 point ranking, 299–300 policing theory, 406–407 political stability, 50 polycentric approach, 645 portfolio strategy, 31 position analysis questionnaire (PAQ) model, 77–78 positional replacement, 607 position replacement chart, 121 position-based career system, 194 positive discipline, 482 post-performance evaluation interview, 294–295 power structure, abolition of, 95 pre-move training, 646 present value of future earnings model, 609 pre-test-post-test control group design, 224 Priestman Bonus Plan, 359–360 primary job requirements, 69–70 private employment agencies, 146 process consultation, 262–263 Procter and Gamble (P&G), 34b procurement, 8–9 production transfers, 452 productivity level, 122 proficiency test, 167 profit-sharing plan, 362 programmed instruction method, 221 programmed learning, 221 progressive discipline, 483–486 significance of, 483–484 projective tests, 157 promotion policy, essentials of, 447–448 promotion, 442–448 characteristics of, 442–443 criteria of, 443–446 definitions of, 442b kinds of, 446–447 objectives of, 443 role of, 443 Provident Fund Scheme of 1952, 415 psychological tests, 155–159, 157b ability test, 156–157 definitions, 155b honesty or integrity test, 158 interest test, 158 limitations, 159 merits, 158–159

personality test, 157 uses of, 155–156 punitive discipline, 483

Q quality-circle scheme, 426

R raiding, 143 Rallis India Limited, 582 Ranbaxy Laboraties, 347b ranking method, 282, 301 rating scales method, 281–282 ratio analysis, 118 Raymond Group, 342 real wages, 318 recreation, 394 recruitment, 71–72, 131–146, 273 advertisements, 141 campus, 141–142 definitions of, 131b external sources, 140–145 features of, 131–132 internal sources, 137–140 practices in India, 145–146 raiding/poaching, 143 vs selection, 152t walk-ins and write-ins, 142 recruitment and selection, 627–628 recruitment organization, 134–135 recruitment policy, 132–134 factors governing, 133–134 features of, 132–133 recruitment process, 135–137, 136f steps in, 136 recruitment requirements, 108–109 redesign, 70–71 referees, 165 reference check, 152, 165 reliable test, 155 Reliance Industries Limited, 209, 242b, 299b Reliance–Anil Dhirubhai Ambani Group (ADAG), 331b religious theory, 407 remedial transfers, 452 repatriation training, 646 replacement charts, 121 replacement transfers, 452 reporting bonuses, 143 resignation, 455 result-based evaluation system, 285 retirement, 454–455 retirement benefits, 368, 412 retraining programmes, 110 retrenchment, 455 rights disputes, 522 rigidity, 180 role-playing, 222, 392

INDEX Rorschach Blot Test (RBT), 157 Rowan Incentive Plan, 358 Royal Dutch Shell, 460 Rucker incentive plan, 360

S safety and health, 72 safety awareness campaign, 379 safety care, 368 safety committee., 385 safety compliance, 377 safety devices installation, 376–377 safety education and training, 385 safety engineering, 386 safety goals, 379 safety lapses, 378 safety management and approach, 381–382 accident prevention and management, 383–384 behaviour-based, 381–382 safety revisions, 379 safety standards, 377 safety strategies, 379 safety training, 377 safety verification, 377 salaried employed, 52 salary administration, 72 salary surveys, 298 sample of behaviour, 155 Scanlon incentive plan, 361 scheduled learning, 221 Second World War Era (1939–1945), 46 Second World War trade union and, 554 secrecy shrouding executive compensation, 336 security, 545 selection interview, 152, 160–163 computerized interview, 163 in-depth interview, 162 kinds of, 161–163, 162f objectives of, 161 panel interview, 162–163 stress interview, 162 structured interview, 161 unstructured interview, 161 weaknesses of, 164–165 selection, 150–167, 273 definitions, 15b phase of, 151–159, 152f process in India, 166–167 vs recruitment, 157t selection tests, 155–159 self-assessment, 195–196 self-directed team, 576 self-employed, 52 self-evaluation, 280 self-managing teams, 93–94

seniority-based promotion, 445 seniority-cum-merit-based promotions, 445–446 sensitivity training, 221–222 severity rate method, 384 shareholders, 54 shift transfers, 452 short-term response, 389–390 SHRM. See strategic human resource management (SHRM) sick leave, 523 sickness benefits, 413 simulation method, 221 simulation model, 120 sit-in strike, 523 situational stress, 388–389 skills audit, 116 skills inventory, 212 skills shortage, 212 skills, definition of, 214 SLAP. See strategic labour allocation process (SLAP) model social action approach, 468 social environment, 49 social security, 410–416, 545. See also employee welfare measures definitions of, 411b features of, 411 issues, 416 medical and compensation facilities, 412 retirement benefits, 412 socialization, 174, 181–185 anticipatory socialization, 183 definitions, 182b vs orientation, 182t organizational socialization, 183 outcomes, 183 spot map method, 383 SRVM. See stochastic reward valuation model (SRVM) staff advisor, 15 staffing, 5, 7 stakeholders, 255 standardization, 155 state government, 405 welfare facilities and, 405 statutory welfare facilities, 401–402 stochastic reward valuation model (SRVM), 610–611 stock option plan, 333–334, 363 straight piece rate, 349 strategic fit model, 27 strategic human resource management (SHRM), 25–38 aim, 24 barriers to, 37–38 benefits of, 36–37

667

business-oriented model, 26 definitions of, 24b features, 25 high commitment management model, 34 high involvement management model, 33 high performance management model, 34–35 HR managers in, 24 levels of strategy, 30–33 meaning of, 24 purpose of, 33 steps in, 28–30 strategic fit model, 27 strategic labour allocation process (SLAP) model, 27 strategic management, 28 strategy, 30, 32, 33 business-level strategy, 32–33 corporate-level strategy, 30–32 functional-level strategy, 33 strategic labour allocation process (SLAP) model, 27 strategic management, 28–30 strategy formulation, 29, 112 strategy implementation, 30 stress interview, 162, 163b stress, 388–392 types of, 388–391 sources of, 390 stress management, 392–394 individual strategies, 392 organizational strategies, 393–394 stress-coping ability, 84 strike, 523–524 defined, 523 types, 523 strong vocational interest bank, 158 structured interview, 161 subjective elements, 275 succession planning system, 110, 123, 244–248, 592–593 suggestion-box scheme, 426 supervisors, 199 survey feedback, 261 suspension, 491 sympathy strike, 524 system approach, 467–468 system-design approach, 259–260

T talent development, 646–647 task assortment, 89 task bonuses, 350 task inventory analysis, 81 task structure, 89 task, definition of, 69

668

INDEX

Tata Business Support Services, 224 Tata Group, 5 Tata Motors, 212b Tata Steel, 518 Taylor’s Differential Piece Rate Plan, 351–352 team building, 260–261 team norms fixing of, 94 team-building exercise, 394 technical conference method, 81 technological developments, 91 technological environment, 49–50 technology-based training, 223, 228 test programme, 159–160 T-group training, 221–222 Thematic Apperception Test (TAT), 157 third-party peacemaking, 263–264 threshold traits analysis (TTA), 81 time bonuses, 350 time management, 392 time series design, 224 time stress, 388–389 time-out, 393 Tobiuo (Flying Fish) Human Resources Management System, 43 tools-down strike, 523 top-down approach, 119 Total quality management (TQM), 34, 264 Towne’s incentive plan, 360–361 TQM. See Total quality management (TQM) trade test, 167 Trade Union Act, 1926, 555 trade union, 543–559 and First World War, 553–554 and Second World War, 554 challenges faced by, 557–559 collective action, 544 definitions of, 543b external leadership, 558 features of, 543–544 history of, 552–557 international workers, 558–559 as mediators, 544 objectives of, 544–546 rights and liabilities of, 555–557 strategies and actions for goal accomplishment, 547–550 types of, 546–547 trade union density, 472 traditional orientation, 176 training and development system, 590–591 training programmes, 110, 226 factors influencing, 226–227 training, 210–227 assessment of, 212–214 audio-visual aids in, 223

definitions of, 210b evaluation of, 223 issues in, 225–226 off the job training, 220–223 on the job training, 218–220 scope of, 214–215 significance of, 210–212 transfer, 450–452 definitions of, 451b objectives of, 450–451 types of, 451–452 trend analysis, 118 turnover rate, 122 TVS Motor Company, 190 type A personality, 390 type B personality, 390 type C personality, 390 type focus assessment, 196

U uncertainty, 59, 126 unemployed, 53 uniformity, 165 union resistance, 125–126 union substitution, 54 union. See trade union union-free organizations, 559–561 unitary approach, 467 Universal Declaration of Human Rights of 1948, 410 university-based programmes, 241 unpurchased goodwill model, 611 unstructured interview, 161

V value-based management, 619–620 variable pay, 314 versatility transfers, 452 vertical enlargement, 96 vertical integration, 31 vertical promotion, 447 video-conferencing, 223 virtual learning, 227 voluntary demotion, 449–450 voluntary retirement scheme (VRS), 455 voluntary separation, 453 voluntary transfer, 451 Volvo Group, 94b VRS. See voluntary retirement scheme (VRS)

W wages, 72, 318–319 fair, 318 living, 318–319 minimum, 318 real, 318

wages incentive planning process, 344–346, 345f wages incentives, 345 definitions, 343b evaluation of, 363–365 limitations of, 364–365 metric of, 363–365 objectives of, 343–344 prerequisites for good incentive scheme, 346–348 walk-ins, 142 Web-based tests, 158b Web-based training, 228 welfare facilities, 521 welfare measures. See employee welfare measures welfare obligation, 632 Western Coalfield Limited, 420 whistle-blower policy, 486b–487b white-collar union, 547 wild-cat strike, 523 Wipro Technologies, 158b, 234 Wockhardt, 111b work flow redesigning, 95 work mapping, 93 work profiling system (WPS) model, 78 work standard method, 284 work study technique, 120 workers’ participation in management (WPM), 421 corporate-level committee, 424–425 direct participation, 423–424 features of, 421–422 indirect participation, 423–424 levels of, 423 objectives of, 422–423 obstacles faced by, 430–431 prerequisites for, 428–429 significance of, 429–430 Workmen’s Compensation Act of 1923, 414 workplace practices, 90 workshop-level committee, 425–426 work-to-rule strike, 523 WPM. See workers’ participation in management (WPM) write-ins, 142 written warning, 491

Y Yes Bank, 130

Z zero-base forecasting, 120