Unit - 1 : Introduction to Human Resource Management

Structure of Unit:
1.0 Objectives
1.1 Introduction
1.2 Opening Case
1.3 What is Human Resource Management?
1.4 Nature of HRM
1.5 Scope of HRM
1.6 Objectives of HRM
1.7 Functions of HRM
1.8 Role of HRM
1.9 HRM in the New Millennium
1.10 Summary
1.11 Self Assessment Questions
1.12 Reference Books

1.0 Objectives
After studying this unit, you will be able to:
 Understand the basic concepts of human resource management (HRM).
 Explain what human resource management is and how it relates to the management process.
 Provide an overview of functions of HRM.
 Describe how the major roles of HR management are being transformed.
 Explain the role of HRM in the present millennium.

1.1 Introduction
Human beings are social beings and hardly ever live and work in isolation. We always plan, develop and
manage our relations both consciously and unconsciously. The relations are the outcome of our actions
and depend to a great extent upon our ability to manage our actions. From childhood each and every
individual acquire knowledge and experience on understanding others and how to behave in each and
every situations in life. Later we carry forward this learning and understanding in carrying and managing
relations at our workplace. The whole context of Human Resource Management revolves around this
core matter of managing relations at work place.
Since mid 1980’s Human Resource Management (HRM) has gained acceptance in both academic and
commercial circle. HRM is a multidisciplinary organizational function that draws theories and ideas from
various fields such as management, psychology, sociology and economics.
There is no best way to manage people and no manager has formulated how people can be managed
effectively, because people are complex beings with complex needs. Effective HRM depends very much
on the causes and conditions that an organizational setting would provide. Any Organization has three
basic components, People, Purpose, and Structure.
In 1994, a noted leader in the human resources (HR) field made the following observation: Yesterday, the
company with the access most to the capital or the latest technology had the best competitive advantage;
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Today, companies that offer products with the highest quality are the ones with a leg up on the competition;
But the only thing that will uphold a company’s advantage tomorrow is the caliber of people in the
organization.
That predicted future is today’s reality. Most managers in public- and private sector firms of all sizes
would agree that people truly are the organization’s most important asset. Having competent staff on the
payroll does not guarantee that a firm’s human resources will be a source of competitive advantage.
However in order to remain competitive, to grow, and diversify an organization must ensure that its
employees are qualified, placed in appropriate positions, properly trained, managed effectively, and
committed to the firm’s success. The goal of HRM is to maximize employees’ contributions in order to
achieve optimal productivity and effectiveness, while simultaneously attaining individual objectives (such
as having a challenging job and obtaining recognition), and societal objectives (such as legal compliance
and demonstrating social responsibility).

1.2 Opening Case

On October 3, 2003, Anant Dalvi and Akhtar Khan, who worked as contract workers in Tata Electric
Company until they were laid off in 1996, doused themselves with kerosene and set themselves ablaze
even as their co-workers protested before the company’s offices. While Dalvi died on the spot, Khan
died a few days later.
The Tata Electric Company said they were no longer on their payroll and were not permanent workers.
Employees union had taken up their case and filled petition in the Labour Court before their contracts
were terminated. The court directed the company not to terminate their services without following the due
process of law. Despite this their services were terminated on June 30, 1996.
The company union promised the workers that they would renegotiate. Yet on the night before they killed
themselves when Khan and Dalvi spoke to the union leader Shinde, they were told that nothing more
could be done for them. It is this that led them to take their lives. Dalvi has been in service as a peon for17
years and Khan had been employed for 19 years. But their services were not regularized. Such workers
draw salary much less than the permanent employees.
This is an example of the problem that comes under the purview of Human Resource Management- the
main concept elaborated in this chapter.

1.3 What is Human Resource Management?

HRM is the study of activities regarding people working in an organization. It is a managerial function that
tries to match an organization’s needs to the skills and abilities of its employees.
1.3.1 Definitions of HRM
Human resources management (HRM) is a management function concerned with hiring, motivating
and maintaining people in an organization. It focuses on people in organizations. Human resource
management is designing management systems to ensure that human talent is used effectively and efficiently
to accomplish organizational goals.
HRM is the personnel function which is concerned with procurement, development, compensation, integration
and maintenance of the personnel of an organization for the purpose of contributing towards the
accomplishments of the organization’s objectives. Therefore, personnel management is the planning,
organizing, directing, and controlling of the performance of those operative functions (Edward B. Philippo).
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According to the Invancevich and Glueck, “HRM is concerned with the most effective use of people
to achieve organizational and individual goals. It is the way of managing people at work, so that they give
their best to the organization”.
According to Dessler (2008) the policies and practices involved in carrying out the “people” or human
resource aspects of a management position, including recruiting, screening, training, rewarding, and
appraising comprises of HRM.
Generally HRM refers to the management of people in organizations. It comprises of the activities, policies,
and practices involved in obtaining, developing, utilizing, evaluating, maintaining, and retaining the appropriate
number and skill mix of employees to accomplish the organization’s objectives. The goal of HRM is to
maximize employees’ contributions in order to achieve optimal productivity and effectiveness, while
simultaneously attaining individual objectives (such as having a challenging job and obtaining recognition),
and societal objectives (such as legal compliance and demonstrating social responsibility).
In short Human Resource Management (HRM) can be defined as the art of procuring, developing and
maintaining competent workforce to achieve the goals of an organization in an effective and efficient
manner.

1.4 Nature of HRM

HRM is a management function that helps manager’s to recruit, select, train and develop members for an
organization. HRM is concerned with people’s dimension in organizations.
The following constitute the core of HRM
1. HRM Involves the Application of Management Functions and Principles. The functions
and principles are applied to acquiring, developing, maintaining and providing remuneration to
employees in organization.
2. Decision Relating to Employees must be Integrated. Decisions on different aspects of
employees must be consistent with other human resource (HR) decisions.
3. Decisions Made Influence the Effectiveness of an Organization. Effectiveness of an
organization will result in betterment of services to customers in the form of high quality products
supplied at reasonable costs.
4. HRM Functions are not Confined to Business Establishments Only but applicable to non-
business organizations such as education, health care, recreation and like.
HRM refers to a set of programmes, functions and activities designed and carried out in order to maximize
both employee as well as organizational effectiveness.

1.5 Scope of HRM

The scope of HRM is indeed vast. All major activities in the working life of a worker – from the time of his
or her entry into an organization until he or she leaves the organizations comes under the purview of HRM.
The major HRM activities include HR planning, job analysis, job design, employee hiring, employee and
executive remuneration, employee motivation, employee maintenance, industrial relations and prospects
of HRM.
The scope of Human Resources Management extends to:
 All the decisions, strategies, factors, principles, operations, practices, functions, activities and
methods related to the management of people as employees in any type of organization.
 All the dimensions related to people in their employment relationships, and all the dynamics that
flow from it.
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 Union/Labour
Relations

Personnel Compensation
Research and and Benefits
Information
System

Human
resource Employee
Assistance
planning Human
resource
management

Design of the
Organization Organizational
and Job Development

Selection and
Staffing Training and
Development

Figure 1.1: Scope of HRM

The scope of HRM is really vast. All major activities n the working life of a worker – from the time of his
or her entry into an organization until he or she leaves it comes under the purview of HRM. American
Society for Training and Development (ASTD) conducted fairly an exhaustive study in this field and
identified nine broad areas of activities of HRM.

These are given below:

 Human Resource Planning
 Design of the Organization and Job
 Selection and Staffing
 Training and Development
 Organizational Development
 Compensation and Benefits
 Employee Assistance
 Union/Labour Relations
 Personnel Research and Information System

a) Human Resource Planning: The objective of HR Planning is to ensure that the organization has
the right types of persons at the right time at the right place. It prepares human resources inventory
with a view to assess present and future needs, availability and possible shortages in human resource.
Thereupon, HR Planning forecast demand and supplies and identify sources of selection. HR
Planning develops strategies both long-term and short-term, to meet the man-power requirement.

b) Design of Organization and Job: This is the task of laying down organization structure, authority,
relationship and responsibilities. This will also mean definition of work contents for each position
in the organization. This is done by “job description”. Another important step is “Job specification”.
Job specification identifies the attributes of persons who will be most suitable for each job which
is defined by job description.
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 c) Selection and Staffing: This is the process of recruitment and selection of staff. This involves
matching people and their expectations with which the job specifications and career path available
within the organization.
d) Training and Development: This involves an organized attempt to find out training needs of the
individuals to meet the knowledge and skill which is needed not only to perform current job but
also to fulfil the future needs of the organization.
e) Organizational Development: This is an important aspect whereby “Synergetic effect” is
generated in an organization i.e. healthy interpersonal and inter-group relationship within the
organization.
f) Compensation and Benefits: This is the area of wages and salaries administration where wages
and compensations are fixed scientifically to meet fairness and equity criteria. In addition labour
welfare measures are involved which include benefits and services.
g) Employee Assistance: Each employee is unique in character, personality, expectation and
temperament. By and large each one of them faces problems everyday. Some are personal some
are official. In their case he or she remains worried. Such worries must be removed to make him
or her more productive and happy.
h) Union-Labour Relations: Healthy Industrial and Labour relations are very important for enhancing
peace and productivity in an organization. This is one of the areas of HRM.
i) Personnel Research and Information System: Knowledge on behavioral science and industrial
psychology throws better insight into the workers expectations, aspirations and behaviour.
Advancement of technology of product and production methods have created working environment
which are much different from the past. Globalization of economy has increased competition
many fold. Science of ergonomics gives better ideas of doing a work more conveniently by an
employee. Thus, continuous research in HR areas is an unavoidable requirement. It must also take
special care for improving exchange of information through effective communication systems on a
continuous basis especially on moral and motivation.
HRM is a broad concept; personnel management (PM) and Human resource development (HRD) are a
part of HRM.

1.6 Objectives of HRM

The primary objective of HRM is to ensure the availability of competent and willing workforce to an
organization. The specific objectives include the following:

1) Human capital : assisting the organization in obtaining the right number and types of employees to
fulfill its strategic and operational goals
2) Developing organizational climate: helping to create a climate in which employees are encouraged
to develop and utilize their skills to the fullest and to employ the skills and abilities of the workforce
efficiently
3) Helping to maintain performance standards and increase productivity through effective job design;
providing adequate orientation, training and development; providing performance-related feedback;
and ensuring effective two-way communication.
4) Helping to establish and maintain a harmonious employer/employee relationship
5) Helping to create and maintain a safe and healthy work environment
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 6) Developing programs to meet the economic, psychological, and social needs of the employees
and helping the organization to retain the productive employees
7) Ensuring that the organization is in compliance with provincial/territorial and federal laws affecting
the workplace (such as human rights, employment equity, occupational health and safety,
employment standards, and labour relations legislation). To help the organization to reach its goals
8) To provide organization with well-trained and well-motivated employees
9) To increase the employees satisfaction and self-actualization
10) To develop and maintain the quality of work life
11) To communicate HR policies to all employees.
12) To help maintain ethical polices and behavior.
The above stated HRM objectives can be summarized under four specific objectives: societal, organizational,
and functional and personnel.

Personnel

Figure 1.2: Objectives of HRM

1) Societal Objectives: seek to ensure that the organization becomes socially responsible to the
needs and challenges of the society while minimizing the negative impact of such demands upon
the organization. The failure of the organizations to use their resources for the society’s benefit in
ethical ways may lead to restriction.
2) Organizational Objectives: it recognizes the role of HRM in bringing about organizational
effectiveness. It makes sure that HRM is not a standalone department, but rather a means to assist
the organization with its primary objectives. The HR department exists to serve the rest of the
organization.
3) Functional Objectives: is to maintain the department’s contribution at a level appropriate to the
organization’s needs. Human resources are to be adjusted to suit the organization’s demands. The
department’s value should not become too expensive at the cost of the organization it serves.
4) Personnel Objectives: it is to assist employees in achieving their personal goals, at least as far as
these goals enhance the individual’s contribution to the organization. Personal objectives of
employees must be met if they are to be maintained, retained and motivated. Otherwise employee
performance and satisfaction may decline giving rise to employee turnover.
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 Table 1.1 HRM Objectives and Functions

HRM Objectives Supporting Functions

1. Societal Objectives Legal compliance
Benefits
Union- management relations
2. Organizational Objectives Human Resource Planning
Employee relations
Selection
Training and development
Appraisal
Placement
Assessment
3. Functional Objectives Appraisal
Placement
Assessment
4. Personal Objectives Training and development
Appraisal
Placement
Compensation
Assessment

1.7 Functions of HRM

Human Resources management has an important role to play in equipping organizations to meet the
challenges of an expanding and increasingly competitive sector. Increase in staff numbers, contractual
diversification and changes in demographic profile which compel the HR managers to reconfigure the role
and significance of human resources management. The functions are responsive to current staffing needs,
but can be proactive in reshaping organizational objectives. All the functions of HRM are correlated with
the core objectives of HRM (Table 1.1). For example personal objectives is sought to be realized
through functions like remuneration, assessment etc.

Figure 1.3 : Functions of HRM

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HR management can be thought of as seven interlinked functions taking place within organizations, as
depicted in Figure 1.3 Additionally, external forces—legal, economic, technological, global, environmental,
cultural/geographic, political, and social—significantly affect how HR functions are designed, managed,
and changed. The functions can be grouped as follows:
 Strategic HR Management: As a part of maintaining organizational competitiveness, strategic
planning for HR effectiveness can be increased through the use of HR metrics and HR technology.
Human resource planning (HRP) function determine the number and type of employees needed to
accomplish organizational goals. HRP includes creating venture teams with a balanced skill-mix,
recruiting the right people, and voluntary team assignment. This function analyzes and determines
personnel needs in order to create effective innovation teams. The basic HRP strategy is staffing
and employee development.
 Equal Employment Opportunity: Compliance with equal employment opportunity (EEO) laws
and regulations affects all other HR activities.
 Staffing: The aim of staffing is to provide a sufficient supply of qualified individuals to fill jobs in an
organization. Job analysis, recruitment and selection are the main functions under staffing.
Workers job design and job analysis laid the foundation for staffing by identifying what diverse
people do in their jobs and how they are affected by them.
Job analysis is the process of describing the nature of a job and specifying the human requirements
such as knowledge, skills, and experience needed to perform the job. The end result of job
analysis is job description. Job description spells out work duties and activities of employees.
Through HR planning, managers anticipate the future supply of and demand for employees and
the nature of workforce issues, including the retention of employees. So HRP precedes the actual
selection of people for organization. These factors are used when recruiting applicants for job
openings. The selection process is concerned with choosing qualified individuals to fill those jobs.
In the selection function, the most qualified applicants are selected for hiring from among the
applicants based on the extent to which their abilities and skills are matching with the job.
 Talent Management and Development: Beginning with the orientation of new employees,
talent management and development includes different types of training. Orientation is the first
step towards helping a new employee to adjust himself to the new job and the employer. It is a
method to acquaint new employees with particular aspects of their new job, including pay and
benefit programmes, working hours and company rules and expectations.
Training and Development programs provide useful means of assuring that the employees are
capable of performing their jobs at acceptable levels and also more than that. All the organizations
provide training for new and in experienced employee. In addition, organization often provide
both on the job and off the job training programmes for those employees whose jobs are undergoing
change.
Likewise, HR development and succession planning of employees and managers is necessary to
prepare for future challenges. Career planning has developed as result of the desire of many
employees to grow in their jobs and to advance in their career. Career planning activities include
assessing an individual employee’s potential for growth and advancement in the organization.
Performance appraisal includes encouraging risk taking, demanding innovation, generating or
adopting new tasks, peer evaluation, frequent evaluations, and auditing innovation processes.

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 This function monitors employee performance to ensure that it is at acceptable levels. This strategy
appraises individual and team performance so that there is a link between individual innovativeness
and company profitability. Which tasks should be appraised and who should assess employees’
performance are also taken into account.
 Total Rewards: Compensation in the form of pay, incentives and benefits are the rewards given
to the employees for performing organizational work. Compensation management is the method
for determining how much employees should be paid for performing certain jobs. Compensation
affects staffing in that people are generally attracted to organizations offering a higher level of pay
in exchange for the work performed. To be competitive, employers develop and refine their basic
compensation systems and may use variable pay programs such as incentive rewards, promotion
from within the team, recognition rewards, balancing team and individual rewards etc. This function
uses rewards to motivate personnel to achieve an organization’s goals of productivity, innovation
and profitability. Compensation is also related to employee development in that it provides an
important incentive in motivating employees to higher levels of job performance to higher paying
jobs in the organization.
Benefits are another form of compensation to employees other than direct pay for the work
performed. Benefits include both legally required items and those offered at employer’s discretion.
Benefits are primarily related to the area of employee maintenance as they provide for many basic
employee needs.
 Risk Management and Worker Protection: HRM addresses various workplace risks to
ensure protection of workers by meeting legal requirements and being more responsive to concerns
for workplace health and safety along with disaster and recovery planning.
 Employee and Labor Relations: The relationship between managers and their employees
must be handled legally and effectively. Employer and employee rights must be addressed. It is
important to develop, communicate, and update HR policies and procedures so that managers
and employees alike know what is expected. In some organizations, union/management relations
must be addressed as well. The term labour relation refers to the interaction with employees who
are represented by a trade union. Unions are organization of employees who join together to
obtain more voice in decisions affecting wages, benefits, working conditions and other aspects of
employment. With regard to labour relations the major function of HR personnel includes negotiating
with the unions regarding wages, service conditions and resolving disputes and grievances.

1.8 Role of HRM

The role of HRM is to plan, develop and administer policies and programs designed to make optimum use
of an organizations human resources. It is that part of management which is concerned with the people at
work and with their relationship within enterprises. Its objectives are: (a) effective utilization of human
resources, (b) desirable working relationships among all members of the organizations, and (c) maximum
individual development. Human resources function as primarily administrative and professional. HR staff
focused on administering benefits and other payroll and operational functions and didn’t think of themselves
as playing a part in the firm’s overall strategy.
HR professionals have an all encompassing role. They are required to have a thorough knowledge of the
organization and its intricacies and complexities. The ultimate goal of every HR person should be to
develop a linkage between the employee and organization because employee’s commitment to the
organization is crucial.
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 The first and foremost role of HR personnel is to impart continuous education to the employees about the
changes and challenges facing the country in general and their organization in particular. The employees
should know about the balance sheet of the company, sales progress, and diversification of plans, share
price movements, turnover and other details about the company. The HR professionals should impart
such knowledge to all employees through small booklets, video films and lectures.
The primary responsibilities of Human Resource managers are:
 To develop a thorough knowledge of corporate culture, plans and policies.
 To act as an internal change agent and consultant
 To initiate change and act as an expert and facilitator
 To actively involve in company’s strategy formulation
 To keep communication line open between the HRD function and individuals and groups both
within and outside the organization\
 To identify and evolve HRD strategies in consonance with overall business strategy.
 To facilitate the development of various organizational teams and their working relationship with
other teams and individuals.
 To try and relate people and work so that the organization objectives are achieved efficiently and
effectively.
 To diagnose problems and determine appropriate solution particularly in the human resource
areas.
 To provide co-ordination and support services for the delivery of HRD programmes and services
 To evaluate the impact of an HRD intervention or to conduct research so as to identify, develop or
test how HRD In general has improved individual and organizational performance.
Different management gurus have deliberated different roles for the HR manager based on the major
responsibilities that they full fill in the organization. Few of the commonly accepted models are enumerated
below.
Pat Mc Lagan has suggested nine roles that are played by HR practitioners
1. To bring the issues and trends concerning an organization’s external and internal people to the
attention of strategic decision makers and to recommend long term strategies to support
organizational excellence and endurance.
2. To design and prepare HR systems and actions for implementation so that they can produce
maximum impact on organizational performance and development.
3. To facilitate the development and implementation of strategies for transforming one’s own
organization by pursuing values and visions.
4. To create a positive relationship with the customer’s by providing them with the best services; to
utilize the resources to the maximum and to create commitment among the people who help the
organization to meet the customers needs whether directly connected or indirectly connected to
the organization.
5. To identify the learning needs hence to design and develop structured learning programmes and
materials to help accelerate learning for individuals and groups.
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 6. To enable the individuals and groups to work in new situations and to expend \and change their
views so that people in power move from authoritarian to participative models of leadership.
7. To help employees to assess their competencies, values and goals so that they can identify, plan
and implement development plans.
8. He also assists the individual employee to add values in the workplace and to focus on the
interventions and interpersonal skills for helping people change and sustain change.
9. He assesses the HRD practices and programmes and their impact and to communicate results so
that the organization and its people accelerate their change and development.
According to Dave Ulrich HR play’s four key roles.
1. Strategic Partner Role-turning strategy into results by building organizations that create value;
2. Change Agent Role- making change happen, and in particular, help it happen fast
3. Employees Champion Role—managing the talent or the intellectual capital within a firm
4. Administrative Role—trying to get things to happen better, faster and cheaper.
The role HR in organizations has undergone an extensive change and many organizations have gradually
oriented themselves from the traditional personnel management to a human resources management approach.
The basic approach of HRM is to perceive the organization as a whole. Its emphasis is not only on
production and productivity but also on the quality of life. It seeks to achieve the paramount development
of human resources and the utmost possible socio-economic development.
Current Classification of HR roles
According to R.L Mathis and J. H. Jackson (2010) several roles can be fulfilled by HR management. The
nature and extent of these roles depend on both what upper management wants HR management to do
and what competencies the HR staff have demonstrated. Three roles are typically identified for HR. The
focus of each of them, as shown in Figure 1.is elaborated below:

Administrative Operational Actions Strategic HR

Personnel practices Managing employee Organizational/business
Legal compliance forms relationship issues strategies
and paperwork Employee advocate HR strategic or planning
Evaluation of HR
effectiveness.

Figure 1.4 : Current Classification of HR roles

Fig 1.4 Current Classification of HR Roles
1. Administrative Role of HR
The administrative role of HR management has been heavily oriented to administration and recordkeeping
including essential legal paperwork and policy implementation. Major changes have happened in the
administrative role of HR during the recent years. Two major shifts driving the transformation of the
administrative role are: Greater use of technology and Outsourcing.

Technology has been widely used to improve the administrative efficiency of HR and the responsiveness
of HR to employees and managers, more HR functions are becoming available electronically or are being
done on the Internet using Web-based technology. Technology is being used in most HR activities, from
employment applications and employee benefits enrollments to e-learning using Internet-based resources.
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Increasingly, many HR administrative functions are being outsourced to vendors. This outsourcing of HR
administrative activities has grown dramatically in HR areas such as employee assistance (counseling),
retirement planning, benefits administration, payroll services, and outplacement services.
2. Operational and Employee Advocate Role for HR
HR managers manage most HR activities in line with the strategies and operations that have been identified
by management and serves as employee “champion” for employee issues and concerns.
HR often has been viewed as the “employee advocate” in organizations. They act as the voice for employee
concerns, and spend considerable time on HR “crisis management,” dealing with employee problems that
are both work-related and not work-related. Employee advocacy helps to ensure fair and equitable
treatment for employees regardless of personal background or circumstances.
Sometimes the HR’s advocate role may create conflict with operating managers. However, without the
HR advocate role, employers could face even more lawsuits and regulatory complaints than they do now.

The operational role requires HR professionals to cooperate with various departmental and operating
managers and supervisors in order to identify and implement needed programs and policies in the
organization. Operational activities are tactical in nature. Compliance with equal employment opportunity
and other laws is ensured, employment applications are processed, current openings are filled through
interviews, supervisors are trained, safety problems are resolved, and wage and benefit questions are
answered. For carrying out these activities HR manager matches HR activities with the strategies of the
organization.

3. Strategic Role for HR

The administrative role traditionally has been the dominant role for HR. However, as Figure 1.4 indicates
that a broader transformation in HR is needed so that significantly less HR time and fewer HR staffs are
used just for clerical work.

Differences between the operational and strategic roles exist in a number of HR areas. The strategic HR
role means that HR professionals are proactive in addressing business realities and focusing on future
business needs, such as strategic planning, compensation strategies, the performance of HR, and measuring
its results. However, in some organizations, HR often does not play a key role in formulating the strategies
for the organization as a whole; instead it merely carries them out through HR activities.
Many executives, managers, and HR professionals are increasingly seeing the need for HR management
to become a greater strategic contributor to the “business” success of organizations. HR should be
responsible for knowing what the true cost of human capital is for an employer. For example, it may cost
two times key employees’ annual salaries to replace them if they leave. Turnover can be controlled though
HR activities, and if it is successful in saving the company money with good retention and talent management
strategies, those may be important contributions to the bottom line of organizational performance.
The role of HR as a strategic business partner is often described as “having a seat at the table,” and
contributing to the strategic directions and success of the organization. That means HR is involved in
devising strategy in addition to implementing strategy. Part of HR’s contribution is to have financial
expertise and to produce financial results, not just to boost employee morale or administrative efficiencies.
Therefore, a significant concern for chief financial officers (CFOs) is whether HR executives are equipped
to help them to plan and meet financial requirements.
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However, even though this strategic role of HR is recognized, many organizations still need to make
significant progress toward fulfilling it. Some examples of areas where strategic contributions can be made
by HR are:
 Evaluating mergers and acquisitions for organizational “compatibility,” structural changes, and
staffing needs
 Conducting workforce planning to anticipate the retirement of employees at all levels and identify
workforce expansion in organizational strategic plans
 Leading site selection efforts for new facilities or transferring operations to international outsourcing
 locations based on workforce needs
 Instituting HR management systems to reduce administrative time, equipment, and staff by using
HR technology
 Working with executives to develop a revised sales
 compensation and incentives plan as new products
It is the era when for the competitive triumph of the organization there is a need to involve HRM significantly
in an integrated manner, which demands such capabilities from the HR specialists.
The role of HR shifted from a facilitator to a functional peer with competencies in other functions, and is
acknowledged as an equal partner by others. The HR is motivated to contribute to organizational objectives
of profitability and customer satisfaction, and is seen as a vehicle for realization of quality development.
The department has a responsibility for monitoring employee satisfaction, since it is seen as substitute to
customer satisfaction.
According to McKinsey’s 7-S framework model HR plays the role of a catalyst for the organization.
According to this framework, effective organizational change is a complex relationship between seven
S’s. HRM is a total matching process between the three Hard S’s (Strategy, Structure and Systems) and
the four Soft S’s (Style, Staff, Skills and Super-ordinate Goals). Clearly, all the S’s have to complement
each other and have to be aligned towards a single corporate vision for the organization to be effective. It
has to be realized that most of the S’s are determined directly or indirectly by the way Human Resources
are managed, and therefore, HRM must be a part of the total business strategy.

1.9 HRM in the New Millennium

Human Resources have never been more indispensable than today. The competitive forces that we face
today will continue to face in the future demanding organizational excellence. In order to achieve this
extended quality, organization’s need to focus on learning, quality development, teamwork, and
reengineering. These factors are driven by the way organizations implement things and how employees are
treated.
1. HR Can Help in Dispensing Organizational Excellence: To achieve this paradigm shift in the
organization excellence there is a need for organizations to reform the way in which work is carried out by
the Human Resource department. By designing an entirely new role and agenda that results in enriching
the organization’s value to customers, investors and employees, HR can help in delivering organizational
excellence. This can be carried out by helping line managers and senior mangers in moving planning from
the conference room to the market place and by becoming an expert in the way work is organized and
executed.
HR should be a representative of the employees and should help the organization in improving its capacity
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for change. HR will help the organizations in facing the competitive challenges such as globalization,
profitability through growth, technology, intellectual capital, and other competitive challenges that the
companies are facing while adjusting to uncontrollably challenging changes in business environment. The
novel role of HR is to rapidly turn strategy into action; to manage processes intelligently and efficiently; to
maximize employee contribution and commitment and to construct favorable conditions for flawless change.
2. Human Resource Should be a Strategy Partner: HR should also become a partner in strategy
executions by propelling and directing serious discussions of how the company should be organized to
carry out its strategy.
Creating the conditions for this discussion involves four steps. First HR need to define an organizational
architecture by identifying the company’s way of doing business. Second, HR must be held responsible
for conducting an organizational audit. Third, HR as a strategic partner needs to identify methods for
restoring the parts of the organizational architecture that need it. Fourth and finally, HR must take stock of
its own work and set clear priorities. In their new role as administrative experts they will need to shed their
traditional image and still make sure all routine work for the company is done well.
3. HR Accountability Should be Fixed to Ensure Employee Commitment: HR must be held
accountable for ensuring that employees feel committed to the organization and contribute fully. They must
take responsibility for orienting and training line management about the importance of high employee
morale and how to achieve it. The new HR should be the voice of employees in management discussions.
The new role for HR might also involve suggesting that more teams be used on some projects or that
employees be given more control over their own work schedules.
4. The New HR Must Become a Change Agent: The new HR must become a change agent, which
is building the organization’s capacity to embrace and capitalize on change. Even though they are not
primarily responsible for executing change it is the duty of the HR manager to make sure that the organization
carries out the changes framed for implementation.
5. Improving the Quality of HR: The most important thing that managers can do to drive the new
mandate for HR is to improve the quality of the HR staff itself. Senior executives must get beyond the
stereotypes of HR professionals as incompetent support staff and unleash HR’s full potential
6. Change in Employment Practices: The balance sheet of an organization shows human resource as
an expense and not as a Capital. In the information age, it is perceived that the machines can do the work
more efficiently than most people however; technology to work is dependent on people.
The challenges for Employment Practice in the New Millennium will require that there should be strategic
involvement of the people and labour-management partnerships as they both have to take organization
ahead.
7. Benchmarking Tool Must be Mastered by HR Professionals: HR professionals must master
benchmarking, which is a tool for continuous improvement- directing the human side associated with the
strategic path adopted by the organization. Through this, HR department will start appreciating the changes
happening within and outside the environment while expanding the knowledge about how to add value to
decision making at the highest level of the organization.
8. Aligning Human Resources to Better Meet Strategic Objectives: Too often organizations craft
their strategy in a vacuum. Some organizations don’t even include key people during strategy formulation
resulting in lacunae between the actual problems and the solutions implemented- as critical inputs are not
sought from those individuals who are supposed to implement the new strategies.
14
A past CEO of Sony once said that organizations have access to the same technology and the same
information. The difference between any two organizations is the “people”- the human resource. Empowering
the workforce is an essential tool for aligning human resources with the achievement of corporate objectives.
It is the duty of HR manager to hire talented human resource and to provide them with a positive environment
where they will be able to utilize their skills and potentials and to create an environment in which these
individuals are comfortable taking risks.

9. Promote From Within and Invest in Employees: Promoting employees from within sends a powerful
message that the organization’s employees are valued. New blood and fresh ideas often come from
newcomers to the organization. To avoid stagnation of the firm, new ideas and approaches are critical. Yet
to improve employee morale, promoting individuals from within the organization is essential. This
communicates that the organization values their employees and invests in their human resources.
10. Review the Recruitment and Selection Process: A key element of human resource planning is
ensuring that the supply of appropriate employees (with the right skill mix) is on board when needed. This
requires a proactive approach whereby the organization anticipates its needs well in advance. It is important
to identify the competencies being sought. That is, the criteria upon which selection decisions are to be
made should be decided in advance. A firm must identify those skill sets required by employees to be
successful. Charles O’Reilly suggests that companies should hire for attitude (perhaps even more so than
technical skills). That is, the fit of the individual with the values of the organization and the culture of the firm
should also be considered when selecting employees. This has been referred to as the person-organization-
fit. It is no longer enough to simply consider the person’s fit (and technical skill set) with the job. Part of the
employee’s fit with the organization should focus on the core values and beliefs of the organization. This
will increase employees’ contributions to the overall success of the organization if they already embrace
the core values of the organization prior to their selection

11. Communicate Mission and Vision: If employees are expected to contribute to the attainment of the
organization’s strategic objectives, they must understand what their role is. This can be achieved in part by
clearly communicating the mission and vision statements of the firm. The old adage is certainly true. If a
person does not know where he or she is going, any road will get him or her there.

The mission communicates the identity and purpose of the organization. It provides a statement of who the
firm is and what their business is. Only those employees who understand this purpose can contribute to the
fullest extent possible. The vision statement provides a picture of the future state of the firm. It should be
a stretch to attain. This keeps all the organization’s employees pulling in the same direction with a common
end point. It is much easier to align human resources with corporate objectives when these employees are
familiar with the mission and vision of the firm.
As the mission and vision statements are articulated, organizational members begin to more closely embrace
their very meaning on an individual level. These statements provide a road map leading employees down
the road to achieve organizational objectives. Employees then identify how they can contribute their unique
talents toward the attainment of these goals.
12. Use Teams to Achieve Synergy: Synergy can be concisely defined as “two plus two equals five”.
In other words, the whole is greater than the sum of the parts. So much more can be achieved as people
work together. Through the effective use of teams, organizations can often achieve synergy. Team goals,
however, must be aligned with the organization’s strategic objectives. Aligning team objectives with overall
corporate objectives ensures that people are working toward the same goal
15
1.10 Summary
It is critical that today’s organizations align their human resources to better meet strategic objectives. A
failure to do so results in wasted time, energy, and resources. Organizations are more likely to achieve this
alignment with their corporate objectives when they review their recruitment and selection processes for
fit, communicate the mission and vision statements, use joint goal setting, design an appropriate reward
system, empower the workforce, promote and develop from within, and use teams to achieve synergy.
Human Resource Management is the management function that helps the managers to plan, recruit, select,
train, develop, remunerate and maintain members for an organization. HRM has four objectives of societal,
organizational, functional and personal development. An organization must have set policies; definite
procedures and well defined principles relating to its personnel and these contribute to the effectiveness,
continuity and stability of the organization.

1.11 Self Assessment Questions

1. Define HRM? What are its functions and objectives?
2. Elaborate about the nature of HRM and its relevance in present scenario.
3. Explain the role of HR manager in HRM.

1.12 Reference books

- Aswathappa. K. (2008), Human Resource and Personnel Management (5th edition), Tata
McGraw-Hill Publishing Company Ltd., New Delhi.
- Biswajeet Pattanayak (2001), Human Resource Management, Prentice Hall of India Pvt.
Ltd., New Delhi.
- Lloyed L. Byers and Leslie W. Rue (1997), Human Resource Management (5th edition),
The McGraw-Hill Companies, USA.
- Michael Armstrong (1999), A Handbook of Human Resource Management Practice (7th
edition), Kogan Page Limited, 120 Pentonvelle Road, London.

16
 Unit - 2 : Human Resource Planning
Structure of Unit:
2.1 Objectives
2.2 Introduction
2.3 Human Resource Planning (HRP)
2.4 Definition of Human Resource Planning
2.5 Nature of HRP
2.6 Objectives of Human Resource Planning
2.7 Need for HRP in Organizations
2.8 Importance of HRP
2.9 Factors Affecting HRP
2.10 HRP Process
2.11 Requisites for Successful HRP
2.12 Barriers to Human HRP
2.13 Summary
2.14 Self Assessment Questions
2.15 Reference Books

2.1 Objectives
After studying this unit, you will be able to:
 Understand the nature and need of HRP
 Able to gain information about different factors that affect HRP
 Realize the importance of human resource planning in current organizational scenario
 Understand the HRP process and the pre requisites for successful HRP process

2.2 Introduction
As told in the last chapter Human resource management has started to play a significant role in the overall
strategic development of the organization. At present HR strategies are designed in tune with the overall
business strategy of the organization. HR strategy should sub serve the interest of the organization, translating
firm’s goals and objectives into a consistent, integrated and complimentary set of programmes and policies
for managing people.
First part of Human resource strategy is HRP – Human Resource Planning. All other HR activities like
employee hiring, training and development, remuneration, appraisal and labour relations are derived from
HRP.HR planning is important in a wide variety of industries and firms. HR planning affects what employers
do when recruiting, selecting, and retaining people, and of course these actions affect organizational results
and success. The challenges caused by changing economic conditions during recent year’s show why HR
workforce planning should occur.
Staffing an organization is an HR activity that is both strategic and operational in nature. As the HR
Headline indicates, HR planning is important in a wide variety of industries and firms. HR planning affects
what employers do when recruiting, selecting, and retaining people, and, of course these actions affect
organizational results and success. Human Resources planning mean different means to different
organizations. To some companies, human resources planning mean management development. It involve
helping executives to make better decisions, communicate more effectively, and know more about the
firm. The purpose of HRP is to make the manager a better equipped for facing the present and future.
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2.3 Human Resource Planning (HRP)
Human resource planning is important for helping both organizations and employees to prepare for the
future. The basic goal of human resource planning is to predict the future and based on these predictions,
implement programmes to avoid anticipated problems. Very briefly humans resource planning is the process
of examining an organization’s or individual’s future human resource needs for instance, what types of
skills will be needed for jobs of the future compared to future human resource capabilities (such as the
types of skilled employees you already have) and developing human resource policies and practices to
address potential problems for example, implementing training programmes to avoid skill deficiencies.

2.4 Definition of Human Resource Planning

According to Vetter, “HRP is the process by which management determines how the organization should
move from its current man power position to desired manpower position. Through planning, management
strives to have the right time, doing things which result in both the organization and individual receiving
maximum long run benefits”.
According to Gordon Mc Beath, “HRP is concerned with two things: Planning of manpower requirements
and Planning of Manpower supplies”.
According to Beach, “HRP is a process of determining and assuming that the organization will have an
adequate number of qualified persons, available at proper times, performing jobs which meet the needs of
the enterprise and which provides satisfaction for the individuals involved”
Simply HRP can be understood as the process of forecasting an organization’s future demands for and
supply of the right type of people in the right number. In other words HRP is the process of determining
manpower needs and formulating plans to meet these needs.
HRP is a Four-Phased Process.
 The first phase involves the gathering and analysis of data through manpower inventories and
forecasts,
 The second phase consists of establishing manpower objectives and policies and gaining top
management approval of these.
 The third phase involves designing and implementing plans and promotions to enable the
organization to achieve its manpower objectives.
 The fourth phase is concerned with control and evaluation of manpower plans to facilitate progress
in order to benefit both the organization and the individual. The long run view means that gains
may be sacrificed in the short run for the future grounds. The planning process enables the
organization to identify what its manpower needs is and what potential manpower problems required
current action. This leads to more effective and efficient performance.

2.5 Nature of HRP

Human resource planning is the process of analyzing and identifying the availability and the need for human
resources so that the organization can meet its objectives. The focus of HR planning is to ensure that the
organization has the right number of human resources, with the right capabilities, at the right times, and in
the right places. In HR planning, an organization must consider the availability and allocation of people to
jobs over long periods of time, not just for the next month or the next year1.

HRP is a sub system in the total organizational planning. Actions may include shifting employees to other
jobs in the organization, laying off employees or otherwise cutting back the number of employees, developing
18
present employees, and/or increasing the number of employees in certain areas. Factors to consider
include the current employees’ knowledge, skills, and abilities and the expected vacancies resulting from
retirements, promotions, transfers, and discharges. To do this, HR planning requires efforts by HR
professionals working with executives and managers.

2.6 Objectives of Human Resource Planning

1. To ensure optimum utilization of human resources currently available in the organization.
2. To assess or forecast the future skill requirement of the organization.
3. To provide control measures to ensure that necessary resources are available as and when required.
4. A series of specified reasons are there that attaches importance to manpower planning and
forecasting exercises. They are elaborated below:
 To link manpower planning with the organizational planning
 To determine recruitment levels.
 To anticipate redundancies.
 To determine optimum training levels.
 To provide a basis for management development programs.
 To cost the manpower.
 To assist productivity bargaining.
 To assess future accommodation requirement.
 To study the cost of overheads and value of service functions.
 To decide whether certain activity needs to be subcontracted, etc.
HRP exists as a part of planning process of business. This is the activity that aims to coordinate the
requirements for the availability of the different types of employers. The major activities are the forecasting,
(future requirements), inventorying (present strength), anticipating (comparison of present and future
requirements) and planning (necessary program to meet the requirements).

The HR forecasts are responsible for estimating the number of people and the jobs needed by an organization
to achieve its objectives and realize its plans in the most efficient and effective manner.

HR needs are computed by subtracting HR supplies or number of the employees available from expected
HR demands or number of people required to produce a desired level of outcome. The objective of HR
is to provide right personnel for the right work and optimum utilization of the existing human resources.
The objectives of human resource planning may be summarized as below:
 Forecasting Human Resources Requirements: HRP is essential to determine the future needs
of HR in an organization. In the absence of this plan it is very difficult to provide the right kind of
people at the right time.
 Effective Management of Change: Proper planning is required to cope with changes in the
different aspects which affect the organization. These changes need continuation of allocation/
reallocation and effective utilization of HR in organization.

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  Realizing the Organizational Goals: In order to meet the expansion and other organizational
activities the organizational HR planning is essential.
 Promoting Employees: HRP gives the feedback in the form of employee data which can be
used in decision-making in promotional opportunities to be made available for the organization.
 Effective Utilization of HR: The data base will provide the useful information in identifying
surplus and deficiency in human resources. The objective of HRP is to maintain and improve the
organizational capacity to reach its goals by developing appropriate strategies that will result in the
maximum contribution of HR.

2.7 Need for HRP in Organizations

Major reasons for the emphasis on HRP at the Macro level:
1) Employment-Unemployment Situation: Though in general the number of educated
unemployment is on the rise, there is acute shortage for a variety of skills. This emphasizes on the
need for more effective recruitment and employee retention.
2) Technological Change: The changes in production technologies, marketing methods and
management techniques have been extensive and rapid. Their effect has been profound on the job
contents and job contexts. These changes have caused problems relating to redundancies, retention
and redeployment. All these suggest the need to plan manpower needs intensively and systematically.

3) Demographic Change: The changing profile of the work force in terms of age, sex, literacy,
technical inputs and social background has implications for HRP.

4) Skill Shortage: Unemployment does not mean that the labour market is a buyer’s market.
Organizations generally become more complex and require a wide range of specialist skills that
are rare and scare. A problem arises in an organization when employees with such specialized
skills leave.

5) Governmental Influences: Government control and changes in legislation with regard to

affirmative action for disadvantages groups, working conditions and hours of work, restrictions
on women and child employment, causal and contract labour, etc. have stimulated the organizations
to be become involved in systematic HRP.

6) Legislative Control: The policies of “hire and fire” have gone. Now the legislation makes it
difficult to reduce the size of an organization quickly and cheaply. It is easy to increase but difficult
to shed the fat in terms of the numbers employed because of recent changes in labour law relating
to lay-offs and closures. Those responsible for managing manpower must look far ahead and thus
attempt to foresee manpower problems.

7) Impact of the Pressure Group: Pressure groups such as unions, politicians and persons displaced
from land by location of giant enterprises have been raising contradictory pressure on enterprise
management such as internal recruitment and promotion, preference to employees’ children, displace
person, sons of soil etc.
8) Systems Approach: The spread of system thinking and advent of the macro computer as the
part of the on-going revolution in information technology which emphasis planning and newer
ways of handling voluminous personnel records.
20
 9) Lead Time: The log lead time is necessary in the selection process and training and deployment
of the employee to handle new knowledge and skills successfully.

2.8 Importance of HRP

HRP is the subsystem in the total organizational planning. Organizational planning includes managerial
activities that set the company’s objective for the future and determines the appropriate means for achieving
those objectives. The importance of HRP is elaborated on the basis of the key roles that it is playing in the
organization.
1. Future Personnel Needs: Human resource planning is significant because it helps to determine
the future personnel needs of the organization. If an organization is facing the problem of either
surplus or deficiency in staff strength, then it is the result of the absence of effecting HR planning.
All public sector enterprises find themselves overstaffed now as they never had any planning for
personnel requirement and went of recruitment spree till late 1980’s. The problem of excess staff
has become such a prominent problem that many private sector units are resorting to VRS ‘voluntary
retirement scheme’. The excess of labor problem would have been there if the organization had
good HRP system. Effective HRP system will also enable the organization to have good succession
planning.
2. Part of Strategic Planning: HRP has become an integral part of strategic planning of strategic
planning. HRP provides inputs in strategy formulation process in terms of deciding whether the
organization has got the right kind of human resources to carry out the given strategy. HRP is also
necessary during the implementation stage in the form of deciding to make resource allocation
decisions related to organization structure, process and human resources. In some organizations
HRP play as significant role as strategic planning and HR issues are perceived as inherent in
business management.
3. Creating Highly Talented Personnel: Even though India has a great pool of educated
unemployed, it is the discretion of HR manager that will enable the company to recruit the right
person with right skills to the organization. Even the existing staff hope the job so frequently that
organization face frequent shortage of manpower. Manpower planning in the form of skill
development is required to help the organization in dealing with this problem of skilled manpower
shortage
4. International Strategies: An international expansion strategy of an organization is facilitated to
a great extent by HR planning. The HR department’s ability to fill key jobs with foreign nationals
and reassignment of employees from within or across national borders is a major challenge that is
being faced by international business. With the growing trend towards global operation, the need
for HRP will as well will be the need to integrate HRP more closely with the organizations strategic
plans. Without effective HRP and subsequent attention to employee recruitment, selection,
placement, development, and career planning, the growing competition for foreign executives
may lead to expensive and strategically descriptive turnover among key decision makers.
5. Foundation for Personnel Functions: HRP provides essential information for designing and
implementing personnel functions, such as recruitment, selection, training and development,
personnel movement like transfers, promotions and layoffs.
6. Increasing Investments in Human Resources: Organizations are making increasing investments
in human resource development compelling the increased need for HRP. Organizations are realizing
21
 that human assets can increase in value more than the physical assets. An employee who gradually
develops his/ her skills and abilities become a valuable asset for the organization. Organizations
can make investments in its personnel either through direct training or job assignment and the
rupee value of such a trained, flexible, motivated productive workforce is difficult to determine.
Top officials have started acknowledging that quality of work force is responsible for both short
term and long term performance of the organization.
7. Resistance to Change: Employees are always reluctant whenever they hear about change and
even about job rotation. Organizations cannot shift one employee from one department to another
without any specific planning. Even for carrying out job rotation (shifting one employee from one
department to another) there is a need to plan well ahead and match the skills required and
existing skills of the employees.
8. Uniting the Viewpoint of Line and Staff Managers: HRP helps to unite the viewpoints of line
and staff managers. Though HRP is initiated and executed by the corporate staff, it requires the
input and cooperation of all managers within an organization. Each department manager knows
about the issues faced by his department more than anyone else. So communication between HR
staff and line managers is essential for the success of HR Planning and development.
9. Succession Planning: Human Resource Planning prepares people for future challenges. The
‘stars’ are picked up, trained, assessed and assisted continuously so that when the time comes
such trained employees can quickly take the responsibilities and position of their boss or seniors
as and when situation arrives.
10. Other Benefits: (a) HRP helps in judging the effectiveness of manpower policies and programmes
of management. (b) It develops awareness on effective utilization of human resources for the
overall development of organization. (c) It facilitates selection and training of employees with
adequate knowledge, experience and aptitudes so as to carry on and achieve the organizational
objectives (d) HRP encourages the company to review and modify its human resource policies
and practices and to examine the way of utilizing the human resources for better utilization.

2.9 Factors Affecting HRP

HRP is influenced by several factors. The most important of the factors that affect HRP are (1) type and
strategy of organization (2) organizational growth cycles and planning (3) environmental uncertainties (4)
time horizons (5) type and quality of forecasting information (4) nature of jobs being filled and (5) off
loading the work.
1. Type and Strategy of the Organization: Type of the organization determines the production processes
involve, number and type of staff needed and the supervisory and managerial personnel required. HR
need is also defined by the strategic plan of organization. If the organization has a plan for organic growth
then organization need to hire additional employees. On the other hand If the organization is going for
mergers and acquisition, then organization need to plan for layoffs, as mergers can create, duplicate or
overlap positions that can be handled more efficiently with fewer employees.

Organization first decides whether to be reactive or proactive in HRP. Organizations either carefully
anticipate the needs and systematically plan to fill the need in advance (proactive) or can simply react to
the needs as they arise (reactive). Likewise, the organization must determine the width of the HR plan.
Organization can choose a narrow focus by planning in only one or two HR areas like recruitment and
selection or can have a broad perspective by planning in all areas including training and remuneration.
22
The nature of HR plan is also decides upon the formality of the plan. It can decides to have an informal
plan that lies mostly in the minds of the managers and personnel staff or can have a formal plan which is
properly documented in writing

The nature of HR plan is also depended upon the flexibility that is practiced in the organization. HR plan
should have the ability to anticipate and deal with contingencies. Organizations frame HRP in such a way
that it can contain many contingencies, which reflect different scenarios thereby assuring that the plan is
flexible and adaptable.

Organizational
Growth cycle
and Planning

Type and
Strategy o f Environmental
Uncertainties
Organization.

HRP
Time horizons Outsourcing

Type and
quality of
forecasting N ature of jobs
information being filled

Figure 2.1 : Factors Affecting HRP.

Figure 2.1 summarizes the five factors that influence an organization while framing its strategic HRP.

2. Organizational Growth Cycles and Planning: All organizations pass through different stages of
growth from the day of its inception. The stage of growth in which an organization is determines the nature
and extends of HRP. Small organizations in the earlier stages of growth may not have well defined personnel
planning. But as the organization enters the growth stage they feel the need to plan its human resource. At
this stage organization gives emphasis upon employee development. But as the organization reaches the
mature stage it experience less flexibility and variability resulting in low growth rate. HR planning becomes
more formalized and less flexible and less innovative and problem like retirement and possible retrenchment
dominate planning.
During the declining stage of the organization HRP takes a different focus like planning to do the layoff,
retrenchment and retirement. In declining situation planning always becomes reactive in nature towards
the financial and sales distress faced by the company.
3. Environmental Uncertainties: Political, social and economic changes affect all organizations and the
fluctuations that are happening in these environments affect organizations drastically. Personnel planners
deal with such environmental uncertainties by carefully formulating recruitment, selection, training and
23
development policies and programmes. The balance in the organization is achieved through careful succession
planning, promotion channels, layoffs, flexi time, job sharing, retirement, VRS and other personnel related
arrangements.
4. Time Horizons: HR plans can be short term or long term. Short term plans spans from six months to
one year, while long term plans spread over three to twenty years. The extent of time period depends
upon the degree of uncertainty that is prevailing in an organizations environment. Greater the uncertainty,
shorter the plan time horizon and vice versa.

Table 2.1 : Degree of Uncertainty and Length of Planning Period

Short Planning period- uncertainty/ Long planning period- certainty/ stability

instability
Many new competitors Strong competitive position
Rapid changes in social and economic Evolutionary, rather than rapid social,
conditions political and technological chan ge
Unstable product/ service demand patterns Stable demand patterns
Small organizational size, poor management Strong management practices.
practices (crisis Management)

Source: Elmer H. Burack and Nicholas J. Mathis, Human Resource Planning- A Pragmatic approach
to manpower Staffing and development, Illinosis, Brace- Park Press, 1987, p. 129.
5. Type and Quality of information: The information used to forecast personnel needs originates from
a multitude of sources. The forecast depends to a large extent upon the type of information and the quality
of data that is available to personnel planners. The quality and accuracy of information depend upon the
clarity with which the organizational decision makers have defined their strategy, structure, budgets,
production schedule and so on.

Table 2.2 : Levels of HRP Information

Strategic Information General Organizational Specific Information

Information Necessary for HRP
Product m ix Organizational structure Job analysis
Customer mix Information flows Skills inventories
Competitive emphasis Operating and capital Management inventories
budgets
Functional area objectives
Geographic limits of Production schedules Available training and
market Distribution channels developm ent programmes
Sales territories Recruitment sources
Production processes
Level of technology Labour market analysis
Planning horizons Compensation programm es
Constitutional provisions
and labour laws
Retirement plans
Turnover data.

Source: Leap& Crino, Personnel/ Human Resource Management, p. 161.

6. Nature of Jobs Being Filled: Personnel planners need to be really careful with respect to the nature
of the jobs being filled in the organization. Employees belonging to lower level who need very limited skills
can be recruited hastily but, while hiring employees for higher posts, selection and recruitment need to be
carried out with high discretion. Organization need to anticipate vacancies far in advance as possible, to
provide sufficient time to recruit suitable candidate.

24
7. Outsourcing: Several organizations outsource part of their work to outside parties in the form of
subcontract. Outsourcing is a regular feature both in the public sector as well as in the private sector
companies. Many of the organizations have surplus labour and hence instead of hiring more people they
go for outsourcing. Outsourcing is usually done for non critical activities. Outsourcing of non- critical
activities through subcontracting determines HRP.

2.10 HRP Process

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

Figure 2.2 : The HRP Process

Environmental Scanning:
It refers to the systematic monitoring of the external forces influencing the organization. The following
forces are essential for pertinent HRP.
 Economic factors, including general and regional conditions.
 Technological changes
 Demographic changes including age, composition and literacy,
 Political and legislative issues, including laws and administrative rulings
 Social concerns, including child care, educational facilities and priorities.
By scanning the environment for changes that will affect an organization, managers can anticipate their
impact and make adjustments early.
Organizational Objectives and Policies: HR plan is usually derived from the organizational objectives.
Specific requirements in terms of number and characteristics of employees should be derived from
organizational objectives
Once the organizational objectives are specified, communicated and understood by all concerned, the HR
department must specify its objective with regard to HR utilization in the organization.
25
HR Demand Forecast:
Demand forecasting is the process of estimating the future quantity and quality of people required to meet
the future needs of the organization. Annual budget and long-term corporate plan when translated into
activity into activity form the basis for HR forecast.
For eg: in the case of a manufacturing company, the sales budget will form the basis for production plan
giving the number and type of products to be produced in each period. This will form the basis upon which
the organization will decide the number of hours to be worked by each skilled category of workers. Once
the number hours required is available organization can determine the quality and quantity of personnel
required for the task.
Demand forecasting is influenced by both internal factors and external factors: external factors include-
competition, economic climate, laws and regulatory bodies, changes in technology and social factors
whereas internal factors are budget constraints, production level, new products and services, organizational
structure and employee separations.
Demand forecasting is essential because it helps the organization to 1. Quantify the jobs, necessary for
producing a given number of goods, 2. To determine the nature of staff mix required in the future, 3. To
assess appropriate levels in different parts of organization so as to avoid unnecessary costs to the organization,
4. To prevent shortages of personnel where and when, they are needed by the organization. 5. To monitor
compliances with legal requirements with regard to reservation of jobs.
Techniques like managerial judgment, ratio- trend analysis, regression analysis, work study techniques,
Delphi techniques are some of the major methods used by the organization for demand forecasting.
HR Supply Forecast:
Supply forecast determines whether the HR department will be able to procure the required number of
workers. Supply forecast measures the number of people likely to be available from within and outside an
organization, after making allowance for absenteeism, internal movements and promotions, wastage and
changes in hours, and other conditions of work.
Supply forecast is required because it is needed as it 1. Helps to quantify the number of people and
positions expected to be available in future to help the organization realize its plans and meet its objectives
2. Helps to clarify the staff mixes that will arise in future 3. It assesses existing staffing in different parts of
the organization. 4. It will enable the organization to prevent shortage of people where and when they are
most needed. 5. It also helps to monitor future compliance with legal requirements of job reservations.
Supply analysis covers the existing human resources, internal sources of supply and external sources of
supply.
HR Programming:
Once an organization’s personnel demand and supply are forecasted the demand and supply need to be
balanced in order that the vacancies can be filled by the right employees at the right time.
HR Plan Implementation:
HR implementation requires converting an HR plan into action. A series of action are initiated as a part of
HR plan implementation. Programmes such as recruitment, selection and placement, training and
development, retraining and redeployment, retention plan, succession plan etc when clubbed together
form the implementation part of the HR plan.
26
Control and Evaluation:
Control and evaluation represent the final phase of the HRP process. All HR plan include budgets, targets
and standards. The achievement of the organization will be evaluated and monitored against the plan.
During this final phase organization will be evaluating on the number of people employed against the
established (both those who are in the post and those who are in pipe line) and on the number recruited
against the recruitment targets. Evaluation is also done with respect to employment cost against the
budget and wastage accrued so that corrective action can be taken in future.

2.11 Requisites for Successful HRP

1. HRP must be recognized as an integral part of corporate planning
2. Support of top management is essential
3. There should be some centralization with respect to HRP responsibilities in order to have
co-ordination between different levels of management.
4. Organization records must be complete, up to date and readily available.
5. Techniques used for HR planning should be those best suited to the data available and
degree of accuracy required.
6. Data collection, analysis, techniques of planning and the plan themselves need to be constantly
revised and improved in the light of experience.

2.12 Barriers to HRP

Human Resource Planners face significant barriers while formulating an HRP. The major barriers are
elaborated below:
1) HR practitioners are perceived as experts in handling personnel matters, but are not experts in
managing business. The personnel plan conceived and formulated by the HR practitioners when
enmeshed with organizational plan, might make the overall strategic plan of the organization
ineffective.
2) HR information often is incompatible with other information used in strategy formulation. Strategic
planning efforts have long been oriented towards financial forecasting, often to the exclusion of
other types of information. Financial forecasting takes precedence over HRP.
4) Conflict may exist between short term and long term HR needs. For example, there can be a
conflict between the pressure to get the work done on time and long term needs, such as preparing
people for assuming greater responsibilities. Many managers are of the belief that HR needs can
be met immediately because skills are available on the market as long as wages and salaries are
competitive. Therefore, long times plans are not required, short planning are only needed.
5) There is conflict between quantitative and qualitative approaches to HRP. Some people view
HRP as a number game designed to track the flow of people across the department. Others take
a qualitative approach and focus on individual employee concerns such as promotion and career
development. Best result can be achieved if there is a balance between the quantitative and
qualitative approaches.
6) Non-involvement of operating managers renders HRP ineffective. HRP is not strictly an HR
department function. Successful planning needs a co-ordinated effort on the part of operating
managers and HR personnel.

27
2.13 Summary
Today, human resource planning is viewed as the way management comes to grasp the ill-defined and
tough-to-solve human resource problems facing an organization. Human resource planning is the process
of determining the human resources required by the organization to achieve its goals. Human resource
planning also looks at broader issues relating to the ways in which people are employed and developed,
in order to improve organizational effectiveness. HRP is a decision making process that combines activities
such as identifying and acquiring the right number of people with the proper skills, motivating them to
achieve high performance and creating interactive links between business objectives are resource planning
activities. HRP sets out requirements in both quantitative and qualitative terms. Accurate manpower plan
is a dream. A common error of many managers is to focus on the organization’s short term replacement
needs. Any human resource plan, if it is to be effective, must be derived from the long term plans and
strategies of the organization. The various approaches to human resource planning under which a number
of major issues and trends in today’s work plan that will affect organization and employees are (1) Examine
external and internal issues, (2) Determining future organizations capabilities, (3) Determining future
organizational needs, and (4) Implementing human resources programmes to address anticipated problems.
Although change is occurring very rapidly in the work world it is important for both organizations and
employees to monitor issues and events continuously and consider their potential effects.

2.14 Self Assessment Questions

1. Explain the role of HR professional in human resource planning process in organizations.
2 Describe the various forecasting techniques and how these techniques are being used in
human resource planning.
3 Explain the barriers to HRP. Bring out the requisites for effective planning.

2.15 Reference Books

- Lloyd L. Byars and Leslie W. Rue (1997), Human Resource Management (5th edition), The
McGraw-Hill Companies, USA.
- Michael Armstrong (1999), A Handbook of Human Resource Management Practice (7th
edition), Kogan Page Limited, 120 Pentonvelle Road, London.
- Biswajeet Pattanayak (2001), Human Resource Management, Prentice Hall of India Pvt. Ltd.,
New Delhi.
- K. Aswathappa (1999), Human Resource and Personnel Management (2nd edition), Tata
McGraw-Hill Publishing Company Ltd., New Delhi.
- P. Subba Rao (2004), Management and Organisational Behaviour (First edition), Himalaya
Publishing House.

28
 Unit - 3 : Job Analysis and Job Design
Structure of Unit:
3.0 Objectives
3.1 Introduction
3.2 Job Analysis Defined
3.3 Uses of Job Analysis
3.4 Steps in Job Analysis
3.5 Methods for Collecting Job Analysis Data
3.6 Job Description
3.7 Writing Job Description
3.8 Job Specification
3.9 Job Design
3.10 Methods of Job Design
3.11 Summary
3.12 Self Assessment Questions
3.13 Reference Books

3.0 Objectives
After completing this unit, you will be able to:
 Define job analysis.
 Understand the basic steps in a Job analysis.
 Identify the major methods of collecting Job analysis data.
 Recognize the major elements of job descriptions
 Explain how to prepare job descriptions and job specification and their use.
 Point out and explain job design and its various methods
 Distinguish between job enlargement and job enrichment.

3.1 Introduction
Manpower planning is concerned with determination of quantitative and qualitative requirements of
manpower for the organization. Determination of manpower requirements is one of the most important
problems in manpower planning. Job analysis and job design, provide this knowledge. Before going
through the mechanism of job analysis and job design, it is relevant to understand the terms which are
used in job analysis and job design.

Job: A job may be defined as a “collection or aggregation of tasks, duties and responsibilities which as a
whole, are regarded as a regular assignment to individual employees,” and which is different from other
assignments, In other words, when the total work to be done is divided and grouped into packages, we
call it a “job.” Each job has a definite title based upon standardized trade specifications within a job; two
or more grades may be identified, where the work assignment may be graded according to skill, the
difficulty of doing them, or the quality of workmanship. Thus, it may be noted that a position is a “collection
o tasks and responsibilities regularly assigned to one person;” while a job is a “group of position, which
involve essentially the same duties, responsibilities, skill and knowledge.” A position consists ofa particular
set of duties assigned to an individual.
29
 Decenzo and P. Robbins define other terms as follows:
Task: It is a distinct work activity carried out for a distinct purpose.
Duty: It is a number of tasks.
Position: It refers to one or more duties performed by one person in an organization, There are at
least as many positions as there are workers in the organization; vacancies may create
more positions than employees.
Job: It is a type of position within the organization.
Job Family: It is group of two or more jobs that either call for similar worker characteristics or contain
parallel work tasks as determined by job analysis.
Occupation: It is a group of similar jobs found across organizations.
Career: It represents a sequence of positions, jobs, or occupations that a
person has over his working life.

Career
Occupation
Job Family

Job
Position
Duty
Task

Element

Figure 3.1: Job Analysis Information Hierarchy

(Adapted from Decenzo and P. Robbins, Personnel/Human Resource Management)
3.2 Job Analysis Defined
Developing an organizational structure, results in jobs which have to be staffed. Job analysis is the procedure
through which you determine the duties and nature of the jobs and the kinds of people (in terms of skills
and experience) who should be hired for them.’ It provides you with data on job requirements, which are
then used for developing job descriptions (what the job entails) and job specifications (what kind of
people to hire for the job). Some of the definitions of job analysis ate given as follows, to understand the
meaning of the term more clearly:
According to Michael L. Jucius, “Job analysis refers to the process of studying the operations, duties
and organizational aspects of jobs in order to derive specifications or as they called by some, job
descriptions.”
According to DeCenzo and P. Robbins, “A job analysis is a systematic exploration of the activities
within a job. It is a basic technical procedure, one that is used to define the duties, responsibilities, and
accountabilities of a job.”
30
According to Herbert G Herman “A job is a collection of tasks that can be performed by a single
employee to contribute to the production of some product or service provided by the organization. Each
job has certain ability requirements (as well as certain rewards) associated with it. Job analysis process
used to identify these requirements.”
Flippo has offered a more comprehensive definition of job analysis as, “Job analysis is the process
of studying and collecting information relating to the operations and responsibilities of a specific job. The
immediate products of the analysis are job descriptions and job specifications”
Thus, job analysis involves the process of identifying the nature of a job (job description) and the qualities
of the likely job holder (job specification).

3.3 Uses of Job Analysis

As summarized in Figure 3.2 the information generated by the job analysis is used as a basis of several
interrelated personnel management activities:

Organizational design

O rganiz a tion a nd m a n

pow e r pla nning

Job Description Placement & orientation

Job
Analysis Recruitment & selection

Job Specification
Training &development

Safety and health

Employee counseling

Performance appraisal

Figure 3.2 : Uses of Job3.2:Analysis

Figure Uses of Job Analysis

1. Achievement of Goals: Weather and Davis have stated, “Jobs are at the core of every organization’s
productivity, if they are designed well and done right, the organization makes progress towards its objectives.
Otherwise, productivity suffers, profits fall, and the organization is less able to meet the demands of
society, customer, employees, and other with a stake in its success.”
2. Organizational Design: Job analysis will be useful in classifying the jobs and the interrelationships
among the jobs. On the basis of information obtained through job analysis, sound decisions regarding
hierarchical positions and functional differentiation can be taken and this will improve operationalefficiency.
3. Organization and Manpower Planning: It is helpful in organization planning, for it defines labour in
concrete terms and co-ordinates the activities of the work force, and clearly divides duties and responsibilities.
4. Recruitment and Selection: Job analysis provides you with information on what the job entails and
what human requirements are required to carry out these activities. This information is the basis on which
you decide what sort of people to recruit and hire.
31
5. Placement and Orientation: Job analysis helps in matching the job requirements with the abilities,
interests and aptitudes of people. Jobs will be assigned to persons on the basis of suitability for the job.
The orientation programme will help the employee in learning the activities and understanding duties that
are required to perform a given job more effectively.
6. Employee Training and Management Development: Job analysis provides the necessary information
to the management of training and development programmes. It helps in to determine the content and
subject matter of in training courses. It also helps in checking application information, interviewing test
results and in checking references.
7. Job Evaluation and Compensation: Job evaluation is the process of determining the relative worth of
different jobs in an organization with a view to link compensation, both basic and supplementary, with the
worth of the jobs. The worth of a job is determined on the basis of job characteristics and job holder
characteristics. Job analysis provides both in the forms of job description and job specification.
8. Performance Appraisal: Performance appraisal involves comparing each employee’s actual
performance with his or her desired performance. Through job analysis industrial engineers and other
experts determine standards to be achieved and specific activities to be performed.
9. Health and Safety: It provides an opportunity for identifying hazardous conditions and unhealthy
environmental factors so that corrective measures may be taken to minimize and avoid the possibility of
accidents.
10. Employee Counselling: Job analysis provides information about career choices and personal limitation.
Such information is helpful in vocational guidance and rehabilitation counselling. Employees who are unable
to cope with the hazards and demands of given jobs may be advised to opt for subsidiary jobs or to seek
premature retirement.

3.4 Steps in Job Analysis

The six steps of job analysis are shown in figure 3.3:
Determination of uses
of job analysis

Collection of back
ground information

Selection of job
for analysis

Collection of job
analysis data

Information processing

Job Job
Description Specification

Figure 3.3 : Job Analysis Process

32
1. Determine the Use of the Job Analysis Information: Start by identifying the use to which the
information will be put, since this will determine the type of data you collect and the technique you use to
collect them.
2. Collection of Background Information: According to Terry, “The make-up of a job, its relation to
other jobs, and its requirements for competent performance are essential information needed for a job
evaluation. This information can be had by reviewing available background information such as organization
charts (which show how the job in question relates to other jobs and where they fit into the overall
organization); class specifications (which describe the general requirements of the class of job to which the
job under analysis belongs); and the existing job descriptions which provide a starting point from which to
build the revised job description”.
3. Selection of Jobs for Analysis: To do job analysis is a costly and time consuming process. It is
hence, necessary to select a representative sample of jobs for purposes of analysis. Priorities of various
jobs can also be determined. A job may be selected because it has undergone undocumented changes in
job content. The request for analysis of a job may originate with the employee, supervisor, or a manager.
When the employee requests an analysis it is usually because new job demands have not been reflected in
changes in wages. Employee’s salaries are, in part, based upon the nature of the work that they perform.
Some organizations establish a time cycle for the analysis of each job. For example: A job analysis may
be required for all jobs every three years. New jobs must also be subjected to analysis.
4. Collection of Job Analysis Data: Job data on features of the job, requited employee qualification
and requirements, should be collected either form the employees who actually perform a job; or from
other employees (such as foremen or supervisors) who watch the workers doing a job and there by
acquire knowledge about it; or from the outside persons, known as the trade job analysis who are appointed
to watch employees performing a job. The duties of such a trade job analyst are (i) to outline the complete
scope of a job and to consider all the physical and mental activities involved in determining what the
worker does.; (ii) find out why a worker does a job; and for this purpose he studies why each task is
essential for the overall result; and (iii) the skill factor which may be needed in the worker to differentiate
between jobs and establish the extent of the difficulty of any job.
5. Processing the Information: Once job analysis information has been collected, the next step is to
place it in a form that will make it useful to those charged with the various personnel functions. Several
issues arise with respect to this. First, how much detail is needed? Second, can the job analysis information
be expressed in quantitative terms? These must be considered properly.
6. Preparing Job Descriptions and Job Classifications: Job information which has been collected
must be processed to prepare the job description form. It is a statement showing full details of the activities
of the job. Separate job description forms may be used for various activities in the job and may be
compiled later on. The job analysis is made with the help of these description forms. These forms may be
used as reference for the future.

7. Developing Job Specifications: Job specifications are also prepared on the basis of information
collected. It is a statement of minimum acceptable qualities of the person to be placed on the job. It
specifies the standard by which the qualities of the person are measured. Job analyst prepares such
statement taking into consideration the skills required in performing the job properly. Such statement is
used in selecting a person matching with the job.
33
3.5 Methods for Collecting Job Analysis Data
As discussed earlier, information is to be collected for job analysis. Such information may be collected by
the trained job analysis, superiors concerned and job holders themselves. Job information is collected
through the following methods:
1. Participant Diary/Logs: Workers can be to keep participant diary/long or lists of things they do
during the day. For every activity he or she engages in, the employee records the activity (along with the
time) in a log. This can provide you with a very comprehensive picture of the job, especially when it’s
supplemented with subsequent interviews with the worker and his or her supervisor. This method provides
more accurate information if done faithfully. However, it is quite time consuming. Further, each job holder
may maintain records according to his own way which presents problems in analysis at later stage. Therefore,
it has limited application.
2. Interview: There are three types of interviews you can use to collect job analysis data: individual
interviews with each employee; group interviews with groups of employees having the same job; and
supervisor interviews with one or more supervisors who are thoroughly knowledgeable about the job
being analyzed. The group interview is used when a large number of employees are performing similar or
identical work, since this can be a quick and inexpensive way of learning about the job. As a rule, the
worker’s immediate supervisor would attend the group session; if not, you should interview the supervisor
separately to get that person’s perspective on the duties and responsibilities of the job.
3. Critical Incidents: In this method, job holders are asked to describe incidents concerning the job on
the basis of their past experience. The incidents so collected are analyzed and classified according to the
job areas they describe, A fairly picture of actual job requirements can be obtained by distinguishing
between effective and ineffective behaviors of workers on the job. However, this method is time consuming.
The analyst requires a high degree of skill to analyze the contents of descriptions given by workers.
4. Technical Conference Method: This method utilizes supervisors with extensive knowledge of the
job. Here, specific characteristics of a job are obtained from the “experts.” Although it is a good data
gathering method, it often overlooks the incumbent worker’s perception about what they do on their job.
5. Job Performance: Under this method, the job analyst actually performs the job under study to get
first-hand experience of the actual tasks, and physical and social demands of the job. This method can be
used only for jobs where skill requirements are low and can be learnt quickly and easily. This is a time-
consuming method and is not appropriate for jobs requiring extensive training.
6. Functional Job Analysis: Functional job analysis (FJA) is employee- oriented analytical approach of
job analysis. This approach attempts to describe the whole person on the job. The main features of FJA
include the following:
 The extent to which specific instruction are necessary to perform the task
 The extent to which reasoning and judgment are required to perform the task
 The mathematical ability required to perform the task and
 The verbal and language facilities required to perform the task.
7. Observation Method: Using this method, a job analyst watches employees directly on the job.
Observations are made on various tasks, activities, the pace at which tasks are carried out, and the way
different activities are performed. This method is suitable for jobs that involve manual, standardized, and
short job cycle activities. This method also requires that the entire range of activities be observable;
possible with some jobs.
34
8. Questionnaires: The method is usually employed by engineering consultants. Properly drafted
questionnaires are sent out to job-holders for completion and are returned to supervisors. However, the
information received is often unorganized and incoherent. The idea in issuing questionnaire is to elicit the
necessary information from job –holders so that any error may first be discussed with the employee and,
after corrections, may be submitted to the job analyst.

Questionnaire for Job Analysis

1. Your Name ………..………..………..………..………..………..………..
2. Title or Designation of your job …………………………………………
3. Regular or Extra …………………………………………………………
4. Your Department ……………………………………………………….
5. To whom do you report directly (Name and Title): ………………………
6. Description of work:
(a) Daily Duties:
(b) Periodical Duties:
(c) Occasional Duties:
7. Your knowledge Requirements:
(A) Store Procedure and Methods:
(B) Merchandise:
8. What Equipment do you use?
9. What Materials do you work with or sell?
10. If you supervise the work of others, state how many and what their jobs are.
11. To what job would you normally expect to be promoted?
12. From what job were you transferred to your present job?

This technique is time consuming and generally does not yield satisfactory results because many employees
do not complete the questionnaire or furnish incorrect information because of their own limitations. The
use of questionnaire is recommended only in case of those technical jobs where the job contents are not
completely known to the supervisor or the operation is too complex to observe.

There are certain standardized questionnaires developed by a few agencies which are used by various
organizations for job analysis. Most of these questionnaires are of two types: position analysis questionnaire
and management position description questionnaire that are decribed as follows:

a. Position Analysis Questionnaire. Position analysis questionnaire (PAQ) is a highly specialized

instrument for analyzing a job in terms of employee activities. The PAQ developed by Purdue University
is a comprehensive questionnaire for collecting information for job analysis.

In this questionnaire, various job elements have been grouped into six categories with each category
containing relevant job elements resulting into 195 elements as shown in Table 3.1.

35
 Table 3.1 : Position Analysis Questionnaire

Job Aspects No. of

elements
Information input - Where and how do employee get information to do their 35
job?
Mental processes- what reasoning, planning, organizing, and decision 14
making is done?
Work output – what physical activities, tools and machines are used? 49
Relationships – what contact with other people, both in the company and 36
outside is maintained or developed?
Job context- what is the physical and social context in which the job is 19
maintained?
Other job characteristics – what other activities, conditions or Characteristics 42
not covered by the categories are relevant?

The advantage of PAQ is that it provides a quantitative score or profile of any job in terms of how that job
rates on the basic activities. The PAQ’s real strength is, thus, in classifying jobs. PAQ’s results can be used
to compare the jobs relative to one another and pay levels can be assigned for each job.
The major problem with PAQ is the time it takes for a job analyst to fill out the ratings. However, PAQ has
been widely researched and tested and appears to be both reliable and valid.
b. Management Position Description Questionnaire: Management position description is a highly
structured questionnaire containing 208 items relating to managerial responsibilities, restrictions, demands
and other miscellaneous position characteristics. W.W. Tomov and P.R. Pinto have developed the following
Management position Description factors:

 Product, marketing and financial strategy planning.

 Coordination of other organization units and personnel
 Internal business Control
 Products and services responsibility
 Public and customer relations
 Advanced consulting
 Autonomy of actions
 Approval of financial commitments
 Staff Service
 Supervision
 Complexity and stress
 Advanced financial responsibility
 Broad personnel responsibility
The above methods are the most popular ones for gathering job analysis data. They all provide realistic
information about what job incumbents actually do. They can thus be used for developing job descriptions
and job specifications. Caroll L. Shartle, Otis and Lenhert have provided the following suggestions for
making the job analyst’s task simple.
36
  Introduce yourself so that the worker knows who you are and why you are there.
 Show a sincere interest in the worker and the job that is analyzed;
 Do not try to tell the employee how to do his job.
 Try to talk to the employee and supervisors in their own language;
 Do a complete job study within the objectives of the programmer: and
 Verify the job information obtained.

3.6 Job Description

Job description is the immediate product of job analysis process; the data collected through job analysis
provides a basis for job description and job specification.
Job Description: is a written record of the duties, responsibilities and requirements of a particular job.
It is concerned with the job itself and not with the job holders. It is a statement describing the job in such
terms as its title, location, duties, working conditions and hazards.
Flippo has Defined Job Description as, “A job description is an organized, factual statement of duties
and responsibilities of a specific job. In brief, it should tell what is to be done. How it is done why. It is a
standard of function, in that defines the appropriate and authorized content of a job.
According to Pigors and Myres, “Job description is a pertinent picture (in writing) of the organizational
relationships, responsibilities and specific duties that constitutes a given job or position. It defines a scope
of responsibility and continuing work assignments that are sufficiently different form that of other jobs to
warrant a specific title.”

According to Zerga, who analyzed 401 articles on job description about 30 years ago. A job description
helps us in:
(i) Job grading and classification
(ii) Transfers and promotions.
(iii) Adjustments of grievances;
(iv) Defining and outlining promotional steps:
(v) Establishing a common understanding of a job between employers and employees;
(vi) Investigation accidents ;
(vii) Indicating faulty work procedures or duplication of papers;
(viii) Maintaining, operating and adjusting machinery;
(ix) Time and motion studies;
(x) Defining the limits of authority;
(xi) Indicating case of personal merit;
(xii) Studies of health and fatigue;
(xiii) Scientific guidance;
(xiv) Determining jobs suitable for occupational therapy;
(xv) Providing hiring specifications; and
(xvi) Providing performance indicators.

“Job description” is different from “performance assessment.” The former concerns such functions as
planning, co-ordination, and assigning responsibility; while the latter concerns the quality of performance
itself. Though job description is not assessment, it provides an important basis establishing assessment
standards and objectives.
37
3.7 Writing Job Description
A Job description is a written statement of what the job holder actually does, how he or she does it, and
under what conditions the job is performed. This information is in turn used to write a job specification.
This lists the knowledge, abilities, and skills needed to perform the job satisfactorily. While there is no
standard format you must use in writing a job description, most descriptions contain at least sections on:
1. Job Identification: It includes the job title, alterative title, department, division, and plant and
code number of the job. The job title identifies and designates the job properly, the department, division,
etc., indicate the name of the department where it is situated – whether it is the maintenance department,
mechanical shop etc. Location gives the name of the place. This portion of job description gives answer
to two important questions: to what higher level job is this job accountable. And who is supervised
directly?
2. Job Summary: Job summary describes the contents of the jobs in terms of activities or tasks
performed. Job summary should clear the nature of the job. Primary, secondary and other duties to be
performed on the job should clearly be indicated separately.
3. Duties and Responsibilities: This is the most important phase of job description and should be
prepared very carefully. It describes the duties to be performed along with frequency of each major
duty. Responsibilities concerning custody of money, supervision and training of staff etc. are also described
in this part.
Example of a Job Description
Job Title: Record Clerk Job No. 011
Supervisor: Record Supervisor Job Grand –III
Supervises: None Date: 2/21/12
Job Summary: Originate, process, and maintain comprehensive records; implement
required controls; collect and summarize data as requested.
Job Duties and Responsibilities :
 Review a variety of documents, listings, summarizes, etc, for completeness and
accuracy.
 Check records against other current sources such as reports or summaries; investigate
differences and take required action to ensure that records are accurate and up to date;
compile and summarize data report format as required.
 Implement controls or obtaining, preserving, and supplying a variety of information.
Prepare simple requisitions, forms, and other routine memoranda.
 Provide functional guidance to lower-level personnel as required.
Working Conditions: Normal working conditions. But visits sites on average twice a week.
Eight hours per day
Relationships:
 With equivalent officers in other departments.
 Maintains formal and social contacts with local officials.
Job Characteristics: Skilled operation of computer, calculating machine, or key punch
machine is not necessarily a requirement of this job.

The above information is correct and approved by:

(Signed) (Signed)
Job Analyst In charge Manager
4. Supervision: Under it is given number of persons to be supervised along with their job titles, and the
extent of supervision involved –general, intermediate or close supervision.
38
5. Relation to Other Jobs: It describes the vertical and horizontal relationships f work flow. It also
indicates to whom the jobholder will report and who will report to him. It gives an idea of channels of
promotion.
6. Machine, tools and equipment define each major type or trade name of the machines and tools and the
raw materials used.
7. Working Conditions: The working environment in terms of heat, light, noise, dust and fumes etc, the
job hazards and possibility of their occurrence and working conditions should also be described. It will be
helpful in job evaluation.
8. Social Environment: It specifies the social conditions under which the work will be performed. In this
part the size of work group, interpersonal interactions required to perform the job and development
facilities are mentioned

3.8 Job Specification

The job specification states the minimum acceptable qualifications that the incumbent must possess to
perform the job successfully. Based on the information acquired through job analysis, the job specification
identifies the knowledge, skills, and abilities needed to do the job effectively. Individuals possessing the
personal characteristics identified in the job specification should perform the job more effectively than
individuals lacking these personal characteristics. The job specification, therefore, is a important tool in the
selection process, for it keeps the selector’s attention on the list of qualifications necessary for an incumbent
to perform the job and assists in determining whether candidates are qualified.
According to Dale Yoder, “The job specification, as such a summary properly described is thus a
specialized job description, emphasizing personnel requirement and designed especially to facilitate selection
and placement.”
Flippo has defined job specification as, “Job specification is a statement of the minimum acceptable
human qualities necessary to perform a job properly ………….. It is a standard of personnel and designates
the qualities required for acceptable performance.”
In is clear from the above definitions that job specification is a statement of summary of personnel
requirements for a job. It may also be called “standard of personal for the selection”
A Job Specification should include:
(i) Physical characteristics, which include health, strength, endurance, age, height, weight, vision,
voice, eye, hand and foot co-ordination, motor co-ordination, and colour discrimination.
(ii) Psychological and social characteristics such as emotional stability, flexibility, decision making
ability, analytical view, mental ability, pleasing manners, initiative, conversational ability etc.
(iii) Mental Characteristics such as general intelligence, memory, judgement, ability to concentrate,
foresight etc.
(iv) Personal Characteristics such as sex, education, family background, job experience, hobbies,
extracurricular activities etc.
All these characteristics must be classified into three categories:
 Essential attributes which a person must possess.
 Desirable attributes which a person ought to posses.
 Contra indicators which will become a handicap to successful job performance.
39
3.9 Job Design
Job design is of comparatively recent origin. The human resource managers have realized that the design
of a job has considerable influence on the productivity and job satisfaction; poorly designed jobs often
result in boredom to the employees, increased turnover, job dissatisfaction, low productivity and an increase
in overall costs of the organization. All these negative consequences can be avoided with the help of
proper job design.
According to Jon Werner and DeSimone, “Job design is the development and alteration of the
components of a job (such as the tasks one performs, and the scope of one’s responsibilities) to improve
productivity and the quality of the employees’ work life.”
Job design has been defined by Davis (1966) as: “The specification of the contents, methods, and
relationships of jobs in order to satisfy technological and organizational requirements as well as the social
and personal requirements of the job-holder.”
Milkovich and Boudreau defined job design as, “Job design integrates work content (tasks, functions,
and relationships), the rewards (extrinsic and intrinsic) and the qualifications required (skills, knowledge,
abilities) for each job in a way that meets the needs of employees and the organization.”
Michael Armstrong has defined job design as “the process of deciding on the content of a job in
terms of its duties and responsibilities, on the methods to be used in carrying out the job, in terms of
techniques, systems and procedures, and on the relationships that should exist between the job holder and
his superiors, subordinates and colleagues.”
Job design is an attempt to create a match between job requirements and human attributes. It involves
organizing the components of the job and the interaction patterns among the members of a work group. It
helps in developing appropriate design of job to improve efficiency and satisfaction.
Principles of Job Design:
Principles are the bases of the approach used in job design. Robertson and Smith (1985) have suggested
the following five principles of job design:
 To influence skill variety, provide opportunities for people to do several tasks and combine
tasks.
 To influence task identity, combine tasks and from natural work units.
 To influence task significance, form natural work units and inform people of the importance of
their work.
 To influence autonomy, give people responsibility for determining their own working systems.
 To influence feedback; establish good relationship and open feedback channels.

3.10 Methods of Job Design

The various techniques of job design and redesign are discussed below:
1. Job Simplification: In job simplification, the complete job is broken down into small subparts; this is
done so that employee can do these jobs without much specialized training. Moreover, small operations of
the job can also be performed simultaneously so that the complete operation can be done more quickly.
For job simplification, generally time and motion studies are used.
2. Job Rotation: Another technique designed to enhance employee motivation is job rotation, or periodically
assigning employees to alternating jobs or tasks. For example, an employee may spend two weeks attaching
40
bumpers to vehicles and the following two weeks making final checks of the chassis. During the next
month, the same employee may be assigned to two different jobs. Therefore, the employee would be
rotated among four jobs. The advantage of job rotation is that employees do not have the same routine
job day after day. Job rotation only addresses the problem of assigning employees to jobs of limited
scope; the depth of the job does not change. The job cycle of the actual daily work performed has not
been lengthened or changed. Instead, employees are simply assigned to different jobs with different cycles.
Because job rotation does not change the basic nature of jobs, it is criticized as nothing more than having
an employee perform several boring and monotonous jobs rather than one. Some employees dislike job
rotation more than being assigned to one boring job because when they are assigned to one job they know
exactly where to report and what work to expect each day. Workers quickly realize that job rotation does
not increase their interest in their work.
Although it seldom addresses the lack of employee motivation, it give manages a means of coping with
frequent absenteeism and high turnover. Thus when absenteeism or turnover occurs in the work force,
managers can quickly fill the vacated position because each employee can perform several jobs.
Job rotation is often effectively used as a training technique for new, inexperienced employees. At higher
organizational levels, rotation also helps to develop managerial generalists because it exposes them to
several different operations.
Advantage of Job Rotation Technique:
 The employee experiences variety of work, workplace and peer group.
 Job rotation helps to broaden the knowledge and skills of an employee.
 The main advantage of job rotation is that it relieves the employee from the boredom and monotony
of doing the same job.
 With the help of this method, people become more flexible. They are prepared to assume
responsibility especially at other positions.
 Job rotation broadens the work experience of employees and turns specialists into generalists.
 It is beneficial for the management also as the management gets employees who can perform a
variety of tasks to meet the contingencies.
 This method improves the self image and personal worth of the employee.
Disadvantage of Job Rotation Technique:
 Job rotation also creates disruptions. Members of the work group have to adjust to the new
employee.
 Productivity is reduced by moving a worker into new position just when his efficiency at the prior
job was creating organizational economies.
 Training costs are increased.
 The supervisor may also have to spend more time answering question and monitoring the work of
the recently rotated employee.
 It can demotivate intelligent and ambitious trainees who seek specific responsibilities in their chosen
specialty.
3. Job Enlargement: Another means of increasing employee’s satisfaction with routine jobs is job
enlargement, or increasing the number of tasks performed (i.e. increasing the scope of the job). Job
enlargement, like job rotation, tries to eliminate short job cycles that create boredom. Unlike job rotation,
job enlargement actually increases the job cycle. When a job is enlarged, either the tasks being performed
are enlarged or several short tasks are given to one worker. Thus, the scope of the job is increased
because there are many tasks to be performed by the same worker. Job enlargement programs change
41
many methods of operation- in contrast to job rotation, in which the same work procedures are used by
workers who rotate through work stations. Although job enlargement actually changes the pace of the
work and the operation by reallocating tasks and responsibilities, it does not increase the depth of a job.
The focus of designing work for job enlargement is the exact opposite of that for job specialization.
Instead of designing jobs to be divided up into the fewest of tasks per employee, a job is designed to have
many tasks for the employee to perform. An enlarged job requires a longer training period because there
are more tasks to be learned. Worker satisfaction should increase because is reduced as the job scope is
expanded. However, job enlargement programs are successful with jobs what have increased scope;
such workers are less prone to resort to absenteeism, grievances, slowdowns and other means of displaying
job dissatisfaction.
Enlargement is done only on the horizontal level. Thus, the job remains the same, but becomes of a larger
scale than before. In the words of Geroge Strauss and L.R. Sayles “Job enlargement implies that instead
of assigning one man to each job, a group of men can be assigned to a group of jobs and then allowed to
decide for themselves how to organize the work. Such changes permit more social contacts and control
over the work process.”
Job enlargement has the following advantages:
 Increase in diversity of jobs
 Job satisfaction
 Provides wholeness and identity with the task and increases the knowledge necessary to perform
it.
 Provides variety of skills.
 Reduces tension and boredom.
 Trains and develops more versatile employees.
Despite these advantages this is not a completely satisfactory method of job design as it does not increase
the depth of a job. Enlarged jobs require longer training period as there are more tasks to be learned.
4. Job Enrichment: The concept of job enrichment has been derived from Herzberg’s two-factor theory
of motivation in which he has suggested that job content is one of the basic factors of motivation. If the job
is designed in such a manner that it becomes more interesting and challenging to the job performer and
provides him opportunities for achievement, recognition, responsibility, advancement and growth, the job
itself becomes a source of motivation to the individual.
According to Richard W. Beatty and Graig Eric. Schneider, “Job enrichment is a motivational technique
which emphasizes the need for challenging and interesting work. It suggests that jobs be redesigned so
that intrinsic satisfaction is derived from doing the job. In its best applications it leads to a vertically
enhanced job by adding function from other organizational levels, making it contain more variety and
challenge and offer autonomy and pride to the employee.”
According to P. Robbins, “Job enrichment refers to the vertical expansion of the jobs. It increases the
degree to which the worker controls the planning, execution and evaluation of his work.”
In the words of Robert Albanese, “Job enrichment sometimes called. “vertical job leading’ is a job
redesign strategy that focuses on job depth.”
According to Mondy. Holmes, and Flippo, “Job enrichment refers to basic changes in the content and
level of responsibility of a job so to provide for the satisfaction of the motivation needs of personnel.
Rebert Ford, who was associated with designing of jobs to make them more enriched, has provided
some bases (though not exhaustive) for job enrichment as shown in Table 3.3.
42
 Table 3.2 : Job Enrichment Bases

Tasks Motivator involved

Assign specific or specialized task to Responsibility, growth, advancement
individuals enabling them to become expert
Making periodic reports directly available Internal recognition
to the individual himself rather than to the
supervisor.
Giving a person a whole, natural unit of Responsibility, achievement, recognition
work (module, exchange district, division,
area, etc.)
Increasing the accountability of individuals Responsibility, recognition
for own work

Techniques of Job Enrichment: In order to enrich the jobs. The management should adopt the following
measures:

 Freedom in decisions
 Assign a natural work unit to an employee.
 Encouraging participation
 Allow the employee to set his own standards of performance.
 Minimize the controls to provide freedom to the employees
 Make an employee directly responsible for his performance.
 Encourage participation of employees in deciding organizational goals and policies.
 Expand job vertically
 Introducing new, difficult and creative tasks to the employees.
 Sense of achievement.
Advantages of Job Enrichment: The advantages of job enrichment are as follows:

 It enriches the role.

 Job enrichment is the most widely used of job design as it provides a meaningful learning to
employees.
 It makes the work interesting and employee get motivated.
 It helps in reducing the rate of labour turnover and absenteeism.
 It increases skills of the employees.
 It increases morale and performance.
 Reduce Boredom and dissatisfaction.
 Increase in output both qualitative and quantitative.
Disadvantages of Job Enrichment: Dunham and Newstrom state, “Even the strongest supporters of
job enrichment readily admit that there are limitations in its application.” Newstrom and Keith Davis also
write, “Employees are the final judges of what enriches their jobs. All that management can do is to gather
information about what tends to enrich jobs, try these changes in the job system, and then determine
whether employees feel that enrichment has occurred.” A few limitations of or problems with job enrichment
are as follows:
43
  Increase cost
 Need more employee counseling, training, and guidance.
 Not applicable to all jobs.
 Negative impact on personnel.
 Imposed on people.
 Objected by unions
 Pay dissatisfaction
JOB ENLARGEMENT vs. JOB ENRICHMENT
Job enlargement and job enrichment are both important forms of job design in order to enhance productivity
and satisfaction of the employees. They differ from each other in the following respects:
1. Nature of Job: The major difference between job enrichment and enlargement lies in the nature of
additions to the job. Enlargement involves a horizontal loading or expansion, or addition of tasks of the
same nature. Enrichment involves vertical loading of tasks and responsibility of the job holder; it improves
the quality of the job in terms of its intrinsic worth.
2. Purpose: The purpose of job enlargement is to reduce the monotony in performing repetitive jobs
by lengthening the cycle of operation. On the other hand, the purpose of job enrichment is making the
job lively, challenging and satisfying. It satisfies the higher level needs such as ego satisfaction, self
expression, sense of achievement and advancement of Job holders.
3. Skill Requirement: Job enlargement may not necessarily require the use of additional skills which
the job holder was using in performing the job before the enlargement. This is due to similarity of
additional tasks. Enrichment calls foe development and utilization of higher skills, initiative, and innovation
on the part of the job holder in performing the job.
4. Direction and Control: Job enlargement requires direction and control from external sources, say
supervisor. In fact, the job holder may require more direction and control because of enlargement of his
responsibility. Enrichment does not require external direction and control as these come from the job
holder himself. He requires only feedback from his supervisor.

3.11 Summary
 The purpose of an organization is to give each person a separate distinct job and to ensure that
these jobs are coordinated in such a way that the organization accomplishes its goals.
 Developing an organization structure results in jobs that have to be staffed. Job analysis is the
procedure through which you find out (1) what the job entails, and (2) what kinds of people
should be hired for the job. It involves six steps: (1) determine the use of the job analysis information;
(2) collection of background information; (3) selection of jobs for analysis; (4) collection of job
analysis data; (5) processing the information; (6) preparing job descriptions and job classifications;
and (7) developing job specifications.
 Techniques of job analysis are – observation method, questionnaires, participant diary/logs,
interview, critical incidents, technical conference method, and job performance.
 Job description and job specification are products of job analysis. Job description should indicate:
duties to be performed by the job holder and the manner he should complete the tasks. Job
specification: answer the question “what human traits and experience are necessary to do the job.
It portrays what kind of person to recruit and for what qualities that person should be tested”.
44
  Job design is an attempt to create a match between job requirements and job attribute. Job
rotation implies transfer to a job of same level and status. Job simplification enables the employees
to do the without much specialized training
 Job enlargement is the process of increasing the scope of job of a particular by adding more tasks
to it. And job enrichment implies increasing the contents of a job or the deliberate upgrading of
responsibility scope and challenge in work.
 Job enlargement and job enrichment are both important forms of job design in order to enhance
the productivity and satisfaction of the job holders.

3.12 Self Assessment Questions

1. What do you understand by job analysis? What is its importance in the management of human
resources?
2. What is job analysis? What steps are involved in the preparation of job analysis?
3. What are the byproducts of job analysis? Discuss the techniques used for collecting data for job
analysis?
4. What is job description? How is it prepared?
5. Define job specification? How is it different from job description?
6. Write notes on :
(i) Job Rotation
(ii) Job Simplification
7. Distinguish between :
(a) Job description and job specification
(b) Job enlargement and job enrichment
8. “Job analysis is the most basic personnel management function.” Discuss.
9. Clearly define and discuss the relationship among job analysis, job description and job specification.

3.13 Reference Books

- Mamoria C.B., Gankar S.V., (2006), “A Textbook of Human Resource Management”, Himalaya
Publishing House, New Delhi.
- Dwivedi R.S., (1997), “Personnel Management in Indian Enterprises”, Galgotia Publising Company,
New Delhi.
- Devid A. DeCENZO, STEPHEN P. ROBBINS (2002), “Personnel/Human Resource
Management”, Prentice Hall of India, New Delhi.
- Prasad L.M., (2005), Human Resource Management,” Sultan Chand & Sons, New Delhi.
- Dessler Gary (2010), “Human Resource Management”, Prentice Hall International Editions, New
Jersey.
- Carrell Michael R., Elbert Norbert F., Hatfield Robert D. (1999), “Human Resource Management,”
Prentice Hall, Englewood Cliffs, New Jersey.

45
 Unit - 4 : Recruitment
Structure of Unit:
4.0 Objectives
4.1 Introduction
4.2 Recruitment: Meaning and Definition
4.3 Process of Recruitment
4.4 Recruitment Policy
4.5 Factor Affecting Recruitment
4.6 Sources of Recruitment
4.7 Methods of Recruitment
4.8 Philosophies of Recruitment
4.9 Summary
4.10 Self Assessment Questions
4.11 Reference Books

4.0 Objectives
After completing this unit, you will be able to:
 Define recruitment.
 Cite the steps in recruitment process.
 Understand the prerequisites of a good recruitment policy.
 Describe the various sources of recruitment.
 Understand the methods through which prospective candidates may be recruited.
 Point out the various factors affecting recruitment.

4.1 Introduction
Successful human resource planning should identify our human resource needs. Once we know these
needs, we will want to do something about meeting them. The next step in the acquisition function, therefore,
is recruitment. This activity makes it possible for us to acquire the number and types of people necessary
to ensure the continued operation of the organization.
Hallett says, “It is with people that quality performance really begins and ends.” Robert Heller also says,
“If people of poor calibre are hired, nothing much else can be accomplished and Gresham’s law will work:
the bad people will drive out the good or cause them to deteriorate.”
Recruiting is the discovering of potential candidates for actual or anticipated organizational vacancies. Or,
from another perspective, it is a linking activity-bringing together those with jobs to fill and those seeking
jobs.

4.2 Recruitment: Meaning and Definition

Recruitment forms a step in the process which continues with selection and ceases with the placement of
the candidate. It is the next step in the procurement function, the first being the manpower planning.
Recruiting makes it possible to acquire the number and types of people necessary to ensure the continued
operation of the organisation. Recruiting is the discovering of potential applicants for actual or anticipated
organisational vacancies.
46
According to Edwin B. Flippo, “Recruitment is the process of searching for prospective employees and
stimulating them to apply for jobs in the organisation.”
According to Lord, “Recruitment is a form of competition. Just as corporations compete to develop,
manufacture, and market the best product or service, so they must also compete to identify, attract and
hire the most qualified people. Recruitment is a business, and it is a big business.”
In the words of Dale Yoder, “ Recruiting 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.”
Human Resource
Planning

Job Analysis

Recruitment

Selection

Placement

Figure 4.1: Recruitment to Human Resource Acquisition Process

According to Werther and Davis, “Recruitment is the process of finding and attracting capable
applicants for employment. The process begins when new recruits are sought and ends when their applications
are submitted. The result is a pool of applicants form which new employees are selected.”
Dales S. Beach writes, “Recruitment is the development and maintenance of adequate manpower
resources. It involves the creation of a pool of available labour upon whom the organisation can depend
when it needs additional employees.”
Thus, recruitment process is concerned with the identification of possible sources of human resource
supply and tapping those sources. In the total process of acquiring and placing human resources in the
organisation, recruitment falls in between different sub-processes as shown in Figure 4.2.
According to Scott, Clothier and Spriegel the need for recruitment arises out of the following situations:
 Vacancies created due to expansion, diversification, and growth of business.
 An increase in the competitive advantage of certain concerns, enabling them to get more of the
available business than formerly.
 An increase in business arising from an upswing during the recovery period of a business cycle.
 Vacancies created due to transfer, promotion, retirement, termination, permanent disability or
death.
 The normal population growth, which requires increased goods and services to meet the needs of
the people.
 A rising standard of living, which requires more of the same goods and services as well as the
creation of new wants to be satisfied.
47
4.3 Process of Recruitment
Recruitment process passes through the following stages:
 Recruitment process begins when the personnel department receives requisitions for recruitment
from any department of the company, The personnel requisitions contain details about the position
to be filled, number of persons to be recruited, the duties to be performed, qualifications expected
from the candidates, terms and conditions of employment and the time by which the persons
should be available for appointment etc.
 Locating and developing the sources of required number and type of employees.
 Identifying the prospective employees with required characteristics.
 Developing the techniques to attract the desired candidates. The goodwill of an organisation in the
market may be one technique. The publicity about the company being a good employer may also
help in stimulating candidates to apply. There may be others of attractive salaries, proper facilities
for development etc.
 Evaluating the effectiveness of recruitment process.
According to Famularo, personnel recruitment process involves five elements, viz., a recruitment policy,
a recruitment organisation, a forecast of manpower, the development of sources of recruitment, and different
techniques used for utilising these sources, and a method of assessing the recruitment programme. The
explanation of these is described below:
1. Recruitment Policy: It specifies the objectives of recruitment and provides a framework for the
implementation of the recruitment programme. It also involves the employer’s commitment to some
principles as to find and employ the best qualified persons for each job, to retain the most promising of
those hired, etc. It should be based on the goals, needs and environment of the organisation.
Human
Resource Recruitment Selection Placement
Planning

Search for Evaluating

Prospective Recruiting
Employees Effectiveness

Upgrading in
Same Position
Personnel
Research

Internal Transferring
Sources to New Job

Job Posting
Prompting
to Higher
Responsibilities

Employee
Referrals

External Advertising Evaluating

Sources for Selection

Scouting

Figure 4.2 : Place of Recruitment in Selection System

48
2. Recruitment Organisation: The recruitment may be centralised like public sector banks or
decentralised. Both practices have their own merits. The choice between the two will depend on the
managerial philosophy and the particular needs of the organisation.
3. Sources of Recruitment: Various sources of recruitment may be classified as internal and external.
These have their own merits and demerits.
4. Methods of Recruitment: Recruitment techniques are the means to make contact with potential
candidates, to provide them necessary information and to encourage them to apply for jobs.
5. Evaluation of Recruitment Programme: The recruitment process must be evaluated periodically.
The criteria for evaluation may consist of cost per applicant, the hiring ratio, performance appraisal, tenure
of stay, etc. After evaluation, necessary improvements should be made in the recruitment programme.

4.4 Recruitment Policy

As Yoder et al observe recruitment policy spells out the objectives of the recruitment and provides a
framework for implementations of the recruitment programme in the form of procedures. It may involve a
commitment to broad principles such as filling vacancies with the best qualified individuals. The recruitment
policy may embrace several issues such as the extent of promotion from within, attitudes of enterprise in
recruiting old, handicapped, and minor individuals, minority group members, part-time employees and
relatives of present employees. In addition, the recruitment policy may also involve the organisation system
to be developed for implementing the recruitment programme and procedures to be employed. Explicitly,
an organisational system is a function of the size of an enterprise. In smaller enterprises, there may be
merely informal recruiting procedures and the line official may be responsible to handle this function along
with their usual responsibilities. On the other hand, in larger organisations, there is usually a staff unit
attached with personnel or an industrial relations department designated as employment or recruitment
office. This specialisation of recruitment enables staff personnel to become highly skilled in recruitment
techniques and their evaluation. However, recruitment remains the line responsibility as far as the personnel
requisition forms are originated by the line personnel, who have also the final word in the acceptance or
rejection of a particular applicant. Despite this, the staff personnel have adequate freedom in respect of
sources of manpower to be tapped and the procedure to be followed for this purpose.
Recruitment policy covers the following areas:
 To prescribe the degree of emphasis. Inside the organisation or outside the organisation.
 To provide the weightage that would be given to certain categories of people such as local
population, physically-handicapped personnel, personnel from scheduled castes/tribes and other
backward classes.
 To prescribe whether the recruitment would be centralised or decentralised at unit levels.
 To specify the degree of flexibility with regard to age, qualifications, compensation structure and
other service conditions.
 To prescribe the personnel who would be involved in recruitment process and the role of human
resource department in this regard.
 To specify the budget for meeting the expenditures incurred in completing the recruitment process.
According to Yoder, “the recruitment policy is concerned with quantity and qualifications of manpower.”
It establishes broad guidelines for the staffing process. Generally, the following factors are involved in a
recruitment policy:
49
  To provide each employee with an open road and encouragement in the continuing development
of his talents and skills;
 To provide individual employees with the maximum of employment security, avoiding, frequent
lay-off or lost time;
 To avoid cliques which may develop when several members of the same household or community
are employed in the organisation;
 To carefully observe the letter and spirit of the relevant public policy on hiring and, on the whole,
employment relationship;
 To assure each employee of the organisation interest in his personal goals and employment objective;
 To assure employees of fairness in all employment relationships, including promotions and transfers;
 To provide employment in jobs which are engineered to meet the qualifications of handicapped
workers and minority sections; and
 To encourage one or more strong, effective, responsible trade unions among the employees.
Prerequisites of a Good Recruitment Policy: The recruitment policy of an organisation must satisfy
the following conditions:
 It should be in conformity with its general personnel policies;
 It should be flexible enough to meet the changing needs of an organisation;
 It should be so designed as to ensure employment opportunities for its employees on a long-term
basis so that the goals of the organisation should be achievable; and it should develop the potentialities
of employees;
 It should match the qualities of employees with the requirements of the work for which they are
employed; and
 It should highlight the necessity of establishing job analysis.

4.5 Factor Affecting Recruitment

The factors affecting recruitment can be classified as internal and external factors.
The internal factors are:
 Wage and salary policies;
 The age composition of existing working force;
 Promotion and retirement policies;
 Turnover rates;
 The nature of operations involved the kind of personnel required;
 The level and seasonality of operations in question;
 Future expansion and reduction programmes;
 Recruiting policy of the organisation;
 Human resource planning strategy of the company;
 Size of the organisation and the number of employees employed;
50
  Cost involved in recruiting employees, and finally;
 Growth and expansion plans of the organisation.
The external factors are:
 Supply and demand of specific skills in the labour market;
 Company’s image perception of the job seekers about the company.
 External cultural factors: Obviously, the culture may exert considerable check on recruitment. For
example, women may not be recruited in certain jobs in industry.
 Economic factors: such as a tight or loose labour market, the reputation of the enterprise in the
community as a good pay master or otherwise and such allied issues which determine the quality
and quantity of manpower submitting itself for recruitment.
 Political and legal factors also exert restraints in respect of nature and hours of work for women
and children, and allied employment practices in the enterprise, reservation of Job for SC, ST and
so on.

4.6 Sources of Recruitment

After the finalisation of recruitment plan indicating the number and type of prospective candidates, they
must be attracted to offer themselves for consideration to their employment. This necessitates the
identification of sources from which these candidates can be attracted. Some companies try to develop
new sources, while most only try to tackle the existing sources they have. These sources, accordingly, may
be termed as internal and external.
Internal Sources
It would be desirable to utilise the internal sources before going outside to attract the candidates. Yoder
and others suggest two categories of internal sources including a review of the present employees and
nomination of candidates by employees. Effective utilisation of internal sources necessitates an understanding
of their skills and information regarding relationships of jobs. This will provide possibilities for horizontal
and vertical transfers within the enterprise eliminating simultaneous attempts to lay off employees in one
department and recruitment of employees with similar qualification for another department in the company.
Promotion and transfers within the plant where an employee is best suitable improves the morale along
with solving recruitment problems. These measures can be taken effectively if the company has established
job families through job analysis programmes combining together similar jobs demanding similar employee
characteristics. Again, employees can be requested to suggest promising candidates. Sometimes, employees
are given prizes for recommending a candidate who has been recruited. Despite the usefulness of this
system in the form of loyalty and its wide practice, it has been pointed out that it gives rise to cliques posing
difficulty to management. Therefore, before utilising this system attempts should be made to determine
through research whether or not employees thus recruited are effective on particular jobs. Usually, internal
sources can be used effectively if the numbers of vacancies are not very large, adequate, employee records
are maintained, jobs do not demand originality lacking in the internal sources, and employees have prepared
themselves for promotions.
Merits of Internal Sources: The following are the merits of internal sources of recruitment:
 It creates a sense of security among employees when they are assured that they would be preferred
in filling up vacancies.
51
  It improves the morale of employees, for they are assured of the fact that they would be preferred
over outsiders when vacancies occur.
 It promotes loyalty and commitment among employees due to sense of job security and opportunities
for advancement.
 The employer is in a better position to evaluate those presently employed than outside candidates.
This is because the company maintains a record of the progress, experience and service of its
employees.
 Time and costs of training will be low because employees remain familiar with the organisation and
its policies.
 Relations with trade unions remain good. Labour turnover is reduced.
· As the persons in the employment of the company are fully aware of, and well acquainted wit, its
policies and know its operating procedures, they require little training, and the chances are that
they would stay longer in the employment of the organisation than a new outsider would.
 It encourages self-development among the employees. It encourages good individuals who are
ambitious.
 It encourages stability from continuity of employment.
 It can also act as a training device for developing middle and top-level managers.
Demerits of Internal Sources: However, this system suffers from certain defects as:
 There are possibilities that internal sources may “dry up”, and it may be difficult to find the requisite
personnel from within an organisation.
 It often leads to inbreeding, and discourages new blood from entering and organisation.
 As promotion is based on seniority, the danger is that really capable hands may not be chosen.
The likes and dislikes of the management may also play an important role in the selection of
personnel.
 Since the learner does not know more than the lecturer, no innovations worth the name can be
made. Therefore, on jobs which require original thinking (such as advertising, style, designing and
basic research), this practice is not followed.
This source is used by many organisations; but a surprisingly large number ignore this source, especially
for middle management jobs.
External Sources
DeCenzo and Robbins remark, “Occasionally, it may be necessary to bring in some ‘new blood’ to
broaden the present ideas, knowledge, and enthusiasm.” Thus, all organisations have to depend on external
sources of recruitment. Among these sources are included:
 Employment agencies.
 Educational and technical institutes. and
 Casual labour or “applicants at the gate” and nail applicants.
Public and private employment agencies play a vital role in making available suitable employees for different
positions in the organisations. Besides public agencies, private agencies have developed markedly in large
cities in the form of consultancy services. Usually, these agencies facilitate recruitment of technical and
professional personnel. Because of their specialisation, they effectively assess the needs of their clients
and aptitudes and skills of the specialised personnel. They do not merely bring an employer and an
employee together but computerise lists of available talents, utilising testing to classify and assess applicants
and use advanced techniques of vocational guidance for effective placement purposes.
52
Educational and technical institutes also form an effective source of manpower supply. There is an increasing
emphasis on recruiting student from different management institutes and universities commerce and
management departments by recruiters for positions in sales, accounting, finance, personnel and production.
These students are recruited as management trainees and then placed in special company training
programmes. They are not recruited for particular positions but for development as future supervisors and
executives. Indeed, this source provides a constant flow of new personnel with leadership potentialities.
Frequently, this source is tapped through on-campus interview with promising students. In addition, vocational
schools and industrial training institutes provide specialised employees, apprentices, and trainees for
semiskilled and skilled jobs. Persons trained in these schools and institutes can be placed on operative and
similar jobs with a minimum of in-plant training. However, recruitment of these candidates must be based
on realistic and differential standards established through research reducing turnover and enhancing
productivity.
Frequently, numerous enterprises depend to some extent upon casual labour or “applicants at the gate”
and nail applicants. The candidates may appear personally at the company’s employment office or send
their applications for possible vacancies. Explicitly, as Yoder and others observe, the quality and quantity
of such candidates depend on the image of the company in community. Prompt response to these applicants
proves very useful for the company. However, it may be noted that this source is uncertain, and the
applicants reveal a wide range of abilities necessitating a careful screening. Despite these limitations, it
forms a highly inexpensive source as the candidates themselves come to the gate of the company. Again,
it provides measures for good public relations and accordingly, all the candidates visiting the company
must be received cordially.
Table 4.1 : Recruiting Sources Used by Skill and Level

Skill/Level Recruiting Source Percentage of Use

Unskilled and Semiskilled Informal contacts 85
Walk-ins 74
Public Employment Agencies 66
Want Ads 52
Skilled Informal Contacts 88
Walk-ins 66
Public Employment Agencies 55
Want Ads 55
Professional Employees Internal Search 94
Informal Contacts 92
Walk-ins 71
Public Employment Agencies 52
Want Ads 48
Private Employment Agencies 22
Managerial Level Internal Search 100
Informal Contacts 71
Walk-ins 31
Private Employment Agencies 20
Want Ads 17
Public Employment Agencies 12

Source: Adapted from Stephen L. Mangum, “Recruitment and job Search: The Recruitment Tactics of
Employers. “Personnel Administrator, June 1982, p. 102.
53
As Jucius observes, trade unions are playing an increasingly important role in labour supply. In several
trades, they supply skilled labour in sufficient numbers. They also determine the order in which employees
are to be recruited in the organisation. In industries where they do not take active part in recruitment, they
make it a point that employees laid off are given preference in recruitment.
Application files also forms a useful source of supply of work force. Attempts may be made to review the
application to determine jobs for which the candidates filed for future use when there are openings in these
jobs. The candidates may be requested to renew their cards as many times as they desire. All the renewed
cards may be placed in “active” files and those not renewed for considerable time may be placed in
“inactive” file or destroyed. Indeed, a well-indexed application file provides utmost economy from the
standpoint of a recruiting budget.
Efficacy of alternative sources of supply of human resources should be determined through research.
Attempts may be made to relate the factor of success on the job with a specific source of supply. Alternative
sources can also be evaluated in terms of turnover, grievances and disciplinary action. Those sources
which are significantly positively related with job performance and significantly negatively related with
turnover, grievances and disciplinary action, can be effectively used in recruitment programmes. The
assessment should be periodically performed in terms of occupations. It may be that source “A” is most
effective for technical workers, while source “B” for semiskilled workers.
Advantages of External Recruitment: External sources of recruitment are suitable for the following
reasons:

 It will help in bringing new ideas, better techniques and improved methods to the organisation.
 The cost of employees will be minimised because candidates selected in this method will be
placed in the minimum pay scale.
 The existing employees will also broaden their personality.
 The entry of qualitative persons from outside will be in the interest of the organisation in the long
run.
 The suitable candidates with skill, talent, knowledge are available from external sources.
 The entry of new persons with varied expansion and talent will help in human resource mix.

Disadvantages of External Sources:

 Orientation and training are required as the employees remain unfamiliar with the organisation.
 It is more expensive and time-consuming. Detailed screening is necessary as very little is known
about the candidate.
 If new entrant fails to adjust himself to the working in the enterprise, it means yet more expenditure
on looking for his replacement.
 Motivation, morale and loyalty of existing staff are affected, if higher level jobs are filled from
external sources. It becomes a source of heart-burning and demoralisation among existing
employees.

4.7 Methods of Recruitment

Methods of recruitment are different from the sources of recruitment. Sources are the locations where
prospective employees are available. On the other hand, methods are way of establishing links with the
prospective employees. Various methods employed for recruiting employees may be classified into the
following categories:
54
1. Direct Methods:
These include sending recruiters to educational and professional institutions, employees, contacts with
public, and manned exhibits. One of the widely used direct methods is that of sending of recruiters to
colleges and technical schools. Most college recruiting is done in co-operation with the placement office
of a college. The placement office usually provides help in attracting students, arranging interviews, furnishing
space, and providing student resumes.
For managerial, professional and sales personnel campus recruiting is an extensive operation. Persons
reading for MBA or other technical diplomas are picked up in this manner. For this purpose, carefully
prepared brochures, describing the organisation and the jobs it offers, are distributed among students,
before the interviewer arrives. Sometimes, firms directly solicit information from the concerned professors
about students with an outstanding record. Many companies have found employees contact with the
public a very effective method. Other direct methods include sending recruiters to conventions and seminars,
setting up exhibits at fairs, and using mobile offices to go to the desired centres.
Table 4.2: Methods of Contacting Prospective Candidates

Based on personnel to be recruited

Managerial/technical personnel Operative personnel
Advertisement Public employment exchanges
Internet Labour unions
Walk-ins Employee referrals
Campus recruitments Gate hiring
Job fairs Labour contractors
Consultancy firms
Personnel contacts
Poaching and raiding
Based on the movement of the organisation
Direct methods Third party method
Advertisement Consultancy firms
Internet recruiting Public employment exchanges
Campus recruitment Labour unions
Job fairs Employee referrals
Personnel contacts Labour contractors
Gate hiring

2. Indirect Methods:
The most frequently used indirect method of recruitment is advertisement in newspapers, journals, and on
the radio and television. Advertisement enables candidates to assess their suitability. It is appropriate
when the organisation wants to reach out to a large target group scattered nationwide. When a firm wants
to conceal its identity, it can give blind advertisement in which only box number is given. Considerable
details about jobs and qualifications can be given in the advertisements. Another method of advertising is
a notice-board placed at the gate of the company.
3. Third-Party Methods:
The most frequently used third-party methods are public and private employment agencies. Public
employment exchanges have been largely concerned with factory workers and clerical jobs. They also
provide help in recruiting professional employees. Private agencies provide consultancy services and
charge a fee. They are usually specialised for different categories of operatives, office workers, salesmen,
55
supervisory and management personnel. Other third-party methods include the use of trade unions. Labour-
management committees have usually demonstrated the effectiveness of trade unions as methods of
recruitment.
Several criteria discussed in the preceding section for evaluating sources of applicants can also be used for
assessing recruiting methods. Attempts should be made to identify how the candidate was attracted to the
company. To accomplish this, the application may consist of an item as to how the applicant came to learn
about the vacancy. Then, attempts should be made to determine the method which consistently attracts
good candidates. Thus, the most effective method should be utilised to improve the recruitment programme.

4.8 Philosophies of Recruitment

There are basically two philosophies of recruitment:
 Traditional
 Realistic
The traditional philosophy is to get as many people as possible to apply for the job. As a result of this, a
large number of job seekers apply for the job, which makes the final selection process difficult and can
often result in the selection of wrong candidates. Wrong selection can, in turn, lead to employee dissatisfaction
and turnover in the long run.
In realistic philosophy, the needs of the organisation are matched with the needs of the applicants, which
enhance the effectiveness of the recruitment process. In realistic approach, the employees who are recruited
will stay in the organisation for a longer period of time and will perform at higher level of effectiveness.
Table 4.3 : Difference between Traditional and Realistic Job Preview

Traditional Job Preview Realistic Job Preview

Setting unrealistic and high job expectations. Setting realistic job expectations.
Job is viewed by the candidates as highly attractive Attractiveness of job is evaluated in the
light of realistic job expectations
High rate of acceptance of job offers. Some accept and some reject job
offers.
High expectation belied by actual job experience Expectations are confirmed by job
experience.
Creations of dissatisfaction, frustration and Creation of satisfaction in the light of
thoughts for leaving the job job expectations.
High rate of personnel turnover and lower rate of High rate of personnel retention and
job survival high rate of job survival

4.9 Summary
Recruitment forms a step in the process which continues with selection and ceases with the placement of
the candidate. It is the next step in the procurement function, the first being the manpower planning.
Recruiting makes it possible to acquire the number and types of people necessary to ensure the continued
operation of the organisation. Thus, recruitment process is concerned with the identification of possible
sources of human resource supply and tapping those sources.
Recruitment process involves five elements, viz., a recruitment policy, a recruitment organisation, the
development of sources of recruitment, and different techniques used for utilising these sources, and a
method of assessing the recruitment programme. After the finalisation of recruitment plan indicating the
56
number and type of prospective candidates, they must be attracted to offer themselves for consideration
to their employment. This necessitates the identification of sources from which these candidates can be
attracted. Some companies try to develop new sources, while most only try to tackle the existing sources
they have. These sources, accordingly, may be termed as internal and external.
Methods of recruitment are different from the sources of recruitment. Sources are the locations where
prospective employees are available. On the other hand, methods are way of establishing links with the
prospective employees. Various methods employed for recruiting employees may be classified into direct
methods, indirect methods and third party methods.

4.10 Self Assessment Questions

1. Define recruitment and identify the various factors which affect recruitment.
2. Discuss the steps of recruitment process. How will you reconcile the internal and external sources
of recruitment?
3. Discuss various sources of recruitment.
4. What is realistic job preview? How does it differ from traditional job preview?
5. What do you mean by recruitment policy? Explain the prerequisites of a good recruitment policy.
6. Write short notes on following.
(i) Advantages and disadvantages of internal sources of recruitment.
(ii) Advantages and disadvantages of external source of recruitment.
7. Explain the direct, indirect and third party methods of recruitment.

4.11 Reference Books

- Mamoria C.B., Gankar S.V., (2006), “A Textbook of Human Resource Management”, Himalaya
Publishing House, New Delhi.
- Dwivedi R.S., (1997), “Personnel Management in Indian Enterprises”, Galgotia Publising Company,
New Delhi.
- Devid A. DeCENZO, STEPHEN P. ROBBINS (2002), “Personnel/Human Resource
Management”, Prentice Hall of India, New Delhi.
- Prasad L.M., (2005), Human Resource Management,” Sultan Chand & Sons, New Delhi.
- Dessler Gary (2010), “Personnel Management”, Prentice Hall International Editions, New Jersey.
- Carrell Michael R., Elbert Norbert F., Hatfield Robert D. (1999), “Human Resource Management,”
Prentice Hall, Englewood Cliffs, New Jersey.

57
 Unit - 5 : Selection
Structure of Unit:
5.0 Objectives
5.1 Introduction: Selection
5.2 Selection Procedure
5.3 Selection Decision Outcomes
5.4 Placement – Orientation - Socialization
5.5 Summary
5.6 Self Assessment Questions
5.7 Reference Books

5.0 Objectives
After completing this unit, you will be able to:
 Understand and define selection and its process.
 Understand the selection process so as to make it effective.
 Explain how the final selection decision is made.
 Point out the outcomes of selection decision.
 Understand in brief about placement and orientation.
 Develop a selection decision process.

5.1 Introduction: Selection

Human resource selection is the process of choosing qualified individuals who are available to fillpositions
in an organization. In the ideal personnel situation, selection involves choosing the best applicant to fill a
position. Selection is the process of choosing people by obtaining and assessing information about the
applicants with a view to matching these with the job requirements. It involves a careful screening and
testing of candidates who have put in their applications for any job in the enterprise. It is the process of
choosing the most suitable persons out of all the applicants. The purpose of selection is to pick up the right
person for every job.
It can be conceptualised in terms of either choosing the fit candidates, or rejecting the unfit candidates, or
a combination of both. Selection involves both because it picks up the fits and rejects the unfits. In fact, in
Indian context, there are more candidates who are rejected than those who are selected in most of the
selection processes. Therefore, sometimes, it is called a negative process in contrast to positive programme
of recruitment.
According to Dale Yoder, “Selection is the process in which candidates for employment are divided into
two classes-those who are to be offered employment and those who are not”.
According to Thomas Stone, “Selection is the process of differentiating between applicants in order to
identify (and hire) those with a greater likelihood of success in a job”.
In the words of Michael Jucius, “The selection procedure is the system of functions and devices
adopted in a given company for the purpose of ascertaining whether or not candidates possess the
qualifications called for by a specific job or for progression through a series of jobs.”
According to Keith Davis, “Selection is the process by which an organisation chooses from a list of
screened applicants, the person or persons who best meet the selection criteria for the position available.”
58
Thus, the selection process is a tool in the hands of management to differentiate between the qualified and
unqualified applicants by applying various techniques such as interviews, tests etc. The cost incurred in
recruiting and selecting any new employee is expensive. The cost of selecting people who are inadequate
performers or who leave the organisation before contributing to profits proves a major cost of doing
business. Decenzo and Robbins write, “Proper selection of personnel is obviously an area where
effectiveness - choosing competent workers who perform well in their position-can result in large saving.”
According to them, selection has two objectives: (1) to predict which job applicants would be successful
if hired and (2) to inform and sell the candidate on the job and the organization. Satisfaction of employee
needs and wants as well as the fullest development of his potential are important objectives of selection.
Dale Yoder says, “Selection has long held a high rank in the priority of problem areas in management.
Investments in good people produce a very high rate of return. A good choice of people can provide a
basis for long, sustained contributions.”
Difference between Recruitment and Selection: Difference between recruitment and selection has
been described by Flippo as, “Recruitment is a process of searching for prospective employees and
stimulating and encouraging them to apply for jobs in an organisation. It is often termed positive as is
stimulates people to apply for jobs, selection on the other hand tends to be negative because it rejects a
good number of those who apply, leaving only the best to be hired.” Recruitment and selection differs in
following manner:
1. Difference in Objective: The basic objective of recruitment is to attract maximum number of candidates
so that more options are available. The basic objective of selection is to choose best out of the available
candidates.
2. Difference is Process: Recruitment adopts the process of creating application pool as large as possible
and therefore. It is known as positive process. Selection adopts the process through which more and
more candidates are rejected and fewer candidates are selected or sometimes even not a single candidate
is selected. Therefore, it is known as negative process or rejection process.
3. Technical Differences: Recruitment techniques are not very intensive, and not require high skills. As
against this, in selection process, highly specialised techniques are required. Therefore, in the selection
process, only personnel with specific skills like expertise in using selection tests, conducting interviews,
etc., are involved.
4. Difference in Outcomes: The outcome of recruitment is application pool which becomes input for
selection process. The outcome of selection process is in the form of finalising candidates who will be
offered jobs.

5.2 Selection Procedure

The selection procedure is concerned with securing relevant information about an applicant. This information
is secured in a number of steps or stages. The objective of selection process is to determine whether an
applicant meets the qualification for a specific job and to choose the applicant who is most likely to
perform well in that job. Selection is a long process, commencing from the preliminary interview of the
applicants and ending with the contract of employment (sometimes).
The selection procedure consists of a series of steps. Each step must be successfully cleared before the
applicant proceeds to the next. The selection process is a series of successive hurdles or barriers which an
applicant must cross. These hurdles are designed to eliminate an unqualified candidate at any point in the
selection process. Thus, this technique is called “Successive Hurdles Technique”. In practice, the process
differs among organisations and between two different jobs within the same organisation. Selection procedure
59
for the senior managers will be long drawn and rigorous, but it is simple and short while hiring lower level
employees.
The major factors which determine the steps involved in a selection process are as follows:
 Selection process depends on the number of candidates that are available for selection.
 Selection process depends on the sources of recruitment and the method that is adopted for
making contact with the prospective candidates.
 Various steps involved in as selection process depend on the type of personnel to be selected.
All the above factors are not mutually exclusive, rather these operate simultaneously. In any case, the basic
objective of a selection process is to collect as much relevant information about the candidates as is
possible so that the most suitable candidates are selected. A comprehensive selection process involves the
various steps as shown in Figure 5.1.

Application pool from “

recruitment process

Primary screening Eliminate those who does not

& interview fulfil job requirement.

Application Unfavourable personnel data

Blank

Selection tests Eliminate those who obtain

unfavourable test score

Eliminate those not meeting job

Interviews and organisational requirements

Background Eliminate those with adverse remarks

investigations

Physical examination Eliminate those not meeting physical standards

Approval by appropriate
Adopt objectivity
authority

Final Employment Congratulate

decision

Check the reliability and validity

Evaluation

Figure 5.1 Steps in Selection Process

60
1. Application Pool: Application pool built-up through recruitment process is the base for selection
process. The basic objective at the recruitment level is to attract as much worthwhile applications as
possible so that there are more options available at the selection stage.
2. Preliminary Screening and Interview: It is highly noneconomic to administer and handle all the
applicants. It is advantageous to sort out unsuitable applicants before using the further selection steps. For
this purpose, usually, preliminary interviews, application blank lists and short test can be used. All applications
received are scrutinised by the personnel department in order to eliminate those applicants who do not
fulfil required qualifications or work experience or technical skill, his application will not be entertained.
Such candidate will be informed of his rejection.

Preliminary interview is a sorting process in which the prospective candidates are given the necessary
information about the nature of the job and the organisation. Necessary information is obtained from the
candidates about their education, skills, experience, expected salary etc. If the candidate is found suitable,
he is elected for further screening. This courtesy interview; as it is often called helps the department screen
out obvious misfits. Preliminary interview saves time and efforts of both the company and the candidate. It
avoids unnecessary waiting for the rejected candidates and waste of money on further processing of an
unsuitable candidate. Since rejection rate is high at preliminary interview, the interviewer should be kind,
courteous, receptive and informal.

3. Application Blank or Application Form: An application blank is a traditional widely accepted device
for getting information from a prospective applicant which will enable the management to make a proper
selection. The blank provides preliminary information as well as aid in the interview by indicating areas of
interest and discussion. It is a good means of quickly collecting verifiable (and therefore fairly accurate)
basic historical data from the candidate. It also serves as a convenient device for circulating information
about the applicant to appropriate members of management and as a useful device for storing information
for, later reference. Many types of application forms, sometimes very long and comprehensive and
sometimes brief, are used. Information is generally taken on the following items:
(a) Biographical Data: Name, father’s name, data and place of birth, age, sex, nationality,
height, weight, identification marks, physical disability, if any, marital status, and number of
dependants.
(b) Educational Attainment: Education (subjects offered and grades secured), training acquired
in special fields and knowledge gained from professional/technical institutes or through
correspondence courses.
(c) Work Experience: Previous experience, the number of jobs held with the same or other
employers, including the nature of duties, and responsibilities and the duration of various assignments,
salary received, grades, and reasons for leaving the present employer.
(d) Salary and Benefits: Present and expected.
(e) Other Items: Names and addresses of previous employers, references, etc. An application
blank is a brief history sheet of an employee’s background and can be used for future reference,
in case needed.
The application blank must be designed from the viewpoint of the applicant as well as with the company’s
purpose in mind. It should be relatively easy to handle in the employment office. Application form helps to
serve many functions like:
61
  Its main usefulness is to provide information for reference checking, good interviewing, and
correlation with testing data.
 It helps to weed out candidates who are lacking in education, experience or some other eligibility
traits.
 It helps in formulating questions to be asked in the interview.
 Data contained in application form can be stored for future reference.
 It also tests the candidate’s ability to write, to organize his thoughts, and to present facts clearly
and succinctly.
 It indicates further whether the applicant has consistently progressed to better jobs. It provides
factual information.
Weighted Application Blanks
Some organisations assign numeric values or weights to the responses provided by the applicants. This
makes the application form more job related. Generally, the items that have a strong relationship to job
performance are given higher scores. For example, for a sales representative’s position, items such as
previous selling experience, area of specialisation, commission earned, religion, language etc. The total
score of each applicant is then obtained by adding the weights of the individual item responses. The
resulting scores are then used in the final selection. WAB is best suited for jobs where there are many
employees especially for sales and technical jobs. It can help in reducing the employee turnover later on.
However, there are several problems associated with WAB e.g.
 It takes time to develop such a form.
 The WAB would have to be updated every few years to ensure that the factors previously identified
are still valid products of job success.
 The organisation should be careful not to depend on weights of a few items while finally selecting
the employee.
4. Selection Tests: Many organisations hold different kinds of selection tests to know more about the
candidates or to reject the candidates who cannot be called for interview etc. Selection tests normally
supplement the information provided in the application forms. Such forms may contain factual information
about candidates. Selection tests may give information about their aptitude, interest, personality, which
cannot be known by application forms. Types of tests and rules of good of testing have been discussed in
brief below:

A. Aptitude Tests: These measure whether an individual has the capacity or talent ability to learn a
given job if given adequate training. These are more useful for clerical and trade positions.
B. Personality Tests: At times, personality affects job performance. These determine personality
traits of the candidate such as cooperativeness, emotional balance etc. These seek to assess an
individual’s motivation, adjustment to the stresses of everyday life, capacity for interpersonal relations
and self-image.
C. Interest Tests: These determine the applicant’s interests. The applicant is asked whether he
likes, dislikes, or is indifferent to many examples of school subjects, occupations, amusements,
peculiarities of people, and particular activities.
62
 D. Performance Tests: In this test the applicant is asked to demonstrate his ability to do the job. For
example, prospective typists are asked to type several pages with speed and accuracy.
E. Intelligence Tests: This aim at testing the mental capacity of a person with respect to reasoning,
word fluency, numbers, memory, comprehension, picture arrangement, etc. It measures the ability
to grasp, understand and to make judgement.
F. Knowledge Tests: These are devised to measure the depth of the knowledge and proficiency in
certain skills already achieved by the applicants such as engineering, accounting etc.
G. Achievement Tests: Whereas aptitude is a capacity to learn in the future, achievement is concerned
with what one has accomplished. When applicants claim to know something, an achievement test
is given to measure how well they know it.
H. Projective Tests: In these tests the applicant projects his personality into free responses about
pictures shown to him which are ambiguous.
Rules of Good Testing
 Norms should be developed for each test. Their validity and reliability for a given purpose should
be established before they are used.
 Adequate time and resources must be provided to design, validate, and check tests.
 Tests should be designed and administered only by trained and competent persons.
 The user of tests must be extremely sensitive to the feelings of people about tests.
 Tests are to be uses as a screening device.
 Reliance should not be placed solely upon tests in reaching decisions.
 Tests should minimize the probabilities of getting distorted results. They must be ‘race-free’.
 Tests scores are not precise measures. They must be assigned a proper weightage.
5. Interview: An interview is a procedure designed to get information from a person and to assess his
potential for the job he is being considered on the basis of oral responses by the applicant to oral inquiries
by the interviewer. Interviewer does a formal in-depth conversation with the applicant, to evaluate his
suitability. It is one of the most important tools in the selection process. This tool is used when interviewing
skilled, technical, professional and even managerial employees. It involves two-way exchange of information.
The interviewer learns about the applicant and the candidate learns about the employer.
Objectives of Interviews: Interview helps:
 To obtain additional information from the candidate.
 Facilitates giving to the candidate information about the job, company, its policies, products etc.
 To assess the basic suitability of the candidate.
The selection interview can be:
 One to one between the candidate and the interviewer:
 Two or more interviewers by employers representatives-sequential;
 By a panel of selections, i.e., by more than representative of the employer.
The sequential interview involves a series of interviews; each interviewer meeting the candidate separately.
The panel interview consists of two or more interviews meeting the candidate together.
Types of interviews: Interviews can be classified in various ways according to:
(A) Degree of Structure
(B) Purpose of Interview
(C) Content of Interview
63
(A) Degree of Structure:
(1) Unstructured or non directive: in which you ask questions as they come to mind. There is
no set format to follow.
(2) Structured or directive: in which the questions and acceptable responses are specified in
advance. The responses are rated for appropriateness of content.
Structured and non-structured interviews have their pros and cons. In structured interviews all applicants
are generally asked all required questions by all interviewers. Structured interviews are generally more
valid. However structured interviews do not allow the flexibility to pursue points of interests as they
develop.
(B) Purpose of Interview: A selection interview is a type of interview designed to predict future job
performance, on the basis of applicant’s responses to the oral questions asked to him.
A stress interview is a special type of selection interview in which the applicant is made
uncomfortable by series of awkward and rude questions. The aim of stress interview is supposedly
to identify applicant’s low or high stress tolerance. In such an interview the applicant is made
uncomfortable by throwing him on the defensive by series of frank and often discourteous questions
by the interviewer.
(C) Content of Interview: The content of interview can be of a type in which individual’s ability to
project a situation is tested. This is a situation type interview. In job-related interview, interviewer
attempts to assess the applicant’s past behaviours for job related information, but most questions
are not considered situational.
In a behaviour interview a situation in described and candidates are asked how they behaved
in the past in such a situation. While in situational interviews candidates are asked to describe
how they would react to situation today or tomorrow. In the behavioural interview they are asked
to describe how they did react to the situation in the past.
Principles of Interviewing
To make it effective, an interview should be properly planned and conducted on certain principles; Edwin
B. Flippo has described certain rules and principles of good interviewing to this end:
 Provide proper surroundings. The physical setting for the interview should be both private and
comfortable.
 The mental setting should be one of rapport. The interviewer must be aware of non-verbal behaviour.
 Plan for the interview by thoroughly reviewing job specifications and job descriptions.
 Determine the specific objectives and the method of the interviewing.
 Inform yourself as much as possible concerning the known information about the interviewee.
 The interviewer should possess and demonstrate a basic liking and respect for people.
 Questions should be asked in a manner that encourages the interviewee to talk. Put the applicant
at ease.
 Make a decision only when all the data and information are available. Avoid decisions that are
based on first impressions.
 Conclude the interview tactfully, making sure that the candidate leaves feeling neither too elated
nor frustrated.
 Maintain some written record of the interview during or immediately after it.
 Listen attentively and, if possible, protectively.
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  Questions must be stated clearly to avoid confusion and ambiguity. Maintain a balance between
open and overtly structured questions.
 ‘Body language’ must not be ignored.
 The interviewer should make some overt sign to indicate the end of the interview.
Interviewing is largely an art, the application of which can be improved through practice.
6. Background Investigation: The next step in the selection process is to undertake an investigation of
those applicants who appear to offer potential as employees. This may include contacting former employers
to confirm the candidate’s work record and to obtain their appraisal of his or her performance/ contacting
other job-related and personal references, and verifying the educational accomplishments shown on the
application.
The background investigation has major implications. Every personnel administrator has the responsibility
to investigate each potential applicant. In some organization, failure to do so could result in the loss of his
or her job. But many managers consider the background investigation data highly biased. Who would
actually list a reference that would not give anything but the best possible recommendation? The seasoned
personnel administrator expects this and delves deeper into the candidate’s background, but that, too,
may not prove to be beneficial. Many past employers are reluctant to give any information to another
company other than factual information (e.g., date of employment).
Even though there is some reluctance to give this information, there are ways in which personnel
administrators can obtain it. Sometimes, for instance information can be obtained from references once
removed. For example, the personnel administrator can ask a reference whose name has been provided
on the application form to give another reference, someone who has knowledge of the candidate’s work
experience. By doing this, the administrator can eliminate the possibility of accepting an individual based
on the employee’s current employer’s glowing recommendation when the motivation for such a positive
recommendation was to get rid of the employee.
7. Physical Examination: After the selection decision and before the job offer is made, the candidate is
required to undergo physical fitness test. Candidates are sent for physical examination either to the
company’s physician or to a medical officer approved for the purpose. Such physical examination provides
the following information.
 Whether the candidate’s physical measurements are in accordance with job requirements or not?
 Whether the candidate suffers from bad health which should be corrected?
 Whether the candidate has health problems or psychological attitudes likely to interfere with work
efficiency or future attendance?
 Whether the candidate is physically fit for the specific job or not?
Policy on these physical exams has changed today. Dale Yoder writes, “Modem policy used the physical
examination not to eliminate applicants, but to discover what jobs they are qualified to fill. The examination
should disclose the physical characteristics of the individual that are significant from the standpoint of his
efficient performance of the job he may enter or of those jobs to which he may reasonably expect to be
transferred or promoted. It should note deficiencies, not as a basis for rejection, but as indicating restrictions
on his transfer to various positions also.”
8. Approval by Appropriate Authority: On the basis of the above steps, suitable candidates are
recommended for selection by the selection committee or personnel department. Though such a committee
or personnel department may have authority to select the candidates finally, often it has staff authority to
recommend the candidates for selection to the appropriate authority. Organisations may designate the
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various authorities for approval of final selection of candidates for different categories of candidates. Thus,
for top level managers, board of directors may be approving authority; for lower levels, even functional
heads concerned may be approving authority.
9. Final Employment Decision: After a candidate is finally selected, the human resource department
recommends his name for employment. The management or board of the company offers employment in
the form of an appointment letter mentioning the post, the rank, the salary grade, the date by which the
candidate should join and other terms and conditions of employment. Some firms make a contract of
service on judicial paper. Usually an appointment is made on probation in the beginning. The probation
period may range from three months to two years. When the work and conduct of the employee is found
satisfactory, he may be confirmed. The personnel department prepare a waiting list and informs the
candidates. In case a person does not join after being selected, the company calls next person on the
waiting list.
10. Evaluation: The selection process, if properly performed, will ensure availability of competent and
committed personnel. A period audit, conducted by people who work independently of the human resource
department, will evaluate the effectiveness of the selection process. The auditors will do a thorough and
the intensive analysis and evaluate the employment programme.

5.3 Selection Decision Outcomes

Consider, for a moment, that any selection decision can result in four possible outcomes. As shown in
Figure 5.2, two of these outcomes would indicate correct decisions, but two would indicate errors.
Correct decisions are those where the applicant was predicted to be successful and later did prove to be
successful on the job, or where the applicant was predicted to be unsuccessful and would have performed
accordingly if hired. In the former case, we have successfully accepted; in the latter case, we have successfully
rejected. Thus the purpose of selection activities is to develop outcomes shown as “correct decisions” in
Figure 5.2.
Problems occur when we make errors-by rejecting candidates who would later perform successfully on
the job (reject errors) or accepting those individuals who subsequently perform poorly on the job (accept
errors). These problems are, unfortunately far from insignificant. Reject errors historically meant that the
costs in performing selection activities would be increased. Accept errors, on the other hand, have very
obvious costs to the organization including the cost of training the employee, the costs generated (or
profits forgone) due to the employee’s incompetence, the cost of severance and the subsequent costs of
further recruiting and selection screening. The major thrust of any selection activity, therefore, is to reduce
the probability of making reject or accept errors while increasing the probability of making reject or
accept errors while increasing the probability of making correct decisions.
Accept Reject

Correct Reject
Later Job Pertormance

Successful decision error

Unsuccessful Accept Correct

error decision

Figure 5.2: Selection Decision Outcomes

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In summary, selection have two objectives: (1) to predict which job applicants would be successful if hired
and (2) to inform and sell the candidate on the job and the organization. Unfortunately, these two objectives
are not always compatible Putting a job candidate through hours of filling out forms, taking tests, and
completing interviews rarely endears the organization to the candidate. These are tiresome and often
stressful activities. Yet if the selection activities place too great an emphasis on public relations, obtaining
the information needed to make successful selection decisions may be subordinated. Hence a manager’s
dilemma in selection is how to balance the desire to attract people with the desire to gather relevant
selection data.

5.4 Placement – Orientation - Socialization

After an employee has been recruited he is provided with basic background information about the employer,
working conditions and the information necessary to perform his job satisfactorily. The new employee’s
initial orientation helps him perform better by providing him information of the company rules, and practices.

According to Pigors and Myers, “Placement consists in matching what the supervisor has reason to
think the new employee can do with what the job demands (job requirements), imposes (in strain, working
conditions, etc.), and offers (in the form of pay rate, interest, companionship with other, promotional
possibilities, etc.)” They further state that it is not easy to match all these factors for a new worker who is
still in many ways an unknown quantity. For this reason, the first placement usually carries with it the status
of probationer.

A few basic principles should be followed at the time of placement of an employee on the job.
These may be enumerated as below:

 The job should be offered to the man according to his qualifications. The placement should neither
be higher nor lower than the qualifications.

 While introducing the job to the new employee, an effort should be made to develop a sense of
loyalty and cooperation in him so that he may realise his responsibilities better towards the job and
the organisation.
 The employee should be made conversant with the working conditions prevailing in the industry
and all things relating to the job. He should also be made aware of the penalties if he commits a
wrong.
 Man should be placed on the job according to the requirements of the job. The job should not be
adjusted according to the qualifications or requirements of the man. Job first; man next, should be
the principle of placement.
 The placement should be ready before the joining date of the newly selected person.
 The placement in the initial period may be temporary as changes are likely after the completion of
training. The employee may be later transferred to the job where he can do better justice.
In the words of John M. Ivancevich, “Orientation orients, directs, and guides employees to understand
the work, firm, colleagues, and mission. It introduces new employees to the organisation, and to his new
tasks, managers, and work groups.”
According to John Bernardin, “Orientation is a term used for the organizationally sponsored, formalized
activities associated with an employee’s socialisation into the organisation.”
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Billimoria has defined orientation as, “Induction (orientation) is a technique by which a new employee
is rehabilitated into the changed surroundings and introduced to the practices, policies, and purposes of
the organisation.”
Orientation is one component of the new employee socialization process. Socialization is the ongoing
process of instilling in all new employees prevailing attitudes, standards, values, patterns of behaviour that
are expected by the organisation and its departments.
Thus, orientation is a process through which a new employee is introduced to the organisation. It is the
process wherein an employee is made to feel comfortable and at home in the organisation. The new
employee is handed over a rulebook, company booklets, policy manuals, progress reports and documents
containing company information which are informational in nature. It is responsibility of the human resource
department to execute the orientation programme.

5.5 Summary
 Selection is the process of picking up individuals out of the pool of the job applicants with requisite
qualifications and competence to fill jobs in the organisation. Proper selection can minimize the
costs of replacement and training, reduce legal challenges, and result in a more productive work
force.
 The discrete selection process would include the following.
a. Application Pool,
b. Preliminary Screening and Interview,
c. Application Blank or Application Form,
d. Selection Tests,
e. Interview
f. Background Investigation,
g. Physical Examination,
h. Approval by Appropriate Authority,
i. Final Employment Decision,
j. Evaluation
 Selection process involves mutual decision making. The organisation decides whether or not to
make a job offer and how attractive the job offer should be. The candidate decides whether or
not the organisation and the job offer is according to his goals and needs. Selection of proper
personnel helps the management in getting the work done by the people effectively.
 To be an effective predictor, a selection device should be
a. Reliable
b. Valid
c. Predict a relevant criterion
 In India the selection process on hiring skilled and managerial personnel are fairly well defined and
systematically practical.

5.6 Self Assessment Questions

1. What do you understand by selection process? Discuss various steps involved in it.
2. What is application blank? What purpose does it serve? Explain the contents of an application
blank.
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3. Discuss the characteristics of a good test. Explain various types of tests used in the selection process.
4. What is an interview? What purpose does it serve? Discuss various types of interviews.
5. Discuss various guidelines to be followed for an interview.
6. Explain various steps involved in the selection of personnel.
7. What do you understand by placement and orientation?

5.7 Reference Books

- Mamoria C.B., Gankar S.V., (2006), “A Textbook of Human Resource Management”, Himalaya
Publishing House, New Delhi.
- Dwivedi R.S., (1997), “Personnel Management in Indian Enterprises”, Galgotia Publising Company,
New Delhi.
- Devid A. DeCENZO, STEPHEN P. ROBBINS (2002), “Personnel/Human Resource
Management”, Prentice Hall of India, New Delhi.
- Prasad L.M., (2005), Human Resource Management,” Sultan Chand & Sons, New Delhi.
- Dessler Gary (2001), “Personnel Management”, Prentice Hall International Editions, New Jersey.
- Carrell Michael R., Elbert Norbert F., Hatfield Robert D. (1999), “Human Resource Management,”
Prentice Hall, Englewood Cliffs, New Jersey.
- Mamoria C.B., Rao, VSP (2012) Personnal Management (Text and cases), Himalays Publishing,
Mumbai.

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 Unit - 6 : Employee Training
Structure of Unit:
6.0 Objectives
6.1 Introduction : Concept
6.2 Need for Employee Training
6.3 Importance
6.4 Types of Employee Training
6.5 Objectives and Process of Employee Training
6.6 Advantages of On the Job Training Methods
6.7 Summary
6.8 Self Assessment Questions
6.9 Reference Books

6.0 Objectives
After completing this unit, you would be able to:
 Understand various aspects of the training design process;
 Classify the various training methods;
 Point out various factors affecting training decisions;
 Know about various objectives of employee training;
 Learn and appreciate the significance of employee training;
 Understand difference between on the job and off the job training.

6.1 Introduction : Concept

Training is a process of learning a sequence of programmed behavior. It is the application of knowledge &
gives people an awareness of rules & procedures to guide their behavior. It helps in bringing about positive
change in the knowledge, skills & attitudes of employees.
Thus, training is a process that tries to improve skills or add to the existing level of knowledge so that the
employee is better equipped to do his present job or to mould him to be fit for a higher job involving higher
responsibilities. It bridges the gap between what the employee has & what the job demands.
Training refers to a planned effort by a company to facilitate employees’ learning of job related competencies.
These competencies include knowledge, skills, or behaviors that are critical for successful job performance.
The goal of training is for employees to master the knowledge, skill, and behaviors emphasized in training
programs and to apply them to their day to day activities. Training is seen as one of several possible
solutions to improve performance. Other solutions can include such actions as changing the job or increasing
employee motivation through pay and incentives. Today there is a greater emphasis on-
 Providing educational opportunities for all employees. These educational opportunities may include
training programs, but they also include support for taking courses offered outside the company,
self-study, and learning through job rotation.
 An ongoing process of performance improvement that is directly measurable rather than organizing
one time training events.
 The need to demonstrate to executives, managers, and trainees the benefits of training.
 Learning as a lifelong event in which senior management, trainer manager, and employees have
ownership.
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  Training being used to help attain strategic business objectives, which help companies, gains a
competitive advantage.
The term training refers to the acquisition of knowledge, skills, and competencies as a result of the
teaching of vocational or practical skills and knowledge that relate to specific useful competencies. It
forms the core of apprenticeships and provides the backbone of content at institutes of technology (also
known as technical colleges or polytechnics). In addition to the basic training required for a trade, occupation
or profession, observers of the labor-market recognize as of 2008[update] the need to continue training
beyond initial qualifications: to maintain, upgrade and update skills throughout working life. People within
many professions and occupations may refer to this sort of training as professional development.
Training usually refers to some kind of organized (and finite it time) event — a seminar, workshop that has
a specific beginning data and end date. It’s often a group activity, but the word training is also used to refer
to specific instruction done one on one.
Employee development, however, is a much bigger, inclusive “thing”. For example, if a manager pairs up
a relatively new employee with a more experienced employee to help the new employee learns about the
job, that’s really employee development. If a manager coaches and employee in an ongoing way, that’s
employee development. Or, employees may rotate job responsibilities to learn about the jobs of their
colleagues and gain experience so they might eventually have more promotion opportunities. That’s employee
development.
In other words employee development is a broader term that includes training as one, and only one of its
methods for encouraging employee learning. The important point here is that different activities are better
for the achievement of different results. For example, if the desire is provide an employee with a better
understanding of how the department works, job rotation might work very well. If the goal is to improve
the employee’s ability to use a computer based accounting package direct training would be more
appropriate than, let’s say, job rotation.
TRAINING AND DEVELOPMENT OBJECTIVES
The principal objective of training and development division is to make sure the availability of a skilled and
willing workforce to an organization. In addition to that, there are four other objectives: Individual,
Organizational, Functional, and Societal. Training and development is a subsystem of an organization. It
ensures that randomness is reduced and learning or behavioural change takes place in structured format.
Individual Objectives – help employees in achieving their personal goals, which in turn, enhances the
individual contribution to an organization.
Organizational Objectives – assist the organization with its primary objective by bringing individual
effectiveness.
Functional Objectives – maintain the department’s contribution at a level suitable to the organization’s
needs.
Societal Objectives – ensure that an organization is ethically and socially responsible to the needs and
challenges of the society.
The quality of employees and their development through training and education are major factors in
determining long-term profitability of a small business. If you hire and keep good employees, it is good
policy to invest in the development of their skills, so they can increase their productivity.
Training often is considered for new employees only. This is a mistake because ongoing training for current
employees helps them adjust to rapidly changing job requirements. Reasons for emphasizing the growth
and development of personnel include
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  Creating a pool of readily available and adequate replacements for personnel who may leave or
move up in the organization.
 Enhancing the company’s ability to adopt and use advances in technology because of a sufficiently
knowledgeable staff.
 Building a more efficient, effective and highly motivated team, which enhances the company’s
competitive position and improves employee morale.
 Ensuring adequate human resources for expansion into new programs.
Research has shown specific benefits that a small business receives from training and developing its
workers, including:
 Increased productivity.
 Reduced employee turnover.
 Increased efficiency resulting in financial gains.
 Decreased need for supervision.
Employees frequently develop a greater sense of self-worth, dignity and well-being as they become more
valuable to the firm and to society. Generally they will receive a greater share of the material gains that
result from their increased productivity. These factors give them a sense of satisfaction through the
achievement of personal and company goals.

6.2 Need for Employee Training

Training of employees takes place after orientation takes place. Training is the process of enhancing the
skills, capabilities and knowledge of employees for doing a particular job. Training process moulds the
thinking of employees and leads to quality performance of employees. It is continuous and never ending in
nature.
Training is given on four basic grounds:
1. New candidates who join an organization are given training. This training familiarizes them with the
organizational mission, vision, rules and regulations and the working conditions.
2. The existing employees are trained to refresh and enhance their knowledge.
3. If any updations and amendments take place in technology, training is given to cope up with those
changes. For instance, purchasing new equipment, changes in technique of production, computer
impartment. The employees are trained about use of new equipments and work methods.
4. When promotion and career growth becomes important. Training is given so that employees are
prepared to share the responsibilities of the higher level job.
Training needs can be assessed by analyzing three major human resource areas: the organization as a
whole, the job characteristics and the needs of the individuals. This analysis will provide answers to the
following questions:
 Where is training needed?
 What specifically must an employee learn in order to be more productive?
 Who needs to be trained?
Begin by assessing the current status of the company how it does what it does best and the abilities of your
employees to do these tasks. This analysis will provide some benchmarks against which the effectiveness
of a training program can be evaluated. Your firm should know where it wants to be in five years from its
long-range strategic plan. What you need is a training program to take your firm from here to there.
Second, consider whether the organization is financially committed to supporting the training efforts. If
not, any attempt to develop a solid training program will fail.
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Next, determine exactly where training is needed. It is foolish to implement a companywide training effort
without concentrating resources where they are needed most. An internal audit will help point out areas
that may benefit from training. Also, a skills inventory can help determine the skills possessed by the
employees in general. This inventory will help the organization determine what skills are available now and
what skills are needed for future development.
Also, in today’s market-driven economy, you would be remiss not to ask your customers what they like
about your business and what areas they think should be improved. In summary, the analysis should focus
on the total organization and should tell you (1) where training is needed and (2) where it will work within
the organization. Once you have determined where training is needed, concentrate on the content of the
program. Analyze the characteristics of the job based on its description, the written narrative of what the
employee actually does. Training based on job descriptions should go into detail about how the job is
performed on a task-by-task basis. Actually doing the job will enable you to get a better feel for what is
done. Individual employees can be evaluated by comparing their current skill levels or performance to the
organization’s performance standards or anticipated needs.

6.3 Importance
Training is crucial for organizational development and success. It is fruitful to both employers and employees
of an organization. An employee will become more efficient and productive if he is trained well. The
benefits of training can be summed up as:
1. Improves Morale of Employees- Training helps the employee to get job security and job
satisfaction. The more satisfied the employee is and the greater is his morale, the more he will
contribute to organizational success and the lesser will be employee absenteeism and turnover.
2. Less Supervision- A well trained employee will be well acquainted with the job and will need
less of supervision. Thus, there will be less wastage of time and efforts.
3. Fewer Accidents- Errors are likely to occur if the employees lack knowledge and skills required
for doing a particular job. The more trained an employee is, the less are the chances of committing
accidents in job and the more proficient the employee becomes.
4. Chances of Promotion- Employees acquire skills and efficiency during training. They become
more eligible for promotion. They become an asset for the organization.
5. Increased Productivity- Training improves efficiency and productivity of employees. Well trained
employees show both quantity and quality performance. There is less wastage of time, money and
resources if employees are properly trained.

6.4 Types of Employee Training

Some commentator use a similar term for workplace learning to improve performance: “training and
development”. One can generally categorize such training as on-the-job or off-the-job:
 On-the-job training takes place in a normal working situation, using the actual tools, equipment,
documents or materials that trainees will use when fully trained. On-the-job training has a general
reputation as most effective for vocational work.
 Off-the-job training takes place away from normal work situations — implying that the employee
does not count as a directly productive worker while such training takes place. Off-the-job training
has the advantage that it allows people to get away from work and concentrate more thoroughly
on the training itself. This type of training has proven more effective in inculcating concepts and
ideas.
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The most frequently used method in smaller organizations that is on the job training. This method of
training uses more knowledgeable, experienced and skilled employees, such as mangers, supervisors to
give training to less knowledgeable, skilled, and experienced employees. OJT can be delivered in classrooms
as well. This type of training often takes place at the work place in informal manner.
On the Job Training is characterized by following points
 It is done on ad-hoc manner with no formal procedure, or content
 At the start of training, or during the training, no specific goals or objectives are developed
 Trainers usually have no formal qualification or training experience for training
 Training is not carefully planned or prepared
 The trainer are selected on the basis of technical expertise or area knowledge
Formal OJT programs are quite different from informal OJT. These programs are carried out by identifying
the employees who are having superior technical knowledge and can effectively use one-to-one interaction
technique. The procedure of formal on the job training program is:
1. The participant observes a more experienced, knowledgeable, and skilled trainer (employee)
2. The method, process, and techniques are well discussed before, during and after trainer has
explained about performing the tasks
3. When the trainee is prepared, the trainee starts performing on the work place
4. The trainer provides continuing direction of work and feedback
5. The trainee is given more and more work so that he accomplishes the job flawlessly

The four techniques for on the job development are:

 COACHING
 MENTORING
 JOB ROTATION
 JOB INSTRUCTION TECHNIQUE (JIT)
1.) Coaching is one of the training methods, which is considered as a corrective method for inadequate
performance. According to a survey conducted by International Coach Federation (ICF), more than
4,000 companies are using coach for their executives. These coaches are experts most of the time outside
consultants.
A coach is the best training plan for the CEO’s because
 It is one to one interaction
 It can be done at the convenience of CEO
 It can be done on phone, meetings, through e-mails, chat
 It provides an opportunity to receive feedback from an expert
 It helps in identifying weaknesses and focus on the area that needs improvement
This method best suits for the people at the top because if we see on emotional front, when a person
reaches the top, he gets lonely and it becomes difficult to find someone to talk to. It helps in finding out the
executive’s specific developmental needs. The needs can be identified through 60 degree performance
reviews.
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Procedure of the Coaching
The procedure of the coaching is mutually determined by the executive and coach. The procedure is
followed by successive counseling and meetings at the executive’s convenience by the coach.
1. Understand the participant’s job, the knowledge, skills, and attitudes, and resources required to
meet the desired expectation
2. Meet the participant and mutually agree on the objective that has to be achieved
3. Mutually arrive at a plan and schedule
4. At the job, show the participant how to achieve the objectives, observe the performance and then
provide feedback
5. Repeat step 4 until performance improves
For the people at middle level management, coaching is more likely done by the supervisor; however
experts from outside the organization are at times used for up and coming managers. Again, the personalized
approach assists the manger focus on definite needs and improvement.
2.) Mentoring is an ongoing relationship that is developed between a senior and junior employee. Mentoring
provides guidance and clear understanding of how the organization goes to achieve its vision and mission
to the junior employee.
The meetings are not as structured and regular than in coaching. Executive mentoring is generally done by
someone inside the company. The executive can learn a lot from mentoring. By dealing with diverse
mentee’s, the executive is given the chance to grow professionally by developing management skills and
learning how to work with people with diverse background, culture, and language and personality types.
Executives also have mentors. In cases where the executive is new to the organization, a senior executive
could be assigned as a mentor to assist the new executive settled into his role. Mentoring is one of the
important methods for preparing them to be future executives. This method allows the mentor to determine
what is required to improve mentee’s performance. Once the mentor identifies the problem, weakness,
and the area that needs to be worked upon, the mentor can advise relevant training. The mentor can also
provide opportunities to work on special processes and projects that require use of proficiency.
Some key points on Mentoring
 Mentoring focus on attitude development
 Conducted for management-level employees
 Mentoring is done by someone inside the company
 It is one-to-one interaction
 It helps in identifying weaknesses and focus on the area that needs improvement
3.) For the executive, job rotation takes on different perspectives. The executive is usually not simply
going to another department. In some vertically integrated organizations, for example, where the supplier
is actually part of same organization or subsidiary, job rotation might be to the supplier to see how the
business operates from the supplier point of view.
Learning how the organization is perceived from the outside broadens the executive’s outlook on the
process of the organization. Or the rotation might be to a foreign office to provide a global perspective.
For managers being developed for executive roles, rotation to different functions in the company is regular
carried out.
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This approach allows the manger to operate in diverse roles and understand the different issues that crop
up. If someone is to be a corporate leader, they must have this type of training. A recent study indicated
that the single most significant factor that leads to leader’s achievement was the variety of experiences in
different departments, business units, cities, and countries.
An organized and helpful way to develop talent for the management or executive level of the organization
is job rotation. It is the process of preparing employees at a lower level to replace someone at the next
higher level. It is generally done for the designations that are crucial for the effective and efficient functioning
of the organization.
Some of the major benefits of job rotation are:
 It provides the employees with opportunities to broaden the horizon of knowledge, skills, and
abilities by working in different departments, business units, functions, and countries
 Identification of Knowledge, skills, and attitudes (KSAs) required
 It determines the areas where improvement is required
 Assessment of the employees who have the potential and caliber for filling the position
4.) Job Instruction Technique (JIT) uses a strategy with focus on knowledge (factual and procedural),
skills and attitudes development.
JIT Consists of Four Steps:
Plan – This step includes a written breakdown of the work to be done because the trainer and the trainee
must understand that documentation is must and important for the familiarity of work. A trainer who is
aware of the work well is likely to do many things and in the process might miss few things. Therefore, a
structured analysis and proper documentation ensures that all the points are covered in the training program.
The second step is to find out what the trainee knows and what training should focus on. Then, the next
step is to create a comfortable atmosphere for the trainees’ i.e. proper orientation program, availing the
resources, familiarizing trainee with the training program, etc.
Present – In this step, trainer provides the synopsis of the job while presenting the participants the
different aspects of the work. When the trainer finished, the trainee demonstrates how to do the job and
why is that done in that specific manner. Trainee actually demonstrates the procedure while emphasizing
the key points and safety instructions.

Figure 6.1 : Steps in JIT

Trial – This step actually a kind of rehearsal step, in which trainee tries to perform the work and the
trainer is able to provide instant feedback. In this step, the focus is on improving the method of instruction
because a trainer considers that any error if occurring may be a function of training not the trainee. This
step allows the trainee to see the after effects of using an incorrect method. The trainer then helps the
trainee by questioning and guiding to identify the correct procedure.
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Follow-up – In this step, the trainer checks the trainee’s job frequently after the training program is over
to prevent bad work habits from developing. There are various methods of training, which can be divided
in to cognitive and behavioral methods. Trainers need to understand the pros and cons of each method,
also its impact on trainees keeping their background and skills in mind before giving training.
OFF THE JOB TRAINING –
There are many management development techniques that an employee can take in off the job. The few
popular methods are:
 SENSITIVITY TRAINING
 TRANSACTIONAL ANALYSIS
 STRAIGHT LECTURES/ LECTURES
 SIMULATION EXERCISES
1.) Sensitivity Training is about making people understand about themselves and others reasonably,
which is done by developing in them social sensitivity and behavioral flexibility.
Social sensitivity in one word is empathy. It is ability of an individual to sense what others feel and think
from their own point of view. Behavioral flexibility is ability to behave suitably in light of understanding.
Sensitivity Training Program requires three steps:
Unfreezing the Old Values –
It requires that the trainees become aware of the inadequacy of the old values. This can be done when the
trainee faces dilemma in which his old values is not able to provide proper guidance. The first step consists
of a small procedure:
 An unstructured group of 10-15 people is formed.
 Unstructured group without any objective looks to the trainer for its guidance
 But the trainer refuses to provide guidance and assume leadership
 Soon, the trainees are motivated to resolve the uncertainty
 Then, they try to form some hierarchy. Some try assume leadership role which may not be liked
by other trainees
 Then, they started realizing that what they desire to do and realize the alternative ways of dealing
with the situation

Figure 6.2 Procedure of Sensitivity Training

Development of New Values – With the trainer’s support, trainees begin to examine their interpersonal
behavior and giving each other feedback. The reasoning of the feedbacks are discussed which motivates
trainees to experiment with range of new behaviors and values. This process constitutes the second step
in the change process of the development of these values.
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Refreezing the new ones – This step depends upon how much opportunity the trainees get to practice
their new behaviors and values at their work place.
2.) Transactional Analysis provides trainees with a realistic and useful method for analyzing and
understanding the behavior of others. In every social interaction, there is a motivation provided by one
person and a reaction to that motivation given by another person. This motivation reaction relationship
between two persons is a transaction.
Transactional analysis can be done by the ego states of an individual. An ego state is a system of
feelings accompanied by a related set of behaviors. There are basically three ego states:
Child: It is a collection of recordings in the brain of an individual of behaviors, attitudes, and impulses
which come to her naturally from her own understanding as a child. The characteristics of this ego are to
be spontaneous, intense, unconfident, reliant, probing, anxious, etc. Verbal clues that a person is operating
from its child state are the use of words like “I guess”, “I suppose”, etc. and non verbal clues like, giggling,
coyness, silent, attention seeking etc.
Parent: It is a collection of recordings in the brain of an individual of behaviors, attitudes, and impulses
imposed on her in her childhood from various sources such as, social, parents, friends, etc. The
characteristics of this ego are to be overprotective, isolated, rigid, bossy, etc. Verbal clues that a person is
operating from its parent states are the use of words like, always, should, never, etc and non-verbal clues
such as, raising eyebrows, pointing an accusing finger at somebody, etc.

                                 
Figure 6.3
Adult: It is a collection of reality testing, rational behavior, decision making, etc. A person in this ego state
verifies, updates the data which she has received from the other two states. It is a shift from the taught and
felt concepts to tested concepts. All of us evoke behavior from one ego state which is responded to by the
other person from any of these three states.
3.) Lecture is telling someone about something. Lecture is given to enhance the knowledge of listener or
to give him the theoretical aspect of a topic. Training is basically incomplete without lecture. When the
trainer begins the training session by telling the aim, goal, agenda, processes, or methods that will be used
in training that means the trainer is using the lecture method. It is difficult to imagine training without lecture
format. There are some variations in Lecture method. The variation here means that some forms of lectures
are interactive while some are not.
Straight Lecture: Straight lecture method consists of presenting information, which the trainee attempts
to absorb. In this method, the trainer speaks to a group about a topic. However, it does not involve any
kind of interaction between the trainer and the trainees. A lecture may also take the form of printed text,
such as books, notes, etc. The difference between the straight lecture and the printed material is the
trainer’s intonation, control of speed, body language, and visual image of the trainer. The trainer in case of
straight lecture can decide to vary from the training script, based on the signals from the trainees, whereas
same material in print is restricted to what is printed. A good lecture consists of introduction of the topic,
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purpose of the lecture, and priorities and preferences of the order in which the topic will be covered.
Some of the main features of lecture method are:
 Inability to identify and correct misunderstandings
 Less expensive
 Can be reached large number of people at once
 Knowledge building exercise
 Less effective because lectures require long periods of trainee inactivity
4.) Games and Simulations are structured and sometimes unstructured, that are usually played for
enjoyment sometimes are used for training purposes as an educational tool. Training games and simulations
are different from work as they are designed to reproduce or simulate events, circumstances, processes
that take place in trainees’ job.
A Training Game is defined as spirited activity or exercise in which trainees compete with each other
according to the defined set of rules. Simulation is creating computer versions of real-life games. Simulation
is about imitating or making judgment or opining how events might occur in a real situation. It can entail
intricate numerical modeling, role playing without the support of technology, or combinations. Training
games and simulations are now seen as an effective tool for training because its key components are:
 Challenge
 Rules
 Interactivity
These three components are quite essential when it comes to learning. Some of the examples of this
technique are:

Figure 6.4
Trainees can therefore experience these events, processes, games in a controlled setting where they can
develop knowledge, skills, and attitudes or can find out concepts that will improve their performance. The
various methods that come under Games and Simulations are:
 BEHAVIOR-MODELLING
 BUSINESS GAMES
 CASE STUDIES
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  EQUIPMENT STIMULATORS
 IN-BASKET TECHNIQUE
 ROLE PLAYS

6.5 Objectives and Process of Employee Training

The training design process refers to a systematic approach for developing training programs. It includes
the seven steps in this process. Training is one of the most profitable investments an organization can
make. No matter what business or industry you are in the steps for an effective training process are the
same and may be adapted anywhere. If you have ever thought about developing a training program within
your organization consider the following four basic training steps. You will find that all four of these steps
are mutually necessary for any training program to be effective and efficient.
Step1 is to conduct a needs assessment, which is necessary to identify whether training is needed. This
step identifies activities to justify an investment for training. The techniques necessary for the data collection
are surveys, observations, interviews, and customer comment cards. Several examples of an analysis
outlining specific training needs are customer dissatisfaction, low morale, low productivity, and high turnover.

The objective in establishing a needs analysis is to find out the answers to the following questions:
 “Why” is training needed?
 “What” type of training is needed?
 “When” is the training needed?
 “Where” is the training needed?
 “Who” needs the training? and “Who” will conduct the training?
 “How” will the training be performed?

By determining training needs, an organization can decide what specific knowledge, skills, and attitudes
are needed to improve the employee’s performance in accordance with the company’s standards.

The needs analysis is the starting point for all training. The primary objective of all training is to improve
individual and organizational performance. Establishing a needs analysis is, and should always be the first
step of the training process.

Step 2 is to ensure that employees have the motivation and basic skills necessary to master training
content. This step establishes the development of current job descriptions and standards and procedures.
Job descriptions should be clear and concise and may serve as a major training tool for the identification
of guidelines. Once the job description is completed, a complete list of standards and procedures should
be established from each responsibility outlined in the job description. This will standardize the necessary
guidelines for any future training.

Step 3 is to create a learning environment that has the features necessary for learning to occur. This step
is responsible for the instruction and delivery of the training program. Once you have designated your
trainers, the training technique must be decided. One-on-one training, on-the-job training, group training,
seminars, and workshops are the most popular methods.
Before presenting a training session, make sure you have a thorough understanding of the following
characteristics of an effective trainer. The trainer should have:
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 - A desire to teach the subject being taught.
- A working knowledge of the subject being taught.
- An ability to motivate participants to “want” to learn.
- A good sense of humour.
- A dynamic appearance and good posture.
- A strong passion for their topic.
- A strong compassion towards their participants.
- Appropriate audio/visual equipment to enhance the training session.
For a training program to be successful, the trainer should be conscious of several essential elements,
including a controlled environment, good planning, the use of various training methods, good communication
skills and trainee participation.
Step 4 is to ensure that trainees apply the training content to their jobs.
This step will determine how effective and profitable your training program has been. Methods for evaluation
are pre-and post- surveys of customer comments cards, the establishment of a cost/benefit analysis outlining
your expenses and returns, and an increase in customer satisfaction and profits. The reason for an evaluation
system is simple. The evaluations of training programs are without a doubt the most important step in the
training process. It is this step that will indicate the effectiveness of both the training as well as the trainer.
There are several obvious benefits for evaluating a training program. First, evaluations will provide feedback
on the trainer’s performance, allowing them to improve themselves for future programs. Second, evaluations
will indicate its cost-effectiveness. Third, evaluations are an efficient way to determine the overall
effectiveness of the training program for the employees as well as the organization.
The importance of the evaluation process after the training is critical. Without it, the trainer does not have
a true indication of the effectiveness of the training. Consider this information the next time you need to
evaluate your training program. You will be amazed with the results.
The need for training your employees has never been greater. As business and industry continues to grow,
more jobs will become created and available. Customer demands, employee morale, employee productivity,
and employee turnover as well as the current economic realities of a highly competitive workforce are just
some of the reasons for establishing and implementing training in an organization. To be successful, all
training must receive support from the top management as well as from the middle and supervisory levels
of management. It is a team effort and must be implemented by all members of the organization to be fully
successful.

6.6 Advantages of On the Job Training Methods

On the job training method has the following advantages that can be considered:
 Generally most cost-effective
 Employees are actually productive
 Opportunity to learn whilst doing
 Training alongside real colleagues.
 Training can be delivered on time and at the optimum time.
 The trainee will have the good opportunities to practice and implement.
 The trainee will have feedbacks.
 Trainee builds confidence by working with own speed and productivity.
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6.7 Summary
The unit begins with an introduction of the concept and explains the importance of training. It explains the
difference between training and development and defines the utility and purpose of training, the levels of
training, the need and importance of training, and the benefits of training to the individual and the organization.
It expounds on the philosophy of training, process of training and purpose or objectives of training.

6.8 Self Assessment Questions

1. Explain the term training and the need of training for organizations.
2. Distinguish between training and development.
3. Explain the methods and approaches to training.
4. Explain various On the job and off the job training methods in detail.

6.9 Reference Books

- Aswathappa K.(2009) “Human Resource and Personnel Management” – Text and Cases, Tata
McGraw Hill Publishing Company Ltd., New Delhi.
- Chhabra T.N. “Human Resources Management – Concepts and Issues, Fourth Edition”, Shampat
Rai & Co., Delhi.
- Gupta, C. B. (2004), “Human Resource Management”, Sixth Edition, Sultan Chand & Sons,
New Delhi.
- Dessler, G. (2000); ‘Human Resource Management’; Prentice Hall, New York.
- Grundy, T. and Brown, L.(2003); ‘Value-based Human Resource Strategy; Elsevier, Boston.
- Mabey, C. and Salaman, G. (2000); ‘Strategically Managing Human Resources’; Infinity Books,
New Delhi.
- Rao, V.S.P. (2001); ‘Managing Human Resources- Text and Cases, Excel Books, New Delhi.
- Thite, M. (2004); Managing People in the New Economy, Sage Publications, New Delhi.

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 Unit - 7 : Executive Development
Structure of Unit:
7.1 Objectives
7.2 Introduction
7.3 Importance and Factor Influencing Executive Development
7.4 Process
7.5 Methods of Executive Development
7.6 Career Planning and Development
7.6.1 Objective
7.6.2 Process
7.7 Summary
7.8 Self Assessment Questions
7.9 Reference Books

7.1 Objectives
After completing this unit, you would be able to:

 Understand the methods of executive development;

 Point out various career planning processes;
 Know about various pros and cons of these processes;
 Learn and appreciate the significance career planning to society;

7.2 Introduction
It is also known as ‘management development’ or ‘executive development’. It is one of the fastest-
developing areas in personnel. It is realized that an effective management team may be as important to the
survival of an organization as any tangible item on the balance sheet. Interest in management development
is great partly due to the shortage of well-trained managers. Executive development or management
development is a systematic process of learning and growth by which managerial personnel gain and apply
knowledge, skills, attitudes and insights to manage the work in their organization effectively and efficiently.

The program of executive development aims at achieving following purposes: -

 To sustain good performance of managers throughout their careers by exploiting their full potential.
 To understand economic, technical, and institutional forces in order to solve business problems.
 To acquire knowledge about problems of human resources.
 To think through problems this may confront the organization now or in the future.
 To develop responsible leaders.
 To inculcate knowledge of human motivation and human relationships.
 To increase proficiency in management techniques such as work study, inventory control, operations
research and quality control.

Johnson and Sorcher write, “Management development focuses on developing in a systematic manner,
the knowledge base, attitudes, basic skills, interpersonal skills and technical skills of the managerial cadre.”
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According to Flippo “executive development includes the process by which managers and executives
acquire not only skills and competency in their present job but also capabilities for future managerial tasks
of increasing difficulty and scope.”
The characteristics of executive development are as following: -
 Executive development is a planned and organized process of learning.
 It is an ongoing and never ending exercise.
 Executive development is a long term process as managerial skills cannot be developed overnight.
 It aims at preparing managers for managers.
Today, it is the growth that makes one person stay at the company. The opportunity and challenges is what
keeps a person satisfied and charmed with his job. Companies have understood this fact and therefore are
forming policies and procedures to develop their employees.
Executive development Program (EDP) is one such program. With Human resource making a move from
a welfare department to a strategic partner, more and more companies are undertaking this program. We
at Career Solutions provide you the opportunity of developing a specific EDP for your company. There
are four major steps to be covered during the EDP-
1) Problem Assessment: the experts along with the concerned employees and CEO shall begin
with an assessment of the company’s current problem and owner’s plans of the future.
2) Management Audit and Appraisal: there shall be regular feedback sessions to check as to
whether we are reaching where we are supposed to reach.
3) Analysis of Development Needs: here the problem that has been uncovered shall be tried to
and remedied via a development program.
4) Identify Replacement Needs: the assessment may uncover a need to recruit and select new
management talent. The format of EDP will vary with company’s size and nature of operation so
as to provide optimum result.

7.3 Importance and Factors Influencing Executive Development

Executive development is more future oriented. It is more concerned with education than is employee
training. In today’s competitive environment, an organization has to be concerned about the development
of supervisors, middle level managers and top-level executive.
Executive development is important for the following reasons: -
 Executive development programmes are required to train and develop professional managers.
 It helps managers to develop skills to face cut throat competition.
 It enables managers to face problems related to technology and institution.
 It helps in developing better relations with the labors.
 Executives need training and education to understand and adjust to changes in socio-economic
changes.
 Executive development is required to broader the outlook of managers.
Factors Influencing Executive Development
A host of factors influencing the executive development processes in organizations are as follows:-
 Failure to train the managers will lead to ineffective and inefficient managers who negatively affect
the organization’s performance.
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  In the absence of training and developmental avenues, the performing managers may get de-
motivated and frustrated in leading the organizations. This would lead to severe losses for the
organization in financial parameters, in terms of the cost of recruiting and training the new incumbent.
 The organizational performance may be affected by the loss of market shares, lower sales, reduced
profitability, etc.
 The absence/ shortage of trained and skilled managers make it important for the organizations to
have appropriate retention strategies. Training and development is being used by organizations as
a part of their retention strategy.
 The competitive pressures make it necessary for organizations to continuously roll out new products
and services, and also maintain the quality of the existing ones. The training and development of
managers would help them in developing the competencies in these areas.
 The competitive environment is making it imperative for the organizations to continuously restructure
and re-engineer, and to embark upon these processes, it is essential for the organizations to train
the managers for the new scenarios.

7.4 Process
Contemporary organizations have realized the importance of human capital and increasingly finding its
necessary to continuously train and develop human resources. The training and development needs of the
employees cannot be looked at in isolation; any proactive organization has to view the individual training
needs in the overall organizational context. The training and development processes are not longer adjunct
to other departments but have become a part of organizational strategy and one of the key organizational
objectives. The process of arriving at the development needs of the executives can be comprehensively
viewed through the process given in Fig.-

Compet iti ve Envi ronm ent

O rganiz ational S trat egy

S tage I

Organi zat ional Obj ecti ves

Stage II

C om petenc y Ma pping Id entif y Com pete ncy G aps Career Pla nning

T raini ng ne eds asse ssme nt

A nnual T raini ng Plan

S tage III

Conduct of Trai ning

Review of Tra ining A ctiviti es

Figure 7.1 : Executive Development Process

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The Process of Executive Development

Stage I: In the Stage I, at the macro level, there are three key elements are considered as competitive
advantage, organizational strategy and organizational objectives. The analysis of competitive environment
helps the organization to decide its competitive positioning in the market place, based on which the
organizational strategy is drawn out in an attempt to transform or reposition of the organization. The macro
view is broken down into specific organizational objectives for further dissemination to functional/
departmental, and individual level.

Stage II: This stage is most important and crucial phase of executive development process. This stage
deals analysis on the competency mapping, identification of competency gap and career planning. In the
competency stage which helps to capture the competencies of all the employees of the organization which
includes the capacities of the management also. In the second stage, the organizational requirements and
competency gap to be analyzed. In the third phase, this deals with identifying and verifying the organizational
needs, individual growth and along with career planning of the executives.

Stage III: This stage is consisting of three levels. The first level of this stage deals with the activities
involving training need assessment of individuals and of all employees based on which Annual Training
Plan (ATP) is drawn. Based on the annual training plan the employees are chosen to expose to either
corporate training program, for internal training programs and external organizations. While deciding the
venue and types and nature of the training program the personnel department and training facilitator should
consider the various issues like no of executives, cost, outsourcing and availability of technical expertise in
the organizations. In case of organizational development related exercises, the combination of internal and
external training programs should be arrange for the all employee of the organization.
Though the money, infrastructure and finally the manpower to be utilized in the whole process keeping into
this, the top management has to take decision in this regard. The training department, management and
HR Department should work in union. It is a collective phenomenon, which is mostly initiatives, motives of
the top management. If entire process of executive development is mostly determined by its efficacy and
its effectiveness.
Apart from this the process of executive development can be defined in several other ways with slight
difference.
The process of executive development is as follows:
1. Analysis of Development Needs: First of all the present and future development needs of the
organization are ascertained. It is necessary to determine how many and what type of executives
are required to meet the present and future needs of the enterprise.
2. Appraisal of the Present Managerial Talent: A qualitative assessment of the existing executives
is made to determine the type of executive talent available within the organization.
3. Planning Individual Development Programmes: Each one of us has a unique set of physical,
intellectual and emotional characteristics. Therefore, development plan should be tailor-made for
each individual.
4. Establishing Training and Development Programme: The HR department prepares
comprehensive and well conceived programmes.

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 5. Evaluating Developing Programs: Considerable money, time and efforts are spent on executive
development programmes. It is therefore natural to find out to what extent the programme’s
objective has been achieved.
Evaluation of Executive Development

In the competition scenario, where the focus is on efficiency and profitability and the return on investment
(ROI) on all the activities of the organization, executive development cannot be an exception to the
phenomenon. The evaluation of the process assumes importance from the following perspectives:

 Improving the quality of the training and development process.

 Improving the efficiency and competency of the trainers.

 Making improvements in the system to make it more responsive and realistic.

 Aligning the training activities to the organizational objectives.

 Building the cost implications of the training into the organizational budget.

 Evaluating the ROI on account of training and development to justify further investments.

 Changing the perception of the management on training as expenditure to more as an investment

for the future growth of the organization.

The levels of evaluation include the reaction level, immediate level, intermediate level, and ultimate level.
For the purpose of evaluation, it is essential to collect the data for which there should be appropriate
measures for data collection, both during the course of the training programme and after the training
programme. Some of the methods being used by experts are self-complete questionnaires, interviews,
observations, and desk research. The desk research involves low cost and less amount of time.

7.5 Methods of Executive Development

Management development programs help in acquiring and developing managerial skill and knowledge. A
Varity of methods of management development have come into prominence these days. Different types of
techniques are used to acquire and develop various types of managerial skill and knowledge as given in
the table below:

S. Competency Development Area Methods

No.
1. Decision-making skill In-basket, Business games, Case study
2. Interpersonal skill Role plying, Sensitivity Training
3. Job Knowledge On-the-Job experiences, Coaching, Understudy
4. Organizational Knowledge Job Rotation, Multiple Management
5. General Knowledge Special course, Special Meeting, Specific Reading
6. Specific Individual Needs Special Projects, Committee Assignments
Managerial Training / Management development: The following diagram shows the stages involved
in the managerial training.

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 Organizational Planning Stage I

Program Targeting Stage II

Discovering the key position Stage III

Appraisal Stage IV

Replacement skill abilities Stage V

Individual development Stage VI

Evaluation Stage VII

Figure 7.2 : Stages of Managerial Training
In all above stages, we should satisfy the following essential aspects in order to make the programmes a
success:
1. Policy decisions
2. Acceptance
3. Appreciation
4. Support
5. Conductive atmosphere
6. Strong urge for learning
7. Participation
8. Identification of strength and weakness
9. Involvement
10. Self-development
A number of executive development methods are available. Generally these methods are used in combination
of two or more.
The various techniques of executive development may be classified into two broad categories: -
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1. On the Job Techniques: It is delivered to employees while they perform their regular jobs. In this
way, they do not lose time while they are learning. After a plan is developed for what should be taught,
employees should be informed of the details. A time-table should be established with periodic evaluations
to inform employees about their progress. On-the-job techniques include orientations, job instruction
training, apprenticeships, internships and assistantships, job rotation and coaching. It consists of: -
 Coaching-Coaching is a one-to-one relationship between trainees and supervisors which offers
workers continued guidance and feedback on how well they are handling their tasks. The coach
assigns the task, monitors the trainee behavior, and provides reinforcement and feedback. Coaching
is commonly used for all kinds of trainees, from unskilled to managerial position. This method is
critically depends on the quality of the coach.
 Under Study- An understudy may be assistant to someone or special assistant to some supervisory
or executive positions. He learns by experience, observation, guidance and coaching.
 Position Rotation-This involves the movement of the trainee from one job to another. This helps
him to have a general understanding of how the organization functions. Apart from releasing boredom,
Job rotation allows workers to build rapport with a wide range of individuals within the organization,
facilitating future cooperation among various departments. Such cross-trained personnel offer a
great deal of flexibility for organizations when transfers, promotions or replacement become
inevitable.
 Multiple Management- It provides knowledge about the organization to the junior and middle
managerial personnel. Here the members are exposed to all types of the decision taken at higher
level.
2. Off-the-Job Technique: It consists of :
 Lectures- It is a traditional and direct method of instruction. The instructor organizes the material
and gives it to a group of trainees in the form of a talk. To be effective, the lecture must motivate
and create interest among the trainees. An advantage of this method is that it is direct and can be
used for a large group of trainees. The major limitation of this method is that it does not provide for
the transfer of training effectively.
 Case Studies- It presents the trainees with a written description of a business or organizational
problem. The object of the case method is to teach the trainees how to analyze information,
generate alternative decisions, and evaluate the alternatives. Cases can be analyzed by individuals
or small groups. Feedback and reinforcement are provided through oral discussion or written
comments from the instructor.
 Group Discussions- This method is a direct discussion on a specific topic conducted with a
relatively small group of trainees. This method is useful for teaching and exploring difficult conceptual
materials, and for changing attitudes and opinions. It provides opportunity for feedback,
reinforcement practice, motivation, and transfer, largely due to the active interchange of ideas
between the participants.
 Role Playing- In most of role-playing assignments, each of the student takes the role of a person
affected by an issues on human life and effect the human activities all around us from the perspective
of that person.
 Management Games- Verities of business and management games have been devised and are
being used with the varying degree of success in the developing programmes. A management
game is classroom exercise in which a number of team of trainees competes against each other to
achieve certain objectives.
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  Sensitivity Training- It has been successfully employed by behavioral scientists over the past
thirty years. Sensitivity to the circumstances and feeling of others is the cornerstone of human
relationships. It is important to note that sensitivity is not just an emotion; it must express itself in
actions as well, especially when people we know are experiencing pain and difficulties.

7.6 Career Planning and Development

Career development is an organized approach used to match employee goals with the business needs of
the agency in support of workforce development initiatives. The purpose of career development is to:
 Enhance each employee’s current job performance.
 Enable individuals to take advantage of future job opportunities.
 Fulfil agencies’ goals for a dynamic and effective workforce.
Career development involves managing your career either within or between organizations. It also includes
learning new skills, and making improvements to help you in your career. Career development is an
ongoing, lifelong process to help you learn and achieve more in your career. Whether you are looking at
making a career change, or moving up within a company, planning your own career development will help
you succeed. By creating a personal career development plan, you can set goals and objectives for your
own personal career growth. Don’t make the mistake of leaving your career development future in the
hands of your employer, hoping that you will get the next promotion or pay raise. This misconception can
lead to job dissatisfaction and resentment. Career planning is a lifelong process, which includes choosing
an occupation, getting a job, growing in our job, possibly changing careers, and eventually retiring. The
Career Planning Site offers coverage of all these areas. This article will focus on career choice and the
process one goes through in selecting an occupation. This may happen once in our lifetimes, but it is more
likely to happen several times as we first define and then redefine ourselves and our goals.

Managers are responsible for linking the organization’s needs to employee career goals, and can assist
employees in the career planning process. Human Resources is responsible for designing career paths and
employee development programs that help employees reach their goals. Each employee is responsible for
planning and managing his/her career.

7.6.1 Objective

Career Management is the combination of structured planning and the active management choice of one’s
own professional career. The outcome of successful career management should include personal fulfillment,
work/life balance, goal achievement and financial assurance.

The word career refers to all types of employment ranging from semi-skilled through skilled, and semi
professional to professional. The term career has often been restricted to suggest an employment commitment
to a single trade skill, profession or business firm for the entire working life of a person. In recent years,
however, career now refers to changes or modifications in employment during the foreseeable future.
There are many definitions by management scholars of the stages in the managerial process. The following
classification system with minor variations is widely used:
1. Development of overall goals and objectives,
2. Development of a strategy (a general means to accomplish the selected goals/objectives),
3. Development of the specific means (policies, rules, procedures and activities) to implement the
strategy, and
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 4. Systematic evaluation of the progress toward the achievement of the selected goals/objectives to
modify the strategy, if necessary.
The career management process begins with setting goals/objectives. A relatively specific goal/objective
must be formulated. This task may be quite difficult when the individual lacks knowledge of career
opportunities and/or is not fully aware of their talents and abilities. However, the entire career management
process is based on the establishment of defined goals/objectives whether specific or general in nature.
Utilizing career assessments may be a critical step in identifying opportunities and career paths that most
resonate with someone. Career assessments can range from quick and informal like those on CareerBuilder
or may be more in depth like those such as Myers-Briggs and Career Leader supported assessments
found on My Path. Regardless of the ones you use, you will need to evaluate them. Most assessments
found today for free (although good) do not offer an in-depth evaluation.
The time horizon for the achievement of the selected goals or objectives - short term, medium term or long
term - will have a major influence on their formulation.
1. Short term goals (one or two years) are usually specific and limited in scope. Short term goals are
easier to formulate. Make sure they are achievable and relate to your longer term career goals.
2. Intermediate goals (3 to 20 years) tend to be less specific and more open ended than short term
goals. Both intermediate and long term goals are more difficult to formulate than short term goals
because there are so many unknowns about the future.
3. Long term goals (more than 100 years), of course, are the most fluid of all. Lack of life experience
and knowledge about potential opportunities and pitfalls make the formulation of long term goals/
objectives very difficult. Long range goals/objectives, however, may be easily modified as additional
information is received without a great loss of career efforts because of experience/knowledge
transfer from one career to another.
4. Making career choices and decisions – the traditional focus of careers interventions. The changed
nature of work means that individuals may now have to revisit this process more frequently now
and in the future, more than in the past.
5. Managing the organizational career – concerns the career management tasks of individuals within
the workplace, such as decision-making, life-stage transitions, dealing with stress etc.
6. Managing ‘boundary less’ careers – refers to skills needed by workers whose employment is
beyond the boundaries of a single organization, a work style common among, for example, artists
and designers.
7. Taking control of one’s personal development – as employers take less responsibility, employees
need to take control of their own development in order to maintain and enhance their employability.
Career development, as both a field of study and a practical form of training for workers, is primarily
concerned with producing better employees and maximizing employee potential. Career development
programs can help the unemployed find jobs or provide workers with the skills and tools they need to
advance within a government agency, corporation or organization.
Self-Awareness- One of the major objectives of any career development program is a heightened sense
of self-awareness for participants. Employees should be able to identify their strengths and weaknesses, in
order to apply their skills more effectively. Understanding shortcomings is also useful in teaching employees
where to focus efforts toward improvements. Self-awareness is also related to understanding the difference
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between real and perceived career advancement limitations. By examining available opportunities and
making an honest assessment of an employee’s skills, career development seeks to give every employee
a realistic outlook on the future.
Flexibility- Career development also sets enhanced flexibility as a goal. Employees work in a changing
world and adaptation is an essential skill. This may mean abandoning practices that have worked in the
past, or devoting time to education and new training. Employees who find themselves unable to adapt in a
changing workplace may suffer from decreased productivity or be unable to compete with workers whose
skills are more flexible and easier to apply across a range of tasks.

Education- Education is among the more straightforward objectives of career development. Such programs
attempt to give employees, or prospective employees, access to information about job opportunities and
options for skills training. Following up with such employees is an important objective as well, since this
gives those who work in career development a way of measuring the program’s effectiveness.

Sensitivity to Diversity- Many career development programs make sensitivity to diversity in the
workplace a top priority. With ever-increasing globalization, workers are frequently put into contact with
members of different backgrounds and cultures. Understanding the value of diverse work habits and
viewpoints can prevent this from becoming a point of confusion or misunderstanding. At the same time,
educating workers about the customs and concerns of others can help prevent social problems or
embarrassment in a diverse workplace.

7.6.2 Process

Career development and the career planning process include a number of specific steps that help to
identify personal skills and attributes. Finding out how those skills can be utilized in the job market is
accomplished by researching a number of career fields that are of interest to you and then by gaining
experience in those fields and/or speaking to people currently working in the field. Participating in some
form of experiential education will help you to identify if the field is the right choice for you.

Step #1: Self-Assessment

Evaluating who you are as a person. This involves taking a personal inventory of who you are and identifying
your individual values, interests, skills, and personal qualities. What makes you tick as a person? You will
look at those personal attributes under a microscope and come up with key qualities you can identify and
use in your search for the perfect career. Career assessments may be required to promote a better
understanding of personal attributes and skills. Contact your Career Services Office at your college to
discuss if a career assessment may be right for you.

Self-Assessment Reality Check Goal Setting Action Planning

Figure 7.3 : The Career Management Process

Step #2: Research (Career Exploration)
Obtain an insider’s perspective about the career field you are considering. Conduct Informational Interviews
in person, phone, or by email. Professionals enjoy sharing their expertise with people interested in the

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field. Perform informational interviews with alumni from your college to gain their perspective of the field
and to listen to what they have to say. This strategy provides firsthand knowledge from someone currently
working in the field and gives you an opportunity to ask about their experiences as well as potential jobs
and what one might expect if just entering the field. Gain experience through internships or by jobshadowing
for one to several days to see what a typical work day entails and to gain perspective of what the environment
is like and the typical job responsibilities of someone working in the field. Research what types of jobs are
available in your area of interest by checking out Majors to Career Converter, The Occupational Outlook
Handbook and The Career Guide to Industries. The Occupational Outlook Handbook offers a wealth of
information for those currently just entering the job market and for those anticipating making a career
change.
Step #3: Decision-Making
Once you’ve made a thorough self-assessment and have done some research of career options, it’s time
to make a decision. This can be difficult since there may still be many unknowns and a fear of making the
wrong choice. One thing for sure is that although we can do all the necessary steps to making an informed
decision, there is no absolute certainty that we are unquestioningly making the right decision. This uncertainty
is easier for some people than others but a key point to remember is that you can always learn from any
job you have and take those skills and apply them at your next job.
Step#4: Search (Taking Action)
It’s now time to look for prospective jobs and/or employers, send out cover letters and resumes, and
begin networking with people in the field. Keep in mind that cover letters and resumes are designed to
make a favorable impression on employers (if done properly) and the interview process is what will
ultimately land you the job. In other words, make sure your cover letter and resume highlight your skills
and strengths based on the employer’s needs and that you are fully prepared to knock their socks off at
the interview. Take time to research the employer’s website prior to the interview, and be prepared to ask
thoughtful questions based on your research.
Step #5: Acceptance
Wow! You’ve completed all of the steps above and you’ve been accepted into a new and exciting or
different job. Congratulations! According to the Bureau of Labor Statistics, 64.1% of people change jobs
between 5 and 14 times in their lifetime. Consequently, learning the skills above will increase your chances
of gaining meaningful and satisfactory work as well as help you to avoid many of the stresses that occur
with changing jobs. By recognizing that change is good (even advantageous), changing jobs can be viewed
as a positive experience and need not be as anxiety provoking as it may initially seem. You will continue the
process of self-assessment, research, decision-making, and job searching in order to make effective and
fulfilling career changes throughout your lifetime.
It is a known fact that most professionals leave an organization due to lack of career growth. Active career
development initiatives by a company are a key retention tool to keep the best talent within its fold. It is
one of the greatest motivators to keep an employee happy and engaged. But does career planning and
development of employees actually make a difference to the productivity of a worker? Most organizations
think so, and consider it a part of their critical human resource strategy. From the employees’point of view
career development initiatives gives them a clear focus about their career track, the blind spots that they
have to overcome and the final goal to be reached. This focused approach works to their advantage from
their everyday work to long-term aspirations.
The impact of career development/ succession planning programmes can be seen through the productivity
indicator, engagement surveys and reduction in attrition rate. It is in fact a win-win situation for all.
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7.7 Summary
Executive development plays a crucial role in HRM. It is the managers / executives who can determine the
destiny of the organization by strategizing, implementing the strategies, and more importantly, leading the
employees to higher levels of efficiency and performance. The unit begins with an introduction to the
emerging scenario, explains the process of the executive development programme (EDP) in the overall
organizational context and also the various stages involved. It explains the factors influencing executive
development. Executive development and its inter-relationship with e-learning, and the methods and
techniques involved in executive development have been discussed. The factors involved in the design and
development of EDP have been discussed in brief and the EDP has been viewed in the context of organization
development. The process of planning for the employee from the time of joining to the time of retirement.
It also helps in understanding career management from the organization and individual prospective. It also
attempts to bring out the differences between career and job, identifies the steps in career planning, and
analyses the steps that need to be taken from the individual and employee’s point of view for career
success.

7.8 Self Assessment Questions

1. What do you mean by the importance of executive development?
2. Analyse the process involved in the designing and development programmes?
3. Explain the importance and process of career planning?
4. Briefly explain the advantages of career planning in detail?
5. Explain the methodologies of making the evaluation process more objective.

7.9 Reference Books

- Bee, F. and Bee, R. (1994); ‘Training Needs Analysis and Evaluation’; Chartered Institute of
Personnel.
- Dessler, G. (2000); ‘Human Resource Management’; Prentice Hall, New York.
- Grundy, T. and Brown, L.(2003); ‘Value-based Human Resource Strategy; Elsevier, Boston.
- Mabey, C. and Salaman, G. (2000); ‘Strategically Managing Human Resources’; Infinity Books,
New Delhi.
- Rao, V.S.P. (2001); ‘Managing Human Resources- Text and Cases, Excel Books, New Delhi.
- Thite, M. (2004); Managing People in the New Economy, Sage Publications, New Delhi.
- Aswathappa K.(2009) “Human Resource and Personal Management” – Text and Cases, Tata
McGraw Hill Publishing Company Ltd., New Delhi.
- Chhabra T.N. “Human Resources Management – Concepts and Issues, Fourth Edition”, Shampat
Rai & Co., Delhi.
- Gupta, C. B. (2004), “Human Resource Management”, Sixth Edition, Sultan Chand & Sons,
New Delhi.

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 Unit - 8 : Performance Appraisal
Structure of Unit:
8.0 Objectives
8.1 Introduction
8.2 Meaning of Performance Appraisal
8.3 Need and Importance of Performance Appraisal
8.4 Objectives of Performance Appraisal
8.5 Methods of Performance Appraisal
8.6 The Performance Appraisal Process
8.7 Factors Affecting Performance Appraisal
8.8 Benefits of Performance Appraisal
8.9 Problems of Performance Appraisal
8.10 Performance Appraisal Practices in India
8.11 Effective Performance Appraisal
8.12 Summary
8.13 Self Assessment Questions
8.14 Reference Books

8.0 Objectives
After completing this unit, you will be able to:
 Understand the concept of performance appraisal;
 State the meaning and importance of performance appraisal;
 Discuss the benefits and problems of appraisal;
 Enumerate the steps in performance appraisal process;
 Outline the objectives of performance appraisal;
 Describe various appraisal methods;
 Outline few performance appraisal practices in India:

8.1 Introduction
In a casual sense, perfor­mance appraisal is as old as mankind itself. In an official sense, performance
appraisal of an individual began in the Wei dynasty (AD. 261-265) in China, where an Imperial Rater
appraised the performance of the official family’. In 1883, the New York City Civil Service in USA
introduced a official appraisal programme shortly before World War . However, official appraisal of
employees’ performance is thought to have been started for the first time during the First World War,
when at the instance of Walter Dill Scott, the US Army: adopted the “Man-to-man’ rating system for
evaluating personnel. For being fair and unbiased, in judging the employee it is necessary to review the
performance of the person in the organization. This is now done in a systematic way in most countries of
the world. The evaluation of an individual’s performance in the organization is called Performance Appraisal.
The, system of performance appraisal compels the management to have a promotion policy within the
organization. It also gives motivation to those employees who are efficient and are capable of working in
a best way. An organization’s goals can be achieved only when people within the organization give their
best efforts. How to know whether an employee has shown his or her best performance on a given job?
The answer is performance appraisal.
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In the organization context performance appraisal is an evaluation of personnel in a systematic way by
superiors or others familiar with their performance. It is also described as merit rating in which one individual
is ranked as better or worse in comparison to others. The basic purpose in this merit rating is to determine
an employee’s eligibility for promotion. However, performance appraisal is a broad term and it may be
used to ascertain the need for training and development, salary increase, transfer, discharge, etc. besides
promotion.

In simple terms, performance appraisal may be understood as the review of an individual’s performance in
an orderly way, the performance is measured by considering factors like job knowledge, quality and
quantity of output, initiative, leadership abilities, supervision, dependability, co-operation, judgment,
versatility, health, and the like. Evaluation should not be restricted to past performance alone but, the
future performances of the employee should also be assessed.

8.2 Meaning of Performance Appraisal

Performance appraisal system has been defined in many ways. The easiest way to understand the meaning
of performance appraisal is as follows:

It is the systematic assessment of an individual with respect to his or her performance on the job and his or
her potential for development in that job. Thus, performance appraisal is a systematic and objective way
of evaluating the relative worth or ability of an employee in performing his job. The two aspects of
performance appraisal considered to be important are: systematic and objective. The appraisal is said to
be systematic when it evaluates all performances in the same manner, by applying the same approach, so
that appraisal of different persons are comparable. Such an appraisal is taken from time to time according
to plan; it is not left to probability. Thus, both raters’ and ratees know the system of perfor­mance appraisal
and its timing. Appraisal has objectivity also. It’s important aspect is that it attempts at precise measurement
by trying to remove human biases and prejudices.
According to Flippo, a prominent personality in the field of Human resources, “performance appraisal is
the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his
present job and his potential for a better job.”
In the words of Yoder, “Performance appraisal refers to all formal procedures used in working organizations
to evaluate personalities and contributions and potential of group members.” Thus performance appraisal
is a formal programme in an organization which is concerned with not only the contributions of the members
who form part of the organization, but also aims at spotting the potential of the people.”
It is a systematic way of judging the relative worth of an employee while carrying out his work in an
organization. It also helps recognize those employees who are performing their tasks well and also- who
are not performing their tasks properly and the reasons for such (poor) performance.
According to International Labor Organization, “A regular and continuous evaluation of the quality,
quantity and style of the performance along with the assessment of the factors influencing the performance
and behavior of an individual is called as performance appraisal.”
In short, we can say that performance appraisal is expected to result in an assessment of: development
potential of the employees, training needs for the employees; capabilities of employees being placed in
higher posts, behavior and obedience of the employees; and the need of the organization to evolve a
control mechanism.
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8.3 Need and Importance of Performance Appraisal
Performance is always measured in terms of outcome and not efforts. Performance Appraisal is needed in
most of the organizations in order:

(1) To give information about the performance of employees on the job and give ranks on the basis of
which decisions regarding salary fixation, demotion, promotion, transfer and confirmation are
taken.

(2) To provide information about amount of achievement and behavior of subordinate in their job.
This kind of information helps to evaluate the performance of the subordinate, by correcting
loopholes in performances and to set new standards of work, if required.

(3) To provide information about an employee’s job-relevant strengths and & weaknesses.

(4) To provide information so as to identify shortage in employee regarding ability, awareness and
find out training and developmental needs.

(5) To avoid grievances and in disciplinary activities in the organization.

(6) It is an ongoing process in every large scale organization.

Performance appraisals in an organization provide employees and managers with an opportunity to converse
in the areas in which employees do extremely well and those in which employees need improvement.
Performance appraisals should be conducted on a frequent basis, and they need not be directly attached
to promotion opportunities only. It is important because of several reason s such as:

1. Personal Attention: Performance appraisal evaluation, gives employee to draw personal concern
from supervisor and talk about their own strengths and weaknesses.

2. Feedback: Employees on a regular basis get feedback of their performances and issues in which
they lack, which needs to be resolved on a regular basis.

3. Career Path: It allows employees and supervisors to converse goals that must be met to grow
within the company. This may encompass recognizing skills that must be acquired, areas in which
improvement is required, and additional qualification that must be acquired.

4. Employee Accountability: Employees are acquainted that their evaluation will take place on a
regular basis and therefore they are accountable for their job performance.

5. Communicate Divisional and Company Goals: It not only communicates employees’ individual
goals but provides an opportunity for managers to explain organizational goals and in the manner
in which employees can contribute in the achievement of those goals.

8.4 Objectives of Performance Appraisal

Performance appraisal in any organization is undertaken to meet certain objectives which may be in the
form of salary increase, promotion, recognizing training and development needs, providing feedback to
employees and putting stress on employees for better performance.
An employee in an organization may think that performance appraisal is basically used by the organization
to blame employees and to take corrective actions. An employee may feel that performance appraisal is
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introduced in an organization for punishment in such a case well thought out performance appraisal may
results into failure. If the objectives set in a more positive, problems may arise as they may not all be
achievable and they may cause conflict. For Example, an employee who is likely to be appraised will
never discloses his loopholes as it may affect his appraisal. Thus the objective of performance appraisal
should e clear and specific. Thus including objectives into the appraisal system may draw attention to
areas for improvement, new directions and opportunities.

1. Salary Increase: Performance appraisal plays an important role in making decision about increase
in salary. Increase in salary of an employee depends on how he is performing his job. Evaluation
of an employee takes place on a continuous basis which may be formally or informally. In a large
as well as in small organizations performance appraisal takes place but it may be in a formal or
informal way. It shows how well an employee is performing and to what extent a hike in salary
would take place in comparison to his performance.

2. Promotion: Performance appraisal gives an idea about how an employee is work­ing in his present
job and what his strong and weak points are. In comparison to his strength and weaknesses it is
decided whether he can be promoted to the next higher position or not. If necessary what additional
training is required. Similarly it could be used for demotion, discharge of an employee and transfer.

3. Training and Development: Performance appraisal gives an idea about strengths and weaknesses
of an employee on his present job. It gives an idea about the training required by an employee for
overcoming the limitations that an employee is having for better performance in future.

4. Feedback: Performance appraisal gives an idea to each employee where they are, how they are
working, and how are they contributing towards achievement of organizational objectives. Feed
works in two ways. First, the person gets view about his performance and he may try to conquer
his weaknesses which may lead to better performance. Second, the person gets satisfied after he
relates his work with organizational objectives. It gives him an idea that he is doing a meaning full
work and can also contribute in a better way.

5. Pressure on Employees: Performance appraisal puts a sort of stress on employees for better
performance. If the employees are aware that they are been appraised in comparison to their
performance and they will have positive and acceptable behaviour in this respect

Activity A:

1. Currently you are working in a manufacturing organization. Write the objectives of performance
appraisal of your organization in the light of those mentioned above.

8.5 Methods of Performance Appraisal

Performance appraisal methods are categorized in two ways traditional and modern methods. Each
organization adopts a different method of performance appraisal according to the need of organization. In
small organization, it may be on an informal basis where personal opinion of a superior about his
subordi­nates may consider for appraisal.
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 Table 8.2 Methods of Performance Appraisal

Traditional Methods Modern Methods

Ranking method Management by Objectives (MB0)
Paired comparison Behaviorally anchored rating scales
Grading method Assessment centers
Forced distribution method 360-degree appraisal
Forced choice method Cost accounting method
Checklist method
Critical incidents method
Graphic scale method
Essay method
Field review method

1. Ranking Method: It is the oldest and simplest method of performance appraisal in which employees’
are ranked on certain criteria such as trait or characteristic. The employee is ranked from highest to lowest
or from worst to best in an organization. Thus if there are seven employees to be ranked then there will be
seven ranks from 1 to 7.
Rating scales offer the advantages of flexibility comparatively easy use and low cost. Nearly every type of
job can be evaluated with the rating scale, the only condition being that the Job-performance criteria
should he changed’ .In such a way, a large number of employees can be evaluated in a shorter time period.
Thus, the greatest limitation of this method is that differences in ranks do not indicate how much an
employee of rank 1 is better than the employee whose rank is last.

2. Paired Comparison: In method is comparatively simpler as compared to ranking method. In this

method, the evaluator ranks employees by comparing one employee with all other employees in the
group. The rater is given slips where, each slip has a pair of names, the rater puts a tick mark next those
employee whom he considers to be the better of the two. This employee is compared number of times so
as to determine the final ranking.

This method provides compari­son of persons in a better way. However, this increases the work as the
large number of com­parisons has to be made. For example, to rank 50 persons through paired comparison,
there will be 1,225 comparisons. Paired comparison method could be employed easily where the numbers
of employees to be compared are less.
This may be calculated by a formula N (N — 1)12 where N is the total number of persons to be compared.
Where N is the total number of persons to be evaluated.
For example
If the following five teachers have to be evaluated by the Vice Chanceller of a University : Chinmay ( c),
Mohan (M), Rohit (R), Vishal (V), and Basanti (B), the above formula gives
5 (5— 1)/2 or 10 pairs. These are;
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 CwithM,
CwithR MwithR
CwithV MwithV RwithV
CwithB MwithB RwithB VwithB
Thus, the pairs to be compared give the maximum possible combinations in which an employee could be
compared with one another. If an employee sores better number of times as compared to other employee
is considered better, makes his/her score. Such scores are considered for each worker and he/she is
ranked according to his/her score. This method cannot work when large number of employee is compared.
3. Grading Method: In this method, certain categories are defined well in advance and employees are
put in particular category depending on their traits and characteristics. Such categories may be defined as
outstanding, good, average, poor, very poor, or may be in terms of alphabet like A, B, C, D, etc. where
A may indicate the best and D indicating the worst. This type of grading method is applied during Semester
pattern of examinations. One of the major limitations of this method is that the rater may rate many
employees on the better side of their performance.
4. Forced Distribution Method: This method was evolved to abolish the trend of rating most of the
employees at a higher end of the scale. The fundamental assumption in this method is that employees’
performance level conforms to a normal statistical distribution. For example, 10 per cent employees may
be rated as excellent, 40 per cent as above average, 20 per cent as average, 10 per cent below average,
and 20 per cent as poor. It eliminates or minimizes the favoritism of rating many employees on a higher
side. It is simple and easy method to appraise employees. It becomes difficult when the rater has to
explain why an employee is placed in a particular grouping as compared to others.
5. Forced-choice Method: The forced-choice rating method contains a sequence of question in a
statement form with which the rater checks how effectively the statement describes each individual being
evalu­ated in the organization. There may be some variations in the methods and statements used, but the
most common method of forced choice contains two statements both of which may be positive or negative.
It may be both the statement describes the characteristics of an employee, but the rater is forced to tick
only one i.e the most appropriate statement which may be more descriptive of the employee. For example,
a rater may be given the following two statements:
(i) The employee is hard working.
(ii) The employee gives clear instructions to his subordinates.
Though both of them describe the characteristics of an em­ployee, the rater is forced to tick only one
which appears to be more descriptive of the employee. Out of these two statements, only one statement
is considered for final analysis of rating. For example, a rater may be given the following two statements:
(i) The employee is very sincere.
(ii) Employee gives clear and fast instructions to his subordinates.
Both of the above statements are positive but the rater is supposed to rate only one which is more
appropriate of subordinate’s behavior. For ranking only one statement is considered .As the rater is not
aware about the statement to be considered the result would be free from bias. This method may be more
objective but it involves lot of problems in framing of such sets of statements.
6. Check-list Method: The main reason for using this method is to reduce the burden of evaluator. In
this method of evaluation the evaluator is provided with the appraisal report which consist of series of
questions which is related to the appraise. Such questions are prepared in a manner that reflects the
behavior of the concerned appraise. Every question has two alternatives, yes or no, as given below:
1. Is he/she respected by his/her subordinates? Yes/No
2. Is he/she ready to help other employees? Yes/No
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 3. Does her behavior remain same for everyone in the organization? Yes/No
The con­cerned rater/evaluator has to tick appropriate answers relevant to the appraises.
When the check-list is finished, it is sent to the personnel department to prepare the final scores for all
appraises based on all questions based on yes or no. While preparing question effort is made to establish
the level of consistency of the rater by asking the same question twice but in a different manner. This
method is considered to be easy if questions are framed properly for different categories of employees.
However, one of the disadvantages of the check-list method is that it is very difficult to accumulate,
analyze and evaluate a number of statements about employee characteristics and contributions. It is even
costly method with lot of time and efforts required by the organization.
7. Critical Incidents Method: This method is very useful for finding out those employees who have the
highest potential to work in a critical situation. Such an incidence is very important for organization as they
get a sense, how a supervisor has handled a situation in the case of sudden trouble in an organization,
which gives an idea about his leadership qualities and han­dling of situation. It is also said to be a continuous
appraisal method where employees are appraised continuously by keeping in mind the critical situation. In
this method, only the case of sudden trouble and behavior associated with these incidents or trouble are
taken for evaluation.
This method is categorized in three steps. First, a list of notable (good or bad) on-the-job behavior of
specific incidents or sudden trouble is prepared. Second, selected experts would then assign weightage or
score to these incidents according to how serious a particular incident is and their degree of willingness to
perform a job. Third, finally a check-list indicating incidents that illustrate workers as good or “bad” is
formed. Then, the checklist is given to the rater for evaluating the workers.
The strong point of critical incident method is that it focuses on behaviors and, thus, judge’s performance
rather than personalities.
Its drawbacks are that too frequently they need to write down the critical incidents which is very time-
consuming and burdensome for evaluators, i.e., managers. Generally, negative incidents are more noticeable
than posi­tives.
8. Graphic Scale Method: It is one of the simplest and most popular techniques for appraising
performances of employee. It is also known as linear rating scale. In graphic rating scale the printed
appraisal form is used to appraise each employee.
Such forms contain a number of objectives, and trait qualities and characters to be rated like quality of
work and amount of work, job knowhow dependability, initiative, attitude, leadership quality and emotional
stability.
The rater gives an estimate the extent to which subordinates possess each quality. The extent to which
quality is possessed is measured on a scale which can vary from three points to several points. In general
practice five-point scales is used. Some organizations use numbers in order to avoid the propensity of the
rater to tick mark central points. It may be numbered or defined. Thus numbers like 5, 4, 3, 2 and 1 may
denote points for various degrees of excellent-poor, high-low, or good-bad, and so on. Such numbers
may be expressed in terms like excellent, very good, average, poor and very poor; or very high, high,
average, low and very low.
Graphic scale method is good for measuring various job behaviors of an employee. But, it is bound to
limitations of rater’s bias while rating employee’s behavior at job.
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9. Essay Method: In this method, the rater writes a detailed description on an employee’s characteristics
and behavior, Knowledge about organizational policies, procedures and rules, Knowledge about the job,
Training and development needs of the employee, strengths, weakness, past performance, potential and
suggestions for improvement. It is said to be the encouraging and simple method to use. It does not need
difficult formats and specific training to complete it.
10. Field Review Method: In this method of appraisal direct superior is not going to appraise an
employee but appraised by another person, usually, from personnel department .The rater, in such a
case, appraises the employee on the basis of his past records of productivity and other information such
as absentee­ism, late corning, etc. It is more suitable in a situation where an organization wants to provide
promotion to an employee. It also gives information for comparing employees from different locations and
units. It reduces partiality to some extent as personnel department person is supposed to be trained in
appraisal mechanism. This method suffers from two limitations:
1. As employees are not rated by immediate boss, the rater from other department may not be
familiar with the conditions in an employee’s work environment which may hamper his ability and
work motivation to perform.
2. The rater from other department do not get a chance to scrutinize the employee’s behavior or
performance with different time interval and in a variety of situations, but only in an unnaturally
structured interview situation which is for a very short period of time.
Modern Methods
1. Management by Objectives (MB0): The concept of ‘Management by Objectives’ (MBO) was
coined by Peter Drucker in 1954. It is a process where the employees and the superiors come together to
identify some goals which are common to them, the employees set their own goals to be achieved, the
benchmark is taken as the criteria for measuring their performances and their involvement is there in
deciding the course of action to be followed.
The basic nature of MBO is participative, setting their goals, selecting a course of actions to achieve goals
and then taking decision. The most important aspect of MBO is measuring the actual performances of the
employee with the standards set by them. It is also said to be a process that integrates organizational
objectives into individual objectives.
Entire program me of MBO is divided in four major steps i.e setting up of goal, action planning, compari­son
and timely review.
Setting up of goal-In goal setting superior and subordinate together set certain goals, i.e the expected
outcome that each employee is supposed to achieve.
In action planning, the manner in which goals could be achieved is determined i.e. identifying the activities
which are necessary to perform; to achieve pr determined goals or standards. When the employees start
with their activities, they come to know what is to be done, what has been done, and what remains to be
done and it also gives an idea about the resources to be achieved.
In the third step, the goals set by the individual employee are compared with the actual goals achieved. It
gives an idea to the evaluator as why there is a variation in desired outcome and actual outcome .Such a
comparison helps create need for training so as to enhance employees’ performance. Finally, in the timely
review step, corrective actions are taken so that actual performances do not deviates from standards
established in beginning.
The main reason for conducting reviews is not to humiliate the performer but to assist him in better
performances in future. Few advantages of MBO are a) it is outcome –oriented. It co-ordinates the
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planning and control functions and provides motivation) Employees are clear about the task that they are
expected to perform and also how they may be evaluated.MBO do have certain limitations such as it is
time consuming, employees and the superiors jointly setting the goals may lead to conflict as employee
would always like to set lower goal and the superior would like to set it on the higher side, lack of
confidence in employee by management.
2. Behaviorally Anchored Rating Scales: This method is a combination of traditional rating scales and
critical incidents methods. It consists of preset critical areas of job performance or sets of behavioral
statements which describes the important job performance qualities as good or bad (for e.g. the qualities
like inter personal relationships, flexibility and consistency, job knowledge etc). These statements are
developed from critical incidents.

These behavioral examples are then again translated into appropriate performance dimensions. Those that
are selected into the dimension are retained. The final groups of behavior incidents are then scaled numerically
to a level of performance that is perceived to represent. A rater must indicate which behavior on each
scale best describes an employee’s performance. The results of the above processes are behavioral
descriptions, such as anticipate, plan, executes, solves immediate problems, carries out orders, and handles
urgent situation situations. This method has following advantages: a) It reduces rating errors) Behavior is
assessed over traits. c) It gives an idea about the behavior to the employee and the rater about which
behaviors bring good Performance and which bring bad performance.
3. Assessment Centres: It is a method which was first implemented in German Army in 1930. With the
passage of time industrial houses and business started using this method. This is a system of assessment
where individual employee is assessed by many experts by using different technique of performance
appraisal. The techniques which may be used are role playing, case studies, simulation exercises,
transactional analysis etc.

In this method employees from different departments are brought together for an assignment which they
are supposed to perform in a group, as if they are working for a higher post or promoted. Each employee
is ranked by the observer on the basis of merit .The basic purpose behind assessment is to recognize
whether a particular employee can be promoted, or is there any need for training or development. This
method has certain advantages such as it helps the observer in making correct decision in terms of which
employee has the capability of getting promoted, but it has certain disadvantages also it is costly and time
consuming, discourages the poor performers etc.
4. 360 Degree Performance Appraisals: This method is also known as ‘multi-rater feedback’, it is the
appraisal in a wider perspective where the comment about the employees’ performance comes from all
the possible sources that are directly or indirectly related with the employee on his job.
In 360 degree performance appraisal an employee can be appraised by his peers, managers (i.e. superior),
subordinates, team members, customers, suppliers/ vendors - anyone who comes into direct or indirect
contact with the employee and can provide necessary information or feedback regarding performance of
the employee the “on-the-job”.
The four major component of 360 degree performance appraisal are
1. Employees Self Appraisal
2. Appraisal by Superior
3. Appraisal by Subordinate
4. Peer Appraisal.
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Employee self appraisal gives an option to the employee to know his own strengths and weaknesses, his
achievements, and judge his own performance. Appraisal by superior forms the traditional part of the 360
degree performance appraisal where the employees’ responsibilities and actual performance is judged by
the superior.
Appraisal by subordinate gives a chance to evaluate the employee on the basis of communication and
motivating abilities, superior’s ability to delegate the work, leadership qualities etc. It is also known as
internal customers; the correct opinion given by peers can aid to find employees’ who are co-operative,
employees who ready to work in a team and understanding towards others.
5. Cost Accounting Method: In this method performance of an employee is evaluated on the basis of
monetary returns the employee gives to his or her organization. A relationship is recognized between the
cost included in keeping the employee in an organization and the benefit the organization gets from him or
her. The evaluation is based on the established relationship between the cost and the benefit. The following
factors are considered while evaluating an employee’s performance:
1. Interpersonal relationship with others.
2. Quality of product produced or service given to the organization.
3. Wastage, damage, accidents caused by the employee.
4. Average value of production or service by an employee.
5. Overhead cost incurred.
Activity B:
1. In the light of above mentioned methods of Performance Appraisal select any company
of your choice and identify the method used by that company.

8.6 The Performance Appraisal Process

The performance appraisal system of one organization may vary from other organizations, though some of
the specific steps that an organization may follow are as follows:
1. Establish Performance Standards: It begins by establishing performance standards i.e. what
they expect from their employee in terms of outputs, accomplishments and skills that they will
evaluate with the passage of time. The standards set should be clear and objective enough to be
understood and measured. The standards which are set are evolved out of job analysis and job
descriptions. Standards set should be clear and not the vague one. The expectation of the manager
from his employee should be clear so that it could be communicated to the subordinates that they
will be appraised against the standards set for them.
2. Communicating the Standards Set for an Employee: Once the standards for performance
are set it should be communicated to the concerned employee, about what it expected from them
in terms of performance. It should not be part of the employees’ job to estimate what they are
expected do. Communication is said to be two ways street, mere passing of information to
subordinate does not mean that the work is done. Communication only takes place when the
information given has taken place and has been received and understood by subordinate. . If
necessary, the standards may be tailored or revised in the light of feedback obtained from the
employees.
3. Measuring of the Actual Performances: It is one of the most crucial steps of performance
appraisal process. It is very important to know as how the performance will be measured and
what should be measured, thus four important sources frequently used by managers are personal
observation, statistical reports, oral reports, and written reports. However, combination of all
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 these resources gives more reliable information. What we measure is probably more critical to the
evaluation process than how we measure. The selection of the incorrect criteria can result in
serious consequences. What we measure gives an idea about what people in an organization will
attempt to achieve. The criteria which are considered must represent performance as stated in the
first two steps of the appraisal process.
4. Comparing Actual Performance with Standards Set in the Beginning: In this step of
performance appraisal the actual performance is compared with the expected or desired standard
set. A comparison between actual or desired standard may disclose the deviation between standard
performance and actual performance and will allow the evaluator to carry on with the discussion
of the appraisal with the concerned employees.
5. Discussion with the Concerned Employee: In this step performance of the employee is
communicated and discussed. It gives an idea to the employee regarding their strengths and
weaknesses. The impact of this discussion may be positive or negative.
The impression that subordinates receive from their assessment has a very strong impact on their
self esteem and, is very important, for their future performances.
6. Initiate Corrective Action: Corrective action can be of two types; one is instant and deals
primarily with symptoms. The other is basic and deals with the causes. Instant corrective action is
often described as “putting out fires”, where as basic corrective action gets to the source from
where deviation has taken place and seeks to adjust the differences permanently. Instant action
corrects something right at a particular point and gets things back on track. Basic action asks how
and why performance deviated. In some instances, managers may feel that they do not have the
time to take basic corrective action and thus may go for “perpetually put out fires.
Thus the appraisal system of each organization may differ as per the requirement of that Organization.
Activity C:
1 Assume you are currently operating an appraisal system in your organization. How will you carry
out the appraisal process in your organization?

8.7 Factors Affecting Performance Appraisal

There are various factors which may influence the performance appraisal system in any organization.
There are some factors which introduce bias whereas; some other factors hinder purposeful assessment.
Such factors are as follows:
1. Value System of Evaluator: The task of evaluator is to assess the work of subordinate and
write reports of the same. They are projected to do this for some purposeful assessment. It
happens that evaluator sometime judges the performance on the basis of their own value system.
Each person has his own value system and socio-cultural environment. Mostly, it is found that the
reports are influenced by the evaluator’s value-system. This subjective element has lot of impact
on final report.
2. Dominant Work Orientation: The performance Appraisal Report of a subordinate is prepared
by a superior is found to have an impact by the dominant work orientation of the superior officer.
Sometimes there is more emphasis on certain aspect of the work as compared to other aspect
which may be equally important by the superior. It introduces subjectivity performance appraisal
system. A superior may evaluate the subordinate on the basis of following elements:
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 a) Inclination for work of dynamic nature.
b) Liking for routine work and strict maintenance of.
c) Importance on inter-personal relations and rank.
d) Emphasis on qualities which do not have much functional utility; and
e) Emphasis on consistency to some philosophy.
These elements bring subjectivity in the process of evaluation, influence the judgment of the superior
and distort the evaluation of performance of the subordinates.
3. Loyalty: It plays a vital role in evaluating employee. An Employee shows loyalty due to many
reasons such as common values, objectives, emotional needs, interests, caste, religion, language
or region. Loyalty brings the superior and the loyal subordinate closer and closer to each other,
and creates distance between those employee who are not loyal to their superior. This makes
assessment of superior to be biased.
4. Level of Achievement: Subordinates evaluation may also depend on the level of achievement of
the superior. If there is a vast difference between the level of achievement of the superior and
Subordinate, then it can create problems of adjustment and purpose for which evaluation is done
is not achieved.
5. Factors Hindering Objective Assessment: There are various factors which obstruct the
objective appraisal of the performance of the subordinates. These factors are as follows:
a) Superiority complex of the superior reporting officer.
b) Overall performance assessment do not take place only certain incidence are assessed.
c) Past-record of the subordinate.
d) Personality of the subordinate.
g) Ability of the subordinate to exercise influence at higher level.

8.8 Benefits of Performance Appraisal

An effective performance appraisal system can be of benefit to three parties they are for organization, for
appraiser and for appraisee.
1) For the Organizations: Following are the benefits of an organization.
 It leads to better performance throughout the organization, due to successful communication of
the objectives and values of the organizations, sense of being close to the organization, loyalty and
improved relationships between managers and staff.
 Overall improvement in the duties performed by each employee of the organization.
 Due to performance appraisal of employee new ideas for improvement in their work is generated.
 Long-term plans can be generated.
 The need for training and development can be identified more clearly.
 A traditions of nonstop improvement and success in the organization can be formed and maintained.
 Career development plans can be chalked out for capable employee to enhance their performance
in future.
2) For the appraiser: Following are the benefits to the appraiser:
 It gives an opportunity to the appraiser to develop a general idea of individual jobs and departments.
 For every new or difficult situation new idea is generated for improvement or for overcoming that
problem.
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  It gives an opportunity to integrate team and individual objectives and targets with departmental
and organizational objectives.
 It gives an opportunity to explain the amount of work expected by manager from teams and
individuals.
 It gives an opportunity to focus more on targets.
 It enables to form more productive relationship with staff based on mutual trust and understanding.
3) For the Appraisee: Following are the benefits for the appraisee:
 Increased motivation.
 Increased job satisfaction.
 Increased sense of personal value.
 Increase in morale of an employee.
 It gives an opportunity to know their strength and weaknesses.
 It gives an idea about areas of their improvement.
 There will be a chance to subordinate to express his views even after performance appraisal
 An employee should express his emotional needs and his value system which is considered
to be important today.
Activity D:
1 Suppose you are an evaluator (superior) in your organization. List out the benefit that you
would like to get as an appraiser .

8.9 Problems of Performance Appraisal

Performance appraisal technique is very beneficial for an organization for taking decisions regarding salary
fixation, demotion, promotion, transfer and confirmation etc.But,it is not freed from problem In spite of
recognition that a completely error-free performance appraisal can only be idealized a number of errors
that extensively hinder objective evaluation. Some of these problems are as follows:
1. Biasness in rating employee: It is the problem with subjective measure i.e. the rating which will not
be verified by others. Biasness of rater may include:
(a) Halo Effect: It is the propensity of the raters to rate on the basis of one trait or behavioral
consideration in rating all other traits or behavioral considerations. One way of minimizing the
halo effect is appraising all the employees by one trait before going to rate on the basis of another
trait.
(b) The Central Tendency Error: It is the error when rater tries to rate each and every person on
the middle point of the rating scale and tries not to rate the people on both ends of the scale that
is rating too high or too low. They want to be on the safer side as they are answerable to the
management.
(c) The Leniency and Strictness Biases: The leniency biasness exists when some raters have a
tendency to be generous in their rating by assigning higher rates constantly. Such ratings do not
serve any purpose.
(d) Personal prejudice: If the raters do not like any employee or any group, in such circumstances
he may rate him on the lower side of the scale, the very purpose of rating is distorted which might
affect the career of employees also.
(e) The Recent Effect: The raters usually retain information about the recent actions of the employee
at the time of rating and rate on the basis of recent action taken place which may be favorable or
unfavorable at that point of time.
2. The superiors may be unsuccessful in conducting performance appraisal of employees and post
performance appraisal interviews.
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3. The performance appraisal is mostly based on subjective assessment.
4. The performance appraisal techniques have a low reliability and validity in terms of result.
5 Ratings an employee on the negative side may disturb interpersonal relations and industrial relations
system.
6. Appraisers opinion on the performance of the employee may lead to setback on production.
7. An organization may give emphasis to punishment if an employee has not done a good job rather
than providing training.
8. Few ratings are based on guess work.
Various other problems of performance appraisal are:
 There was a significant relationship between rating by superior and performance after promotions.
 Appraisal reports were completed within a short period of time.
 The circumstances were very unpleasant in feedback interview.
 The Subordinates were not given suggestion in a manner which may be helpful to them.
Activity E:
1 List out the problem faced by you as a subordinate in your organization in appraising you.

8.10 Performance Appraisal Practices in India

The systematic study of performance appraisal practices in India is very limited. According to few studies
in India the performance appraisal is mainly undertaken for three objectives such as (i) to determine
increments in salary; (ii) to assist organizational planning, placement, or suitability; and (iii) for training and
development purposes. Other objectives of appraisal were: informing employee where they stand in
organization, follow-up interviews, etc.
Every company uses different criteria to evaluate their employees. There are basically three groups of
criteria being used for appraisal purpose: (i) evaluation of qualitative characteristics, such as, intelligence,
reliability, honesty, leadership and attitudes, abilities, etc., evaluation of actual performance- qualitatively
and quantitatively; and evaluation of development and future potential and development by an employee
during the period under consideration. Evaluation criteria vary from company to company. There is vast
deviation in periodicity of appraisal of employees. Few companies appraise annually, some appraise half-
yearly, and a few quarterly; however, annual appraisal is most common among many.
Few innovative performance appraisal practices are:
 Managerial personnel are allowed to challenge or appeal appraisal decisions made by evaluator.
 Employee management skills are important in performance appraisal.
 Personnel department gives a clear instruction of policy and its implementation.
 Evaluation to be made only on the basis of performance of employee at work.
 It has also enhanced role clarity in the Organization.
The performance appraisal practice by Dabur India Limited is as follows: The main purpose of performance
appraisal system is to evaluate the performance of employee, promote their employees and to make
necessary arrangement for their training needs if required.
Employees are evaluated by how well they accomplish a specific set of objectives that have been determined
to be critical in the successful completion of their job. This approach is frequently referred to as Management
by objectives.
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The latest mantra being followed by organizations across the world being – “get paid according to what
you contribute” – the focus of most of the organizations is turning to performance management and
specifically to individual performance.
1. The focus of the performance appraisals practice in todays environment is changing by concentrating
more on career development relying on the dialogues and discussions with the superiors.
2. Performance measuring, rating and review systems have become more thorough, structured and
individual employee specific than before.
3. Appraisal through a 360-degree feedback system takes place
4. In India, the performance appraisal processes are faced with a lot of poblems, the most important
is the need of quantifiable indicators of the performance.
The emergence of following trends related to Performance appraisal practices can be seen in the global
scenario: 360 degree feedback, Team performance appraisal, Rank and yank strategy.
1) 360 Degree Feedback: It is also known as ‘multi-rater feedback’, where the feedback about
the employees’ performance comes from all the sources that come in contact with the employee
on his job.
2) Team Performance Appraisal: In this method each employee performance is measured as a
team member as well as individually.
3) Rank and Yank Strategy: It is also known as up or out policy where the performance appraisal
model is prepared in which best-to-worst ranking methods are used to identify and separate the
poor performers from the good performers. Then certain plans are chalked out for improvement.
Some of the organizations following this strategy are Ford, Microsoft and Sun Microsystems.

8.11 Effective Performance Appraisal

The performance appraisal system is always questioned in terms of its effectiveness and the problems of
reliability and validity. It is always difficult to know whether what is appraised is what was supposed to be
appraised. As long as subjective judgment is there this question cannot be answered perhaps, the following
steps can help improve the system.
a) The supervisors should be told that they themselves will be evaluated on the basis of how seriously
they are performing their duties.
b) To perform assigned task of evaluation in a better way superior should be provided with better
training of writing report.
c) To carry out job evaluation studies and prepares job descriptions/roles and prepares separate
forms for various positions in the organization.
d) The system should be designed in such a way that it is neither difficult to understand nor impossible
to practice.
e) The supervisor should monitor whether the improvement in performance in the areas found weak
is taking place or not and, if not, help the employee to achieve the required improvement.
f) Finally, reviewing, the appraisal systems every now and then help updating it, and making appropriate
changes in it. This is the most important factor in making performance appraisal effective, with the
passage of time necessary changes in tasks, abilities and skills to perform has to be made. If
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 changes in the format are not considered the reports may not generate the kind of result needed to
satisfy appraisal objectives.
The following measures could also be adopted for improving the effectiveness of an appraisal:

a) Behaviorally Based Measures: The research strongly favors behaviorally based measures over
those developed around traits. b) Ongoing Feedback: Employees like to know how they are performing
the duties assigned to them. c) Multiple Raters: If a person is evaluated by a large no of superior then
chance of getting more frequent information increases d) Peer Evaluations: Peer evaluations are conducted
by employees’ co-workers, people explicitly familiar with the jobs involved mainly because they too are
doing the same thing, they are the person who know the co-workers’ day to-day work behavior and
should get a chance to provide the management with some feedback.

8.12 Summary
In the organizational context performance appraisal is an evaluation of personnel in a systematic way by
superiors or others familiar with their performance. It is also described as merit rating in which one individual
is ranked as better or worse in comparison to others. The basic purpose in this merit rating is to determine
an employee’s eligibility for promotion. However, performance appraisal is a broad term and it may be
used to ascertain the need for training and development, salary increase, transfer, discharge, etc. besides
promotion. It is the systematic assessment of an individual with respect to his or her performance on the
job and his or her potential for development in that job.

Performance appraisals should be conducted on a frequent basis, and they need not be directly attached
to promotion opportunities only. It is important because of several reason s such as: Personal Attention,
Feedback, Career Path, Employee Accountability, Communicate Divisional and Company Goals. Thus,
objectives into the appraisal system may draw attention to areas for improvement, new directions and
opportunities. The methods of performance appraisal are categorized in two ways traditional and modern
methods. Each organization adopts a different method of performance appraisal according to the need of
organization, with each method having its own advantages and drawbacks. The performance appraisal
system of one organization may vary from other organizations; this may lead to few changes in appraisal
process. Some of the problems faced in appraising employees are biasness of rater which may include: (a)
halo effect, (b) central tendency error, (c) the leniency and strictness biases, (d) personal prejudice, and
(e) the recent effect etc.
The systematic study of performance appraisal practices in India is very limited. Few innovative performance
appraisal practices are: 1) Managerial personnel are allowed to challenge or appeal appraisal decisions
made by evaluator.2) Employee management skills are important in performance appraisal.3) Personnel
department gives a clear instruction of policy and its implementation. 4) Evaluation to be made only on the
basis of performance of employee at work.5) It has also enhanced role clarity in the Organization.
The latest mantra being followed by organizations across the world being – “get paid according to what
you contribute” – the focus of most of the organizations is turning to performance management and
specifically to individual performance. It is always questioned in terms of its effectiveness and the problems
of reliability and validity exist which could be improved if the supervisors are told that they themselves will
be evaluated on the basis of how seriously they are performing their duties, To perform assigned task of
evaluation in a better way superior should be provided with better training of writing report. Thus,
performance appraisal is the technique which is essential for every organization.
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8.13 Self Assessment Questions
1 “Performance appraisal is the systematic evaluation of the individual with respect to his performance
on the job and his potential for development’’. What are the options open to you in the design of
a performance appraisal system to achieve this goal?
2 Explain the Performance Appraisal System. Either suggests improvements to an existing appraisal
system in your organization or design an appraisal system which would meet the objectives outlines
in this chapter.
3 Does current thinking indicates that appraisal for training should be conducted separately from
appraisal for promotion?
4 Explain in detail the process of performance appraisal.
5 Write short notes of:
a) Management by objectives
b) Behaviorally Anchored Rating Scale
6 Explain the methods of performance appraisal in detail.
7 “Performance appraisal is not only for appraisal but is for achievement and improvement of
performance”. Explain.
8 According to you what should be done to have an effective performance appraisal system in your
organization.
9 Write short notes on:
a) Field review method:
b) Critical incidents method

8.14 Reference Books

· Prasad L.M, (2005); ‘Principles and Practices of Management’; Sultan Chand and Sons Publisher,
New Delhi.
· P.Subba Rao, (2007); Essentials of Human Resource Management and Industrial Relations’;
Himalaya publishing House, Mumbai.
· S.S.Khanka, (2008); Human Resource Management; S.Chand& Company limited’; New Delhi.
· K Aswathappa (2003); Human Resource and Personnel Management’; Tata McGraw-Hill
Publishing Company limited, New Delhi.

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 Unit - 9 : Wage and Salary Administration
Structure of Unit:
9.0 Objectives
9.1 Introduction
9.2 Principles of Wage and Salary Administration
9.3 Essentials of Sound Wage and Salary Administration
9.4 Factors Affecting Wage and Salary Administration
9.5 Methods of Wage Payments
9.6 Process of Wage Determination
9.7 Summary
9.8 Self Assessment Questions
9.9 Reference Books

9.0 Objectives
After Completing the unit you would be able to:
 Understand the significance of Wage and Salary Administration in the organization:
 Learn about principles of Wage and Salary Administration;
 Know some of the prerequisites for sound compensation management;
 Understand major factors affecting Wage and Salary determination in an organization;
 Know in detail methods of wage payments;
 Learn how wages are determined in an organization.

9.1 Introduction
Employees’ compensation is one of the major determinants of employee satisfaction in an organization.
The compensation policy and the reward system of an organization are viewed by the employee as a
indicators of the management’s attitude and concern for them. It is not just the compensation in tote, but its
fairness as perceived by the employees that determines the success of a wage and salary administration
system. Hence, it very important for the management to design and implement its compensation system
with utmost care and tact. A good wage and salary administration should be able to attract and retain
employees, give them fair deal, keep the organization competitive and motivate employees to perform
their best.
Wage and salary determination and its administration has always remains sensitive issue for an organizational
management, since employees moral, motivation, productivity and their relationship with the management
more or less associated with the compensation management system. Furthermore compensation has always
remain as a major yardstick for the success or failure or concern for the employees by an organization.
Traditionally, pay scales in companies reflected the importance of the work and the responsibility level.
Today organization tries more to assess the worth of an individual in terms of his performance and contribution
to the organization. With the growing demands of the workforce and the constant challenges in the business
environment, organizations have to evolve an accurate system for evaluating jobs and assessing their
worth. Job evaluation helps to determine the relative worth of job in an organization in a systematic,
consistent and accurate manner. It also helps in estimating the basic pay for each job in accordance with
the importance of the job in the organizational hierarchy. Once basic pay is determined, the rewards,
incentives and benefits attached with the pay, position and performance are also determined. The basic
wage, incentives and rewards and benefits, together from compensation package of an employee.
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9.2 Principles of Wage and Salary Administration
Since the issue of wage and salary determination has always enjoying the major consideration for any
organization, it should be develop and maintain based on sound principles , some of them are narrated
below, attempt should be made to incorporate them as far as possible while designing the compensation
system.
1) There should be a definite plan and system to ensure that differences in pay for jobs are based
upon variations in job requirements, means maintaining equity in the distribution of wages and
salaries in the organization.
2) Maintaining competitiveness in the wage market means the general level of wage and salary should
be reasonably in line with that prevailing in the market.
3) Matching employees’ expectations and it should avoid unjustified discrimination by providing
equal pay for equal work.
4) Reinforcing positive employee behavior and contribution to the organization, differences in the
compensation package should be based on contribution, productivity, job performance,
achievement etc.
5) Devising a system that is the most efficient for the organization, as far as possible it must eliminate
any discrepancies or exploitation of the employees.
6) The compensation system should formulate and define rules and regulations for determining,
changing, adjusting wages in the organization.
7) The compensation package must ensure fairness, should maintain harmonious relationship between
the employee and employer.
8) Compensation system should be flexible enough so that future changes can be incorporated.
9) The wage and salary administration should take care of and comply all the rules and regulations
laid down by the legislator for protecting the employees’ interest.
10) Optimization of management and employee interests.

9.3 Essentials of Sound Wage and Salary Administration

Sound Wage and salary administration demands some essentials to satisfy, so that one who is shoulder
with the responsibility of designing administrative aspects with this regards, may come out with efficient
system for managing the issues related with it. Some of the pre requisites for the sound compensation
system are:
I. Rational Job Analysis: It is an important exercise with regards to each category of jobs. It
reveals detailed aspects of the job, like duties, responsibilities associated with the performance,
performance standards as a fair parameter for evaluation of the performance. It gives fair idea
about job specification i.e. qualification, experience, skill and other essential requirements that job
performer must satisfy. Thus rational job analysis always put policy decider in a better condition to
lay down appropriate content in policy design.
II. Proper Job Evaluation: Job evaluation is a systematic process of analyzing and evaluating jobs
to determine the relative worth of job in an organization. It forms the basis for designing the sound
compensation system in an organization. Since wage and salary administration and the perceived
fairness of approach adopted under it have a immense influence on employee morale, motivation
and satisfaction, proper job evaluation exercise demands sensible consideration.
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 III. In Depth Knowledge About an Organization and Market Factors: Apart from job evaluation,
the various other factors that determine the administrative aspects for wage and salary administration
are the size and structure of the organization and the industry in which it operates, the strength of
employees union, position of a person and his importance to the organization, demand and supply
for particular skill sets in the industry, organizational ability and capacity to pay and its economic
condition like profitability, and legislative aspects related with wage determination. Sound system
for compensation management demands detail knowledge about all these factors in order to its
sound framework and operation in the organization.
IV. Clarity of Objectives or Purposes of Wage and Salary Administration : Last but not the
least in terms of its significance, in order to have effective and efficient administration of
compensation as an area in the organization, one must have accurate clarity about the purposes
that it may tries to satisfy through policy decisions .objectives may be attracting talented resources;
retaining and motivating employees; financial management of an organization; satisfying legal
requirement; and many more. Sometimes these objectives are conflicting in nature also. So it is
very essential that one, who is going to carry out this responsibility of designing the compensation
system in the organization, should have reasonable clarity for objectives to be satisfied with the
design.

9.4 Factors affecting Wage and Salary Administration

The term employees remuneration includes both wages and salaries. Wages are commonly considered as
the price of labor paid to the workers for the services rendered to the organization employing them.
Where quantum of services rendered is difficult to measure the payment is called salary. Normally, payment
made to workers is referred to as wages, and remuneration paid periodically to persons whose output
cannot be measured such as clerical, supervisory and managerial staff, is called salary. Wage and salary
administration is affected by so many factors and most of them are uncontrollable in nature so probably,
this decision is more crucial and critical. Major factors affecting wage and salary administration are discussed
as under:

Rate
D em an d & Su pp ly of S kill Or ga nizat ion’s A bility to
or L ab o ur Pa y

Le g isla t ive c o nside rat ion s Pr evaili n g M ark et R are

or “G oi ng W age R a te”

Psych ologic a l and S o cial

Fa ct ors C om pe nsa t ion Prod uc tivit y

M an agem e nt A t titu de C os t of Living

Job R e qu ir em ent s T rad e U nio n ’s B a rga in in g

P ow er

Figure 9.1 : Factors Affecting Wage and Salary Administration

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1) Demand and Supply: Demand for and supply of labor and its availability will have great influence
on the determination of wage rates. If there is a shortage of labor, the wages demanded will be
high. If, on the other hand labor is plentiful, workers will be too willing to work at low rates of
wages. However, wages cannot be regarded today merely a price for services rendered. In recent
years therefore, both management and labor has been becoming less and less dependent on this
factor as a basic factor. An employee will not hesitate to accept lower wages if he has opportunities
for growth in the organization. Today, the money which is paid as compensation should enable a
worker to buy goods and services which will enable him and his family to live a better and fuller life
and satisfy his hierarchical needs.
2) Organization’s Ability to Pay: This is a major affecting factor in determining wage and salary
structure of an organization. Financial position and soundness of an organization can put it in a
position to offer attractive compensation package. Some of the reputed economically sound
organizations are offering good compensation package and thereby successful in obtaining and
maintaining talented workforce. Good compensation package helps in attracting and retaining
quality talent in an organization. Generally wages in most of the organization decide through collective
bargaining and , organization’s ability and capacity to pay attractive wages depends upon over all
financial soundness and economic condition of an organization.
3) Prevailing Market Rate or “Going Wage Rate”: This is practically the major factor that
induces any organization to take it as a base while determining wage and salary structure for it.
Prevailing market rate is also known as ‘most comparable rate of wage’, and most popular method
for wage rate determination, especially for lower cadre positions. There are many reasons for an
organization to pay wages at a market rate like competition and a practice of ‘Brain Drain’ prevails
in the market. Further more certain laws framed laid down principal of’ minimum wages’, ‘equal
wage for equal work’. In addition to this trade unions are also prefer to bargain upon and in
accordance with market rate of wages.
4) Productivity: Productivity is measured in terms of output per man hour. It a result of several
factors such as technology, labor efforts, method of doing work, management contribution and
support and so on. However, productivity has always remained as base for wage differences
since it a base which is apparently justifiable and acceptable to all in the organization. Many a time
this as base is not acceptable to many trade unions as it is very difficult to have accurate measurement
and is has always remain at a discretion of management policies.
5) Cost of Living: It is always expected that there has to be adjustment in pay rates in accordance
with prevailing cost of living. The changes in the cost of leaving affect purchasing power of the
person. Trade union also considers this as a base for collective bargaining on wage issues.
6) Trade Union’s Bargaining Power: Generally the mechanism for fixing of wages for majority of
workers is collective bargaining or negotiation, and collective bargaining and negotiations depends
upon the trade union’s strength. If there is a strong union operates in the organization, it may
dictate its terms on wage fixation and revision over a period of time and vice versa. The strength
and power of the trade union depends upon its membership, financial strength and leadership it
may have, for its functioning.
7) Job Requirements: From the organizational perspective appropriate job analysis and job
evaluation exercise is a base for the wage determination and revision. It is quite obvious also that
wages to be paid to the workers should be in accordance with the duties, responsibilities and the
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 efforts likely to be put for job performance. Wage or compensation package very in accordance
with job description and job specification.
8) Management Attitude: Attitude of employer or management towers the working community of
the organization does influence in wage determination and revision at an appropriate time. Some
reputed and professional organization does prefer to pay wage in accordance with their reputation
or prestige of an organization in the market. They may give participation to workers in sharing
profits. On the other hand conservative organizations do not prefer to go for such profit sharing.
9) Psychological and Social Factors: Psychologically person perceive wages and compensation
package as sole parameter for success or failure in the life. Compensation package plays significant
role in the employees pride, moral, motivation and psychological engagement and involvement in
the work. Therefore such variable should not be overlooked by the organization while determining
wage and salary structure. Socially and ethically also people feels that “equal work should carry
equal pay “ i.e. wage should be in accordance with efforts and workers should not be felt like
being cheated. Compensation policy should not make any discrimination on the basis of caste,
color, Sex or region, and must try to satisfy condition for fairness equity and justice.
10) Legislative Considerations: Legislative provisions do provide protection to the working
community by fixing bottom line for wage payments. Many a time it was found that the bargaining
power of the workers was not strong enough to ensure fair wages. Consequently, the state legislative
frame work stepped in to regulate wages and provide for certain benefits to the workers. Legislation
like Minimum Wages Act, 1936, provides for statutory minimum wages to be prevails in the
industrial organization so that workers can satisfy their bare requirements and maintain their minimum
living standard. These aspects are also considered while deciding compensation policy for an
organization.

9.5 Methods of Wage Payments

Wage plans are mainly micro plans and each company may devise any of the wage plans. Basically there
are two methods for wage payments, viz. (1) Time rate wage system; and (2) Piece rate wage system. The
wage paid to labor has to perform important functions in the economic system. It should be such as to
make the worker capable and willing to be efficient and involved in the job. There should be link, wherever
feasible between emoluments and productivity; and fair parity between wage differentials and skill differential.
The plan should act as an incentive to improve the efficiency, and it should attract the worker wherever
demanded or needed. Whatever may be the method of wage payment but the wage plan should contain
following ingredients:
 It should be simple and understandable
 It should be capable of easy computation
 It should be capable of motivating the employees
 It should be attractive enough for new talent in the organization.
 It should be fair, just and stable to all the employees.
The fundamental plans of wage payment are:
I. Time Rate Wage System: It is the oldest and the simplest form of wage fixing. Under this
system, workers are paid according to the work done during a certain period of time at a rate of
per hour, per day, per week, per fortnight, or per month or any other fixed period of time. According
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 to the section4 of the Payments of Wages Act,1936, not more than one month must elapse between
two wage period. Time wage system adopts time as the basis of worker remuneration without
taking in to account the units produced. The worker is guaranteed a specified sum of money for a
fixed period of his time taking no account of the quality or quantity of the work done. Evaluation
on the basis benefits and weaknesses is as under:
Merits:
 It is simple and understandable and easy for calculation of wages, since wages under this system
is equal towage per hour* numbers of hours worked by an employee.
 There is no time limit for completion of job, workman are not in hurry to finish it and this may mean
that they may pay p enough attention to the quality of work, effective handling of machinery and
utilization of resources in an optimum manner.
 All workers are given same treatment in terms of equal wage payment, so grievances, ill will;
jealousy can be avoided among them.
 Time rate system provides regular and stable income to workers, so they can adjust and manage
their budget accordingly.
 It requires less administrative attention as this system provide good faith and mutual understanding
and trust between employer and employee.
Demerits:
 It does not take in to account the ability and capacity of the workers so the skilful and more
capable workers who have higher production efficiency will demoralize.
 Time rate system is unrelated to the productivity and does not provide extra motivation for extra
efforts by the workers.
 The labor charges for a particular job do not remain constant. This put the management in a
difficult position in the matter of quoting rates for a particular piece of work.

 There is a possibility of systematic evasion of work by the workers, since there is no specific
target or demand for specific quantity of work by the management.

 Time rate system does not ask for maintaining individual workers record, it becomes difficult for
the employer to determine his relative efficiency for the purpose of performance evaluation for
future promotion or rewards. Thus it does injustice to the outstanding employees.

Suitability: Time rate system is suitable when the output contributed by the worker is difficult to measure
and cannot be recorded in an individual basis. It is also suitable when by cultivating mutual trust and
confidence and by giving fair and equal treatment to all the employees, management can get the work
done in an appropriate manner

II. Piece Rate Wage System: Under this system, workers are paid according to the amount of
work done or numbers of units produced or completed, the rate of each unit being settled in
advance, irrespective of the time taken to do the work. This does not mean that the workers can
take any time to complete a job because of his performance far exceeds the time which his
employer expects he would take, the overhead charges for each unit of article will increase. There
is an indirect implication that a worker should not take more than average time.
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Merits:
 The main advantage of this system is recognition of merit, as efficient is rewarded, It is therefore
more equitable then time rate system.
 It pays workers as per their efficiencies, ability, capacity or performance, so it gives direct stimulus
and motivation to the employees for extra efforts, which may result into more productivity.
 It requires less managerial supervision as total remuneration depends upon units produced, and
not on time spent in an organization.
 Being interested in continuity of his work, a workman is likely to take greater care to prevent
breakdown in the machinery or in the work shop. It is a gain to the management since it reduces
maintenance expenditure in an organization.
 As the direct labor cost per unit of production remains fixed and constant, calculation of cost
while filling tenders and estimates becomes easier.
 It results in to not only increase in the output and wages ,but the methods of production too are
also improved, as workers demand material and tools free from defects and machinery in perfect
operating condition.
Demerits:
 If rates of wages are not scientifically fixed and acceptable to the workers, would result into
workers exploitation and may prove counterproductive
 As workers are interested in completion of the job with a greatest speed, may damage the machinery,
quality of output or may increase rate of hazards in an organization.
 Trade unions generally do not like this system of wage payment; they may not have full support
and acceptance. It may be the major issue for industrial dispute.
Suitability: It can be introduced generally in jobs of a repetitive nature, when task can be easily measured,
inspected and counted. It is practically suitable for standardized processes, and it appeals to skilled and
efficient workers who can increase their earnings by working to their best capacity.
III. Balance and Debt System: This system combines time rate and piece rate. Under it a minimum
weekly wage is guaranteed for a full weeks’ work, with an alternative piece-rate determined by
the rate fixed on the assumption that the worker would put enough effort to earn his minimum
wage. If the wages calculated on piece bases are in excess of the time rate, the worker earns the
excess. If the piece rate wages are less than the time-rate earnings, he would still get weekly
wage, but on the condition that he shall have to make good the excess paid to him out of the
subsequent wage he would earn. Suppose a worker is expected to complete at least 10 pieces
during the week in order to earn the minimum wage of rs.60, the piece rate has been fixed at a rate
of Rs.6 per unit. If the worker produces 12 units within the week, his earning will be Rs.72. If on
the other hand he produces only 9 units , he will still be paid Rs. 60 his minimum weekly wage but
as on the basis of piece rate his earning should amount to only Rs. 54, the sum of Rs. 6 paid in
excess will be debited to him to be deducted out of his subsequent earnings. Thus under this
system workers’ wages are determined, by both the number of hours he works and the pieces he
produces. So it a hybrid system producing the same benefits and limitations of both the time rate
and piece rare system.
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9.6 Process of Wage Determination
Practically how wages are determined and maintained or administered in an organization is very organization
to organization. Ideally speaking it depends upon sole discretion that what procedure an organization
follows for wage and salary administration. More or less an attempt is made by every organization to
follow the principles suggested for sound compensation management. Organization tries to inculcate
systematic procedure for wage determination and their revision at an appropriate time. Process of wage
determination includes job analysis and job evaluation, survey of wages in the environment, determining
wage structure, and deciding rules for wage administration. Briefly these steps are discussed as under:

Job Determining
Analysis Job Performance
Evaluation Standard

Rules, Deciding
Policies for Wage Wage
Wage & Structure Survey
Salary
Administrati

Figure 9.2: Job Analysis

1. Job Analysis and Job Evaluation: This may be the primary exercise that an organization needs
to carefully carry out with an intention to create base for wage determination. Job analysis reveals
information about tasks, duties, responsibilities and standards with proposed job is to be performed
by the employees. It also guides in terms of job specification i.e. skills, ability. Qualification and
experiences needed to perform the job with requisite performance standards. Job analysis gives
enough information about the job and the profile of the performer in order to perform that job.
Another important exercise that an organization needs to carry out is ‘Job Evaluation’. It is nothing
but finding out relative worth of a job, in terms its contribution and significance to the overall
organizational objectives.
2. Determining Performance Standard and Wage Surveys: Having understood the job in
considerable detail an attempt is made to determine expected performance standard to be carried
out by the performer. Then, an organization must survey wage rates prevails in the market for the
same job or its similar type, so that attractive compensation package can be designed to induce
good quality of candidature to apply for the job in an organization. Here care should be taken that
wage structure should be in accordance with the complexity and efforts needed in the performance.
3. Deciding Wage Structure and Rules for Its Administration: Based on collection of relevant
information and taking in to account some of the influencing factors, an organization should design
wage structure which includes slab for basic or minimum wages, incentives, and/or increment over
a period of time to gather with other financial and nonfinancial perquisites to be offered to an
employee. Attempt should be made to follow principles of fairness, equity and justice to gather
with transparency while designing wage structure and deciding rules for its administration. The
rules should not provoke un justified discriminations and exploitation of workers otherwise it may
prove counterproductive and may give rise to grievance, and industrial disputes.
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9.7 Summary
Compensation package is one of the most significant decisions of the modern Human Resource
Management, since it is carrying great influence as a maintenance factor as well as a means for employee’s
motivation also. Therefore organization needs to pay attention on Wage and Salary Administration in
order to maintain organizational efficiency for maintaining and motivating employees. There are some of
the major considerations based on which it can go for compensation determination like demand and
supply of skill, organizational ability to pay, prevailing market rate, employees productivity, cost of living,
trade union’s bargaining power, job requirements management attitude, productivity, psychological and
social factors and legislative considerations. Organization can adopt either ‘Time Rate’ or ‘Piece Rate’
method for wage payments, both are having their own merits and demerits and suitability. Organization
can go for combination of the both also. There may be s standard scientific process also for wage
determination, which consists of steps like job analysis and job evaluation, determination of performance
standards and wage surveys and deciding wage structure and rules and policy for effective wage
administration.

9.8 Self Assessment Questions

1. Why Wage and Salary Administration is considered as a significant Human Resource Management
function? What principles an organization is require keeping in mind while deciding compensation
policy?
2 Discuss in detail different factors that generally affect compensation decision of an organization.
3 What are the methods generally available to an organization for making wage payments? Discuss
their suitability together with their merits and demerits.
4 Elaborate standard procedure or mechanism that an organization follows for determining Wage
and salary structure together with the rationality attached with each step.

9.9 Reference Books

- Principles of personnel Management-Edwin flippo
- Personnel Management &Industrial Relations-Yoder (Prentice Hall of India Ltd. New Delhi)
- Personnel Management-C.E.Nrothcott
- Personnel Management –C.B.Mamoria
- Personnel Management-Dr.P.C.Tripathi
- Dynamic Personnel Administration-Management OF Human Resources-M.N.Rudrabasavaraj

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 Unit - 10 : Compensation and Incentives
Structure of Unit:
10.0 Objectives
10.1 Introduction
10.2 Meaning and Definition of Compensation
10.3 Objectives of Compensation Planning
10.4 Factors Affecting Compensation Planning
10.5 Various Modes of Compensation
10.6 Incentives
10.7 Kinds of Incentives
10.8 Fringe Benefits
10.9 Kinds of Fringe Benefits
10.10 Summary
10.11 Self Assessment Questions
10.12 Reference Books

10.0 Objectives
After reading this chapter, you will be able to understand:
 The objective of compensation planning.
 Various factors affecting compensation planning.
 Various modes of compensation.
 Concept of Incentives.
 What are fringe Benefits and its type.

10.1 Introduction
One of the most difficult functions of personnel management is that of determining rates of monitory
compensation. It is not only duty for organisation but also equally important to both the organisation and
the employee. It is significant to organisation, because wages and salaries constitute the greatest single
cost of doing business and it important to the employer because the earning is the only means of economics
survival; it is the mean that influence the standard of living, status in society, work as motivational factor,
loyalty and productivity.
Compensation is a tool used by management for a variety of purpose to further the existence of the
company. It is a remuneration that an employee receives in return for his or her contribution in theorganisation.
So, the employee compensation programs are designed to attract capable employees to the organisation,
to motivate them towards superior performance and to retain their services over an extended period of
time.

10.2 Meaning and Definition of Compensation

In layman’s language the word ‘compensation’ means something, such as money, given or received as
payment for service. The word compensation may be defined as money received in the performance of
work, plus the many kinds of benefits and services that organization provides their employee. It refers to
wide range of financial and non-financial rewards to employee for their service rendered to the organization.
It is paid in the form of wages, salaries , special allowance and employee benefits such as paid vacation,
insurance, maternity leaves, free travel facility , retirement benefits etc.
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According to Wendell French,” Compensation is a comprehensive term which includes wages, salaries
and all other allowance and benefits.”
Wages are the remuneration paid for skilled, semi-skilled and unskilled operative workforce. Salary is the
remuneration of those employees who provides mental labour to the employer such as supervisor, office
staff, executive etc wages are paid on daily or hourly basis where as salary is paid on monthly basis.

10.3 Objectives of Compensation Planning

The basic purpose or objective of establishing sound compensation is to establish and maintain an equitable
rewards system. The other aim is the establishment and maintenance of an equitable compensation structure
i.e an optimal balancing of conflicting personnel interest so that the satisfaction of employees and employers
is maximised and conflicts minimized, the compensation management is concerned with the financial aspect
of employees need, motivation and rewards.
A sound compensation structure tries to achieve these objectives:
 To attract manpower in a competitive market.
 To control wages and salaries and labour costs by determining rate change and frequency of
increment.
 To maintain satisfaction of employees by exhibiting that remuneration is fair adequate and equitable.
 To induce and improved performance, money is an effective motivator.

a) To Employees:

i. Employees are paid according to requirement of their jobs i.e highly skilled jobs are paid more
compensation than low skilled jobs. This eliminates inequalities.
ii. The chances of favouritism are minimised.
iii. Jobs sequence and lines of promotion are established wherever they are applicable.
iv. Employee’s moral and motivation are increased because of the sound compensation structure.

b) To Employers:

i. They can systematically plan for and control the turnover in the organization.
ii. A sound compensation structure reduces the likelihood of friction and grievance over remunerations.
iii. It enhance an employee morale and motivation because adequate and fairly administrative incentives
are basis to his wants and need.
iv. It attracts qualified employees by ensuring and adequate payment for all the jobs.
v. In dealing with a trade union, they can explain the basis of their wages programme because it is
based upon a systematic analysis of jobs and wages facts.

10.4 Factors Affecting Compensation Planning

Factors determining compensation of an employee considerable amount of guess word and negotiation
are involved. But following are the certain factors which have been extracted as having an important
bearing upon the final decision:
a) Supply and Demand of Labour: Whatever the organization produces as commodity they desire
services and it must pay a price that of workers acting in concert. If more the labour is required,
such as at war time prosperity, there will be tendency to increase the compensation; whereas the
situation when anything works to decrease the supply of labour, such as restriction by a particular
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 labour union, there will be a tendency to increase the compensation. The reverse of each situation
is likely to result in a decrease in employee compensation, provided, labour union, ability to pay,
productivity, government do not intervene.
b) Ability to Pay: Labour Unions has often demanded an increase in compensation on the basis
that the firm is prosperous and able to pay.
c) Management’s Philosophy: Management’s desire to maintain or improve moral, attract high
calibre employees, reduce turnover, and improve employees standard of living also affect wages,
as does the relative importance of a given position to a firm.
d) Legislation: Legislation related to plays a vital role in determining internal organization practices.
Various acts are prescribed by government of country for wage hours laws. Wage-hour laws set
limits on minimum wages to be paid and maximum hours to be worked. In India minimum wages
act 1948 reflecting the wage policy for an organization and fixation of minimum rates of wages to
workers in sweated industries. In 1976 equal remuneration act was enacted which prohibits
discrimination in matters relating to remuneration on the basis of religion, region or gender.

10.5 Various Modes of Compensation

Various modes of compensation are as follows-
a) Wages and Salary- Wages represent hourly rates of pay and salary refers to monthly rate of pay
irrespective of the number of hours worked. They are subject to annual increments. They differ
from employee to employee and depend upon the nature of jobs, seniority and merit.
b) Incentives- These are also known as payment by results. These are paid in addition to wages
and salaries. Incentive depends upon productivity, sales, profit or cost reduction efforts. Incentive
scheme are of two types:
Individual incentive schemes.
Group incentive schemes.
c) Fringe Benefits- These are given to employees in the form of benefits such as provident fund,
gratuity, medical care, hospitalization, accident relief, health insurance, canteen, uniform etc.
d) Non- Monetary Benefits- They include challenging job responsibilities, recognition of merit,
growth prospects, competent supervision, comfortable working condition, job sharing and flexi
time.

10.6 Incentives
Incentives are monetary benefits paid to workmen in lieu of their outstanding performance. Incentives vary
from individual to individual and from period to period for the same individual. They are universal and are
paid in every sector. It works as motivational force to work for their performance as incentive forms the
part total remuneration. Incentives when added to salary increase the earning thus increase the standard of
living. The advantage of incentive payment are reduced supervision, better utilisation of equipment, reduced
scrap, reduced lost time, reduced absenteeism and turnover & increased output.

According to Burack & Smith, “An incentive scheme is a plan or programme to motivate individual or
group on performance. An incentive programme is most frequently built on monitory rewards ( incentive
pay or monetary bonus ), but may also include a variety of non monetary rewards or prizes.”
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10.7 Kinds of Incentives
Incentives can be classified under the following categories:
1. Individual and Organizational Incentives
2. Financial and Non-Financial Incentives
3. Positive and Negative Incentives
1) Individual and Organizational Incentives- According to L.G. Magginson, “Individual incentives are
the extra compensation paid to an individual for all production over a specified magnitude which stems
from his exercise of more than normal skill, effort or concentration when accomplished in a predetermined
way involving standard tools, facilities and materials.” Individual performance is measured to calculate
incentive where as organizational or group incentive involve cooperation among employees, management
and union and purport to accomplish broader objectives such as an organization-wide reduction in labour,
material and supply costs, strengthening of employee loyalty to company, harmonious management and
decreased turnover and absenteeism
I) Individual Incentive System is of two types:
a) Time based System- It includes Halsey Plan, Rowan Plan, Emerson Plan and
Bedeaux Plan
b) Production based System- it includes Taylor’s Differential Piece Rate System, Gantt’s
Task and Bonus Plan
II) Group Incentive System is of following types
a) Scalon Plan
b) Priestman’s Plan
c) Co-Partnership Plan
d) Profit Sharing
Some important these plans of incentive wage payments are as follows:
Halsey Plan- Under this plan a standard time is fixed in advance for completing a work. Bonus
is rewarded to the worker who perform his work in less than the standard time and paid wages
according to the time wage system for the saved time.
The total earnings of the worker = wages for the actual time + bonus
Bonus = 33.5% of the time saved (standard time set on past experience)
Or
50% of the time saved (standard are scientifically set)
Example: Time required to complete job (S) = 20 hours
Actual Time taken (T) = 15 hours
Hourly Rate of Pay (R) = Rs 1.5
Calculate the wage of the worker.
Solution: T X R + (S-T ) X R
2
15 X 1.5 + (20-15 ) X 1.5 = 22.5 + 3.75 = 26.25 Rs
2
In this equation 3.75 Rs are the incentives for saving 5 hours.
Rowan Plan – Under this method minimum wages are guaranteed given to worker at the ordinary
rate for the time taken to complete the work. Bonus is that proportion of the wages of the time
taken which the time saved bears to the standard time allowed.
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 Incentive = Wages for actual time for completing the work + Bonus where,
Bonus = S-T X T X R
S
Emerson Plan – Under this system, wages on the time basis are guaranteed even to those workers
whose output is below the standard. The workers who prove efficient are paid a bonus. For the
purpose of determining efficiency, either the standard output per unit of time is fixed, or the standard
time for a job is determined, and efficiency is determined on the basis of a comparision of actual
performance against the standard.
Bedeaux Plan – It provide comparable standards for all workers. The value of time saved is
divided both to the worker and his supervisor in the ratio of ¾ and ¼ respectively. A supervisor
also helps a worker in saving his time so he is also given some benefit in this method. The standard
time for each job is determined in terms of minutes which are called Bedeaux points or B’s. each
B represents one minute through time and motion study. A worker is paid time wages upto
standard B’s or 100% performance. Bonus is paid when actual performance exceeds standard
performance in terms of B’s.
Taylor’s Differential Piece Rate System - F.W. Taylor, founder of the scientific management
evolved this system of wage payment. Under this system, there is no guarantee of minimum wages.
Standard time and standard work is determined on the basis of time study. The main characteristics
of this system is that two rates of wage one lower and one higher are fixed. Those who fail in
attaining the standard, are paid at a lower rate and those exceeding the standard or just attaining
the standard get higher rate. Under this system, a serve penalty is imposed on the inefficient
workers because they get the wages at lower rates. The basic idea underlying in this scheme is to
induce the worker at least to attain the standard but at the same time if a worker is relatively less
efficient, he will lose much. For example, the standard is fixed at 40 units per day and the piece
rate are 40 P. and 50 P. per unit. If a worker produces 40 units or more in a day, he will get the
wages at the rate of 50 P per unit and if he produces 39 units will get the wages at 40 paise per
unit for the total output.
Gantt’s Task and Bonus Plan -    In this, a minimum wage is guaranteed. Minimum wage is
given to anybody, who completes the job in standard time. If the job is completed in less time,
then there is a hike in wage-rate. This hike varies between 25% to 50% of the standard rate.
Profit Sharing – It is a method of remuneration under which an employer pay his employees a
share in form of percentage from the net profits of an enterprise, in addition to regular wages at
fixed intervals of time.
2) Financial and Non-financial Incentives- Individual or group performance can be measured in
financial terms. It means that their performance is rewarded in money or cash as it has a great impact on
motivation as a symbol of accomplishment. These incentives form visible and tangible rewards provided in
recognition of accomplishment. Financial incentives include salary, premium, reward, dividend, income
on investment etc. On the other hand, non-financial incentives are that social and psychological attraction
which encourages people to do the work efficiently and effectively. Non-financial incentive can be delegation
of responsibility, lack of fear, worker’s participation, title or promotion, constructive attitude, security of
service, good leadership etc..
3) Positive and Negative Incentives- Positive incentives are those agreeable factors related to work
situation which prompt an individual to attain or excel the standards or objectives set for him, where as
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negative incentives are those disagreeable factors in a work situation which an individual wants to avoid
and strives to accomplish the standards required on his or her part. Positive incentive may include expected
promotion, worker’s preference, competition with fellow workers and own ‘s record etc. Negative
incentives include fear of lay off, discharge, reduction of salary, disapproval by employer etc.

10.8 Fringe Benefits

Employees are paid several benefits in addition to wages, salary, allowances and bonus. These benefits
and services are called ‘fringe benefits’ because these are offered by the employer as a fringe. Employees
of the organization are provided several benefits and services by the employer to maintain and promote
employee’s favorable attitude towards the work and work environment. It not only increases their morale
but also motivate them. These provided benefits and services forms the part of salary and are generally
refereed as fringe benefits.
According to D. Belcher, “ Fringe benefits are any wage cost not directly connected with the employees
productive effort, performance, service or sacrifice”. According to Werther and Davis, “Fringe embrace
a broad range of benefits and services that employees receive as part of their total compensation, package-
pay or direct compensation and is based on critical job factors and performance”.
According to Cockman, “ Employee benefits are those benefits which are supplied by an employer to or
for the benefits of an employee and which are not in the form of wages, salaries and time rated payments”.
These are indirect compensation as they are extended condition of employment and are not related to
performance directly.

10.9 Kinds of Fringe Benefits

The various organizations in India offers fringe benefits that may be categorized as follows:
1) Old Age and Retirement Benefits - these include provident fund schemes, pension schemes,
gratuity and medical benefits which are provided to employee after their retirement and during old
age as a sense of security about their old age.
2) Workman’s Compensation - these benefits are provided to employee if they are got ignored or
die under the working conditions and the sole responsibility is of the employer.
3) Employee Security- Regular wage and salary is given to employee that gives a feeling of security.
Other than this compensation is also given if there is lay-off or retrenchment in an organization.
4) Payment for Time Not Worked – Under this category of benefits, a worker is provided payment
for the work that has been performed by him during holidays and also for the work done during
odd shifts. Compensatory holidays for the same number in the same month are given if the worker
has not availed weekly holidays.
5) Safety and Health – Under this benefit workers are provided conditions and requirements
regarding working condition with a view to provide safe working environment. Safety and Health
measures are also taken care of in order to protect the employees against unhealthy working
conditions and accidents.
6) Health Benefits – Employees are also provided medical services like hospital facility, clinical
facility by the organization.

10.10 Summary
 Compensation are monetary and non-monetary benefits design to attract, retain and motivate
workers of the organisation.
 Compensation are depend on labour market conditions, legislations, management philosophy and
organisations ability to pay.
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  Broad objectives of the compensation planning is to assign a monetary value to each job or skill
set in the organisation.
 Incentive plans and fringe benefits are the modes of compensation.
 Incentive plans used in industries are both for individual and group. Individual incentives are based
on individual performance and group incentives rewards employees for their collective performance.
 Compensation in addition to direct wages or salaries such as company car, paid holidays, retirement
benefits, health and safety benefits, workman’s compensation are known as fringe benefits. Purpose
of fringe benefits is to increase the economic security of employees.

10.11 Self Assessment Questions

1 Describe compensation and its various modes?
2 Explain various factors affecting compensation planning?
3 What do you understand by individual and group incentive? Discuss them with their relative
advantage and demerits?
4 What do you understand by fringe benefits? What are its essential features?
5 Write Short Notes on:
i. Halsey Premium Plan
ii. Safety & Health measures.
iii. Rowan Plan.

10.12 Reference Books

 David a. Decenzo and Stephen P. Robbins “ Personnel / Human Resource Management”, Prentice
Hall of India Private Ltd, New Delhi 3rd edition 2004
 K.Aswathappa;”Human Resource and Personnel Management- Text and cases”;Tata Mcgraw
Hill Publishing company Ltd, New Delhi, 4th edition 2005
 Edwin B. Flippo;”Personnel management”; McGraw Hill Book Company,Singapore; International
edition 1984
 Wayne F.Casico; “Managing Human Resource- Productivity, Quality of Work Life, Profits” ,Tata
Mcgraw Hill Publishing Company Ltd, New Delhi 7th edition 2006.
 G.S. Sudha; “Human Resource Management”; Professional Publications, Jaipur’3rd revised edition
2009
 Shashi k. Gupta and Rosy Joshi ; “Human Resource Management”; Kalyani Publishing , New
Delhi 2011
 C.B. Mamoria and S.V. Gankar;” Personnel Management- Text and Cases”; Himalaya Publishing
House, 22nd edition 2002.

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 Unit - 11 : Industrial Relation
Structure of Unit:
11.0 Objectives
11.1 Introduction
11.2 The Concept of Industrial Relation or Meaning and Definition of Industrial Relation (IR)
11.3 Objective of Industrial Relation
11.4 Approaches to IR
11.5 Suggestions and Measures to Improve IR
11.6 Significance of Good Relations
11.7 Industrial Disputes
11.8 Forms of Industrial Disputes
11.9 Causes of Disputes
11.10 Prevention of Industrial Disputes
11.11 Settlement of Industrial Disputes
11.12 Summary
11.13 Self Assessment Questions
11.14 Reference Books

11.0 Objectives
After completing this unit, you would be able to:
 Understand the concept of industrial relation
 Know about objective and approaches of industrial relation
 Learn how to measures of improving industrial relation
 Point out various industrial disputes
 Know about causes of industrial disputes
 Learn how to prevent and settle down industrial disputes
 Learn how to resolve industrial relation.

11.1 Introduction
Industrial relation is not a very new concept but it has become one of the most delicate and complex
problem of modern Indian society. Industrial Progress is impossible without labour management cooperation
and industrial harmony. The concept of Industrial relation has a wide meaning and connotation. In the
narrow sense, the term “Industrial Relation” refers to the nature of relationship between the employers and
employees in an Industrial enterprise. In the broad sense, industrial relation refers to all types of relationship
between all the parties concerned with the industry. Examples are:
 Individual relations
 Relationship between employers and workers at the place of work or workers participation in
management.
 Collective bargaining
 Trade union
 Machinery for settlement of industrial disputes
 Unfair labor practices
 Individual grievance and disciplinary policy and practice.
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  Industrial relation training.
 State participation in industrial Relation.
Another related term is ‘employee relations’ or ‘human relation’.

11.2 The Concept of Industrial Relation or Meaning and Definition of

Industrial Relation (IR)
The term “Industrial Relation” refers to all types of relationship between all the parties concerned with
industry. According to Encyclopaedia Britannica, it denotes relations of all those associated in productive
work, including industry, agriculture, mining, commerce, finance, transport and other services.
According to Dale in his book Personnel Management and Industrial Relation, defines Industrial relations
are relationship between management and employees or among employee and their organization that arise
out of employment.
According to R.A.Lester Industrial relations involves attempts to have workable solutions between
conflicting objectives and values, between incentive and economic security, between discipline and the
industrial democracy, between authority and freedom and between bargaining and cooperation”.
In modern usage, the phrase “Industrial Relation” includes the whole gamut of matters that arise due to the
continuing relationship between the employers and the workers.
Its scope includes three rarely distinct areas:
 Relations between mangers and individual workers.
 The collective relations between employers and labor (trade) union.
 The role of government in the regulation of these relationships.
These three closely associated areas are often referred to respectively as
 Personnel Management
 Collective Bargaining
 Labor Legislation
Parties involved in industrial relations:
  Employers
 Employee
 Government

Figure 11.1
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Activity A:
1. Collect the data to tri parties at least of five industries about their industrial relation within
the organization.

11.3 Objective of Industrial Relation

The primary objectives of Industrial Relation at national level are that to improving the economic condition
of workers, increasing productivity and achieving industrial democracy in industrial enterprise. The labor
management committee of the Asian Regional Conference of the International Labor Organization (ILO)
has recognized certain fundamental objectives of Industrial relations are to maintain sound and harmonious
relations between employees and employers. The other objectives drawn from this objective are:
1. Industrial Relation safeguards the interest of labor and management through mutual understanding
and goodwill among those parties in the industry which actively participates in the process of
production.
2. To raise productivity of the industry at a higher level this is the need of the day to contribute to the
economic development of the country.
3. To avoid all forms of industrial conflict
4. To minimize labour turnover and absenteeism by providing job satisfaction to the workers and
increasing their morale.
5. To minimize the occurrence of strikes, lockouts and gheraos.
6. To encourage and develop trade unions in order to improve workers collective strength and
resolving their problems through collective bargaining.
7. To establish, develop and maintain industrial democracy based on employee’s participation in
management and profit of the industry.
8. To facilitate government control over industries in regulating production and for protecting
employment or where production needs to be regulated in public interest.
9. To check and ensure a healthy and balanced social order in the industry.

11.4 Approaches to IR
Industrial Relation is perceived by differently by different people. Some of the approaches to industrial
relations are as follows. There are three popular approaches to IR: Unitary, Pluralistic and Marxist.
Some others are psychological approach, sociological, V.V.Giri, Gandhian , HRD and System Approach.
Here we are discussing on mainly popular approaches.
Unitary Perspective: In unitary, the organization is perceived as an integrated and harmonious system,
viewed as one happy family. A core assumption of unitary approach is that management and staff, and all
members of the organization share the same objectives, interests and purposes; thus working together,
hand-in-hand, towards the shared mutual goals. Furthermore, unitary has a paternalistic approach where
it demands loyalty of all employees. Trade unions are deemed as unnecessary and conflict is perceived as
disruptive.
From employee point of view, unitary approach means that:
 Working practices should be flexible. Individuals should be business process improvement oriented,
multi-skilled and ready to tackle with efficiency whatever tasks are required.
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  If a union is recognized, its role is that of a further means of communication between groups of
staff and the company.
 The emphasis is on good relationships and sound terms and conditions of employment.
 Employee participation in workplace decisions is enabled. This helps in empowering individuals in
their roles and emphasizes team work, innovation, creativity, discretion in problem-solving, quality
and improvement groups etc.
 Employees should feel that the skills and expertise of managers supports their endeavors.
From employer point of view, unitary approach means that:
 Staffing policies should try to unify effort, inspire and motivate employees.
 The organization’s wider objectives should be properly communicated and discussed with staff.
 Reward systems should be so designed as to foster to secure loyalty and commitment.
 Line managers should take ownership of their team/staffing responsibilities.
 Staff-management conflicts - from the perspective of the unitary framework - are seen as arising
from lack of information, inadequate presentation of management’s policies.
The personal objectives of every individual employed in the business should be discussed with them and
integrated with the organization’s needs
Pluralistic-Perspective: In pluralism the organization is perceived as being made up of powerful and
divergent sub-groups - management and trade unions. This approach sees conflicts of interest and
disagreements between managers and workers over the distribution of profits as normal and inescapable.
Consequently, the role of management would lean less towards enforcing and controlling and more toward
persuasion and co-ordination. Trade unions are deemed as legitimate representatives of employees. Conflict
is dealt by collective bargaining and is viewed not necessarily as a bad thing and if managed could in fact
be channelled towards evolution and positive change. Realistic managers should accept conflict to occur.
There is a greater propensity for conflict rather than harmony.
They should anticipate and resolve this by securing agreed procedures for settling disputes.The implications
of this approach include:·
 The firm should have industrial relations and personnel specialists who advise managers and provide
specialist services in respect of staffing and matters relating to union consultation and negotiation.
 Independent external arbitrators should be used to assist in the resolution of disputes.
 Union recognition should be encouraged and union representatives given scope to carry out their
representative duties·
 Comprehensive collective agreements should be negotiated with unions
Marxist Perspective: This view of industrial relations is a by product of a theory of capitalist society
and social change. Marx argued that:
 Weakness and contradiction inherent in the capitalist system would result in revolution and the
ascendancy of socialism over capitalism.
 Capitalism would foster monopolies.
 Wages (costs to the capitalist) would be minimized to a subsistence level.
 Capitalists and workers would compete/be in contention to win ground and establish their constant
win-lose struggles would be evident
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This perspective focuses on the fundamental division of interest between capital and labor, and sees
workplace relations against this background. It is concerned with the structure and nature of society and
assumes that the conflict in employment relationship is reflective of the structure of the society. Conflict is
therefore seen as inevitable and trade unions are a natural response of workers to their exploitation by
capital.

11.5 Suggestions and Measures to Improve IR

Good industrial relation refer to harmonious relations between the trade union and the management in an
organization, but it is not easy to promote and maintain sound and harmonious industrial relations in an
organization but there are some suggestions which are help to maintain sound and cordial relation between
the labor and the management.
1. Support of Top Management: Top management action always be proactive and geared to
problem solving and its action and decision must be in favour of an organization and employees.
2. Sound Personnel Policies: personnel policies constitute the business philosophy of an organization
and guide it in arriving at human relations decisions. Sound policies and rules are of little help
unless they are executed objectively and equitably at all the levels of an organization. Positive
Attitudes: Both top management and trade union should adopt positive attitudes towards each
other, they help them to understand problem of each and which can be solved by collective
bargaining.
3. Collective Bargaining: Collective bargaining is an instrument which helps to maintain industrial
peace in an organization .such collective bargaining agreements and association of employees in
decision making process will bring about cooperation between labour and management.
4. Strong Trade Union and Sound Employers’ Union: Industrial relations can be sound only
when the bargaining power of the employees’ union is strong and equal to that of management.
And employers’ union should also be sound and well organized. Sound management are helpful
for the maintenance and promotion of uniform personnel policies among various organizations and
to protect the interest of weak employers.
5. There are also some others suggestions but they are some expensive because they want
some research work on them:
 There should be well established and properly administered grievance redress machinery,
sometimes which provides an outlet for tensions and frustrations of workers. Similarly, a suggestions
scheme will help to satisfy the creative urge of workers.
Job supervisors should be trained thoroughly to ensure that organizational policies and practices
as well as leadership and communication skill, which help them too properly, implemented and
carried into effect.
A regular follow up of IR programmed is essential so that existing practice may be properly
evaluated and a check may be exercised on certain undesirable tendencies, should they manifest
themselves.

11.6 Significance of Good Industrial Relations

If the objective of the nation is rapid national development and increased social justice are to be achieved,
there must be harmonious relationship between management and union. Such relations will lead to the
following benefits:
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1. Industrial Peace: Good industrial relations bring harmony and remove causes of disputes. This
leads to industrial peace, which is an ideal situation for an industrial unit to concentrate on productivity
and growth.
2. High Morale: Cordial industrial relations improve the morale of the employee. It implies the
existence of an atmosphere of cooperation, confidence, and respect within the enterprise. In such
an atmosphere, there are common goals, which motivate all members of the organization to
contribute their best. Consequently, there is higher productivity, higher income, and increased job
satisfaction – all resulting in higher morale of the workforce.
3. Mental Revolution: Sound industrial relation completely transforms the outlook of employers
and employee. It is based on consultation between the workers and the management. This motivates
the workers to give their best to the organization and share the fruits of progress jointly with the
management.
4. Reduced Wastage and Increased Productivity: It helps in increasing production. Wastage of
man, material and machines are reduced to the minimum and thus national interest is protected.
Thus, they will contribute to the economic growth of the countries.
5. Programmes for Workers Development: New programmes for workers development are
introduced in an atmosphere of peace such as training facilities, labor welfare facilities etc. Hence,
full advantage of latest inventions, innovations and other technological advancement can be obtained.
Through these employee development programme, workforce easily adjust itself to required
changes for betterment.
Activity B:
1 Discuss the present position of industrial relations in the country, in your Opinion; what steps
should be taken to improve it.

11.7 Industrial Disputes

Industrial Disputes Act 1947 defines any dispute or difference between employers and employers or
between employers and workers, or between workers and workers, which is connected with the
employment or non-employment or terms of employment or with the conditions of labor of any person.
Industrial Disputes are frequently clouded by a sense of exploitation, distrust and discontent between
employee and employers. In simple language, the disputes between employers and employees on any
Industrial matters are known as industrial disputes. The term ‘dispute’ is characterized by the following
factors :
1. Dispute mainly relate to the strife between employers and their employees.
2. There must actually be a difference.
3. Its work related or industrial matter issues.
4. Disputes must be raised by group or class of workmen.
5. Disputes between one or two workmen and their employers are not an industrial dispute.

11.8 Forms of Industrial Disputes

Industrial dispute can take place in any of the following forms:
1) Strikes: A strike means a cessation of work by a body of persons employed in any industry
acting in combination or a concerted refusal under a common understanding of a number of
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 persons who are or have been so employed to continue work or to accept employment. Strikes
are of several types:
 Economic Strike
 Sympathetic Strike
 General Strike
 Set down Strike
 Slow Down Strike
 Lightening Strike
 Hunger Strike
2) Lock Out: lock out is the counterpart of strike. Lock outs bring psychological pressure on the
workers to agree to his conditions or face closure of the units. A lockout is decaled as a trial of
strength between the management and its employees. Lockouts means the employer closes down
his factory where his workers are employed because he wants to force them to agree to his terms
and conditions of service during the pendency of a dispute.
3) Gherao: Its means “to surround”. According to National Commission on Labour “ Gherao tend
to inflict physical duress on the persons affected and endanger not only industrial harmony but also
create problems of law and order”.
4) Picketing: It is primarily a method of drawing public attention towards the disputes and it is legal
so there is no violence is involved. In picketing, workers are dissuaded from reporting for work
by certain persons stationed at the gate of the factory.
5) Boycott: Boycott aims at disrupting the normal functioning of an enterprise, through forceful
appeals and negative behavioural acts.

11.9 Causes of Disputes

1) Wages and Allowances: The most important cause for disputes relates to wages. The demand
for increase in wages and allowances is the most important cause of industrial disputes. The
demand for wages and allowances has never been fully met because of inflation and high cost of
living. High inflation results in increased cost of living resulting in never ending demands from
unions. There are some more economic reasons who are the cause of industrial disputes are
bonus, working conditions and working hours, modernization and automation and demand for
other facilities.
2) Union Rivalry: Most organizations have multiple unions. Multiplicity of unions leads to inter-
union rivalries. If one union agrees to a wage settlement, another union will oppose it.
3) Political Interference: Major trade unions are affiliated to political parties. Political affiliated is
not peculiar to our country alone. Even a cursory assessment of labour movements around the
world would show that trade unions are, by their very nature, political and that politicization of the
rule rather than the exception. Everywhere trade union have been compelled to engage in political
action to obtain enough freedom from legal restraint to exercise their main industrial functions.
4) Managerial Causes: These causes include autocratic managerial attitude and defective labour
policies. In this includes failures of recognize the trade union, defective recruitment policies, irregular
layoff and retrenchment, defiance of agreements and codes, defective leadership, weak trade
unions.
5) Unfair labour Practices: The Industrial Dispute Act, 1947 is more specific about the unfair
labour practices. According to the Act, the following constitute unfair labour practices:
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  To interfere with, restrain from or coerce workmen in the exercise of their right to organize,
form, join or assist a trade union or to engage in concerted activities for the purpose of collective
bargaining or other mutual aid or protection, that is to say,
 Threatening workmen with discharge if they join a trade union
 Threating a lockout or closure, if a trade union is organised
 Granting wage increases to workmen at crucial periods of the trade union organization, with a
view to undermine the efforts of the trade union at organization.
To, dominate, interfere with or contribute support, financial or otherwise, to any trade union.
6) To encourage or discourage membership in any trade union by discriminating against workmen.
7) To discharge or dismiss workmen.
8) To indulge in acts of force or violence.
9) To refuse to bargaining collectively, in good faith with the recognized trade unions.
10) To insist upon individuals workmen, who are on a legal strike, to sign a good conduct bond as a
precondition to allowing them to resume work?

11.10 Prevention of Industrial Disputes

It is very famous sentences prevention is always better than cure. Prevention steps should, therefore, be
taken so that reduced industrial disputes and sometimes try to do not occur the industrial disputes in the
organizations.
1) Collective Bargaining: Collective Bargaining is the most effective method of resolving industrial
disputes. The role of collective bargaining in solving the problems arising between the management
and the worker has been widely recognized. Collective bargaining not only includes negotiation,
administration and enforcement of the written contracts between the employees and the employers
but also includes the process of resolving labour management conflicts.
Collective bargaining offers the following benefits to both of the employees and employers :
It helps increase economic strength of both the parties at the same time protecting their interest.
It helps resolve disputes when it is occur in the organization.
It also help to establish uniform conditions of employment with a view to avoid occurrences of
industrial disputes.
It lays down rules and norms for dealing with labour.
2) National Arbitration Promotion Board: The Truce Resolution 1962 and the code of Discipline
as evolved in 1958 recognized the principle of voluntary Arbitration. The Government of India
took note of the intention of both the industrial partners and set up the NationalArbitration Promotion
Board in July 1967 to promote arbitration.
Arbitration is a procedure in which a neutral third party studies the bargaining situation, listens to
both the parties and gathers information, and then makes recommendations that are building on
the parties. Arbitration is effective because it is established by the parties themselves and the
decision is acceptable to them and it also delays are cut down, settlement are speeded up and less
expensive when compared to courts or tribunals.
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3) Grievance Redresal Procedure: A grievance may be understood as an employee’s dissatisfaction
or feeling of personal injustice relating to his or her employment relationship. A grievance is generally
well- defined in a collective bargaining agreement. The Indian Labour Conference inn1958 evolved
a code of discipline which was ratified by the national trade union and employers’ organization.
Under this code, both the parties voluntarily agree to maintain and create an atmosphere of mutual
trust and cooperation in the factory and to settle all the disputes and grievance by mutual negotiation,
conciliation and voluntary arbitration and avoid direct action.
4) The Implementation Machinery: The central organizations of workers and employers have
set up machinery to screen cases of industrial disputes before they are taken to courts with a view
to reducing litigation. The main function of consultative machinery is to bring the parties together
for mutual settlement of difference in a spirit of co-operation and goodwill. Consultative machinery
operates at the plant, industry, national and state levels. At the plant level, there are works
committees and joint management councils. Being essentially bipartite in character, Work committee
are constituted as per the provisions of the Industrial Disputes Act, 1947 and joint management
councils are set up following the trust laid down in the Industrial Policy Resolution, 1956. At the
industry level, there are Wage Boards and Industrial Committees. Implementation cells have been
set up in almost all the states and their activities are coordinated by the central Implementation and
Evaluation Cell with a view to ensure uniform policies and action.
5) Workers Participation in Management: It is a method whereby the workers are allowed to
be consulted and to have a say in the management of the unit. The important schemes of workers
participation are:
 Work Committees consisting of representatives of employer and employee where every industrial
undertaking employing 100 or more workers is under an obligation to set up. Its main purpose to
promote industrial relations.
 Joint Management Councils: Government suggested setting up joint management council to
make a start in labour participation in management.
 Shop council: it have been set up in the manufacturing and mining industries employing 500 or
more workers in private, public and joint sectors. Its main function to assist the management in
achieving production targets, improving production, productivity efficiency, eliminating wastage
and in achieving optimum utilization of machinery and manpower.
 Joint Council : joint council have been established for the whole unit and deals with matters
relating to optimum production and efficiency and the fixations of productivity norms for man and
machine for the unit as a whole.
6) Tripartite Bodies: Tripartite bodies composed of employer, employee and government have
been set up for consultation and discussion on problems of labour to solve it out.
7) Model Standing Orders: Government enacted the Industrial Employment (Standing Order) Act
1946 for to avoid frictions amongst employers and workmen over the terms of employment. This
Act is requiring employers in the establishment to defuse with sufficient precision, the condition of
employment under him and to make them known to all the workers. Such conditions include
conditions of recruitment, discharge, disciplinary action, holidays, leave etc of the workers. Thus,
the main object of the act is to prevent the dispute as soon as it arises by framing model rules for
maintaining discipline and better relations.
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11.11 Settlement of Industrial Disputes
If dispute could not be prevented on voluntary basis and do arise, steps have to be taken for their settlement.
Industrial Dispute Act 1947 as amended in 1982 provides several provisions for settling the disputes.
Various methods and provision are for resolving disputes. More important of them are as follows:
1) Arbitration
2) Conciliation
3) Collective Bargaining
4) Code of Discipline
5) Grievance Procedure
6) Adjudication
7) Consultative machinery
1) Arbitration: it is a procedure in which a neutral third party studies the bargaining situation listen to both
the parties and gathers information and then make recommendation that are binding the parties. It is
effective because established by the parties themselves and the decision is acceptable to them and relatively
expeditious when compared to courts or tribunals. Delays are cut down and settlements are speeded up.
But it has some weakness also are it is expensive. The expenditure needs to be shared by the labour and
the management and judgment become arbitrary if there is a mistake in selecting the arbitrator.
2) Conciliation: It is a process by which representatives of workers and employees are brought together
before a third party with a view to persuading them to arrive at an agreement by mutual discussion between
them. The third party may be one individual or a group of people. The alternative name for the third party
is mediators.
The conciliation officer can be appointed by the central and state government to mediate in all disputes
brought to his notice. The officer enjoys the power of civil courts. He can call and witness disputing parties
on oath and interpret the facts of the case. He is expected to give judgment within 14 days of the
commencement of the conciliation proceedings. His judgment is binding on all the parties to the disputes.
When the conciliation officer fails to resolve the disputes between the parties, the government can appoint
a Board of Conciliation. It is not a permanent Board. It consists of a chairman and two or four other
members nominated in equal numbers by the parties to the disputes.
3) Collective Bargaining: it is a process by which employers on the one hand and representative of the
employees on the other, attempt to arrive at agreements covering the conditions under which employees
will contribute and be compensated for their services. We already discuss on it.
4) Code of Discipline: The code of discipline evolved by the Ministry of Labour and Employment. The
code of discipline defines duties and responsibilities of employers and workers. The objectives of promoting
constructive co-operation between their representatives at all levels, avoiding stoppage as well as litigation,
securing settlement of grievance by mutual negotiation, conciliation and voluntary arbitration, facilitating
the growth of trade union and eliminating all forms of coercion and violence of Industrial Relation.
5) Grievance Procedures: A grievance may be understood as an employee’s dissatisfaction or feeling of
personal injustice relating to his or her employment relationship. There are some condition which may give
rise to a grievance are like a violation of law, a violation of the intent of the parties as stipulated during
contract negotiation , a violation of company rules, a change in working conditions or past company
practices and a violation of health and /or safety standards.
It is resolved by set procedure :

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  How the grievance will be imitated?
 The number of steps in the process.
 Who will represent each party?
 The specified number of working days within which the grievance must be taken on the next step
in the hearing.
6) Adjudication: it is means a mandatory settlement of an industrial dispute by a labour court or a tribunal.
Whenever an industrial dispute remains unresolved by the conciliation officer and the board of conciliation,
the matter is referred in a court of inquiry. A court of inquiry may consist of one independent person or
such numbers of independent persons as the appropriate government may think fit and submit its report to
the government within six months from the date of the commencement of the inquiry. If settlement is not
arrived at by the efforts of the above machinery, three types of semi-judicial bodies are formed i.e. labour
court, industrial tribunals and national tribunals.
 Labour Court shall consist of one person only to be appointed by the appropriate government.
Labor court for adjudication of industrial disputes relating to disputed orders of the employers.
e.g. dismissal, discharge and suspensions of employees, application and interpretation of standing
orders, withdrawl of any concession or privilege, legality or otherwise of any strike or lockout etc.
 Industrial Tribunals: the tribunals will consist of one person of the rank of a high court judge by
state government. This tribunals solve out the disputes relating to wages, hour of work and rest,
intervals, leave with pay, holidays, compensatory and other allowances, bonus, profit sharing,
provident fund, retrenchment, gratuity and etc.
 National Tribunal: National Tribunals are set up by the Central Government for the adjudication
of the industrial disputes which involves the question of national importance or which affect industrial
establishment situated in more than one state. It gives decisions on matters referred to it by the
Central Government which matter is referred to the national tribunal by the central government,
the labour courts and industrial tribunals are barred from entertaining such disputes and if any such
dispute is before labour court or tribunals. Shall be deemed to be quashed.
7) Consultative Machinery: It is set by the government to resolve disputes. The main function of this
machinery is to bring the parties together for mutual settlement of differences in a spirit of co-operation
and goodwill. Consultative machinery operates at the plant, industry, state and the national level. At the
plant level, there are works committees and joint management councils being bipartite in character and at
the industry level there are wage boards and industrial committees.
Activity C:
1 Management is bound for Labour Welfare-
(a) Within the factory only
(b) Outside the factory only
(c) Both of above
(d) None of the above

11.12 Summary
Industrial unrest is similar to a disease that demands cure and prevention rather than suppression. The
emergence of the concepts of human relations, human resources management and human resource
development has raised some hopes of findings solution to the problems of industrial relations through
applied behavioral science interventions. Industrial relation refers to all type of relationship between all the
parties concerned with the industry. The fundamental objectives of industrial relations are to maintain
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sound and harmonious relations between employers and employees. The HRD Manager should try to
build labour management relations around mutual trust, understanding and cooperation. The conflicts and
disputes between employer and employees on any industrial matter are known as Industrial Disputes. It is
the most acute problem in any organization because it endangers peace in the industry. According to
“Code of Industrial Relations, U.K. disputes are of two types- of right and of interest. The main causes of
industrial disputes are economic, political, managerial, self-respect, ego and etc.
Prevention is always better than care. Prevention steps should, therefore, be taken so that individual
disputes do not occur. If the disputes cannot be prevented on voluntary basis and do arise, steps have to
be taken for their settlement. Industrial Disputes Act, 1947 as amended in 1982, provides several provisions
for setting the disputes.

11.13 Self Assessment Questions

1. Explain the concept of Industrial Relations. What is the significance of good industrial relations
and what are its objectives?
2. Bring out the causes and consequences of industrial disputes. Discuss existing machinery for the
settlement of industrial disputes in India.
3. Discuss the steps you would suggest to promote industrial harmony in India.
4. What do you mean by industrial relations? Discuss the role of various participants in industrial
relations.
5. Explain the machinery for prevention and settlement of industrial disputes in India.

11.14 Reference Books

- Industrial Relation and Legislative – T.N.Chabbra and Suri
- Industrial Relation - Nolakha
- Dynamics of Industrial Relations in India- C.B. and S. Mamoria
- Management of Industrial Relations- Verma, Pramod
- Industrial Relations Machinery- C.S.Srivastava

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 Unit - 12 : Trade Unions
Structure of Unit:
12.0 Objectives
12.1 Introduction
12.2 What is Trade Union?
12.2.1 Objectives of Trade Union
12.2.2 Role of Trade Union
12.2.3 Functions of Trade Union
12.3 Types of Trade Union
12.4 Importance of Trade Union
12.5 Rights and Liabilities of Trade Union
12.6 Phases of Growth of Trade Union in India
12.7 Multiplicity and Effectiveness of Trade Union
12.8 Summary
12.9 Self Assessment Questions
12.10 Reference Books

12.0 Objectives
After completing this unit, you would be able to:
 Understand the meaning of Trade Union;
 Understand the different types of Trade Union;
 Learn about the different growth phases of Trade Union;
 Know about the duties and responsibilities of Trade Union;
 Learn about the effectiveness of Trade Union in Present Scenario.

12.1 Introduction
A trade union is an organization of workers that have banded together to achieve common goals such as
better working conditions. The trade union, through its leadership, bargains with the employer on behalf of
union members (rank and file members) and negotiates labor contracts (collective bargaining) with employers.
This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing
and promotion of workers, benefits, workplace safety and policies. The agreements negotiated by the
union leaders are binding on the rank and file members and the employer and in some cases on other non-
member workers.

12.2 What is Trade Union?

Trade union as per Trade Union Act 1926 – “Any combination formed primarily for the purpose of
regulating the relations between workmen and employers or workmen and workmen or 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.”
From the above definition it is clear that Trade union is not just an association of the workmen
of a factory or a trade or a business but also can be formed by officers and managers.
Under the Trade Unions Act, 1926, the expression trade union includes both employers and workers in
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organizations. The term trade union however is commonly used to refer to the organization of workers
formed to protect their rights and enhance their welfare.
According to V.V. Giri, “Trade unions are voluntary associations of workers formed together to promote
and protect their interests by collective action.”
12.2.1 Objectives of Trade Union
Trade unions are formed to protect and promote the interests of their members. Their primary function is
to protect the interests of workers against discrimination and unfair labor practices. Trade unions are
formed to achieve the following objectives:
 Representation : Trade unions represent individual workers when they have a problem at work.
If an employee feels he is being unfairly treated, he can ask the union representative to help sort
out the difficulty with the manager or employer. Unions also offer their members legal representation.
Normally this is to help people get financial compensation for work-related injuries or to assist
people who have to take their employer to court.
 Negotiation : Negotiation is where union representatives, discuss with management, the issues
which affect people working in an organization. There may be a difference of opinion between
management and union members. Trade unions negotiate with the employers to find out a solution
to these differences. Pay, working hours, holidays and changes to working practices are the sorts
of issues that are negotiated. In many workplaces there is a formal agreement between the union
and the company which states that the union has the right to negotiate with the employer. In these
organizations, unions are said to be recognized for collective bargaining purposes.
 Voice of Decision Effective Workers : The economic security of employees is determined not
only by the level of wages and duration of their employment, but also by the management’s personal
policies which include selection of employees for layoffs, retrenchment, promotion and transfer.
These policies directly affect workers. The evaluation criteria for such decisions may not be fair.
So, the intervention of unions in such decision making is a way through which workers can have
their say in the decision making to safeguard their interests.
 Member Services : During the last few years, trade unions have increased the range of services
they offer their members. These include:
 Education and Training : Most unions run training courses for their members on employment
rights, health and safety and other issues. Some unions also help members who have left school
with little education by offering courses on basic skills and courses leading to professional
qualifications.
 Legal Assistance : As well as offering legal advice on employment issues, some unions give help
with personal matters, like housing, wills and debt.
 Financial Discounts : People can get discounts on mortgages, insurance and loans from unions.
 Welfare Benefits : One of the earliest functions of trade unions was to look after members who
hit hard times. Some of the older unions offer financial help to their members when they are sick or
unemployed.
12.2.2 Role of Trade Union
Trade unions are unique organisations whose role is variously interpreted and understood by different
interest groups in the society. Traditionally trade unions role has been to protect jobs and real earnings,
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secure better conditions of work and life and fight against exploitation and arbitrariness to ensure fairness
and equity in employment contexts. In the wake of a long history of union movement and accumulated
benefits under collective agreements, a plethora of legislations and industrial jurisprudence, growing literacy
and awareness among the employees and the spread of a variety of social institutions including consumer
and public interest groups the protective role must have undergone, a qualitative change. It can be said
that the protective role of trade unions remains in form, but varies in substance.
There is a considerable debate on the purposes and role of trade unions. The predominant view, however,
is that the concerns of trade unions extend beyond ‘bread and butter’ issues. Trade unions through industrial
action (such as protests and strikes) and political action (influencing Government policy) establish minimum
economic and legal conditions and restrain abuse of labour wherever the labour is organised. Trade unions
are also seen as moral institutions, which will uplift the weak and downtrodden and render them the place,
the dignity and justice they deserve.
12.2.3 Functions of Trade Union
Trade unions perform a number of functions in order to achieve the objectives. These functions can be
broadly classified into three categories:
1. Militant Functions
2. Fraternal Functions
1. Militant Functions
One set of activities performed by trade unions leads to the betterment of the position of their members in
relation to their employment. The aim of such activities is to ensure adequate wages secure better conditions
of work and employment get better treatment from employers, etc. When the unions fail to accomplish
these aims by the method of collective bargaining and negotiations, they adopt an approach and put up a
fight with the management in the form of go-slow tactics, strike, boycott, gherao, etc. Hence, thesefunctions
of the trade unions are known as militant or fighting functions. Thus, the militant functions of trade unions
can be summed up as:
 To achieve higher wages and better working conditions
 To raise the status of workers as a part of industry
 To protect labors against victimization and injustice

2. Fraternal Functions
Another set of activities performed by trade unions aims at rendering help to its members in times of need,
and improving their efficiency. Trade unions try to foster a spirit of cooperation and promote friendly
industrial relations and diffuse education and culture among their members. They take up welfare measures
for improving the morale of workers and generate self confidence among them. They also arrange for legal
assistance to its members, if necessary. Besides, these, they undertake many welfare measures for their
members, e.g., school for the education of children, library, reading-rooms, in-door and out-door games,
and other recreational facilities. Some trade unions even undertake publication of some magazine or
journal. These activities, which may be called fraternal functions, depend on the availability of funds, which
the unions raise by subscription from members and donations from outsiders, and also on their competent
and enlightened leadership. Thus, the fraternal functions of trade unions can be summed up as:
 To take up welfare measures for improving the morale of workers
 To generate self confidence among workers
 To encourage sincerity and discipline among workers
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  To provide opportunities for promotion and growth
 To protect women workers against discrimination.

12.3 Types of Trade Union

Trade Union Act was established in the year 1926. TU is any association (temporary /permanent) for the
purpose of regulating the relationship between employers-workers, employer-employer, worker-worker
for imposing restrictive conditions on trade practices. It also includes federation of unions referred as
association of professional persons. In countries like England, trade union is referred as association of
professional person. In India it is considered as cursi - union /semi- union. In America, TU is considered
as the association of all persons in a trade. Functions of TU: functions can be categorized into: 1. Militant
/protective 2. Positive/fraternal. 3. Intramural/extramural
 Militant /protective: as the name suggests it protects their members, aims at securing better
conditions of work, employment for members. It uses instruments like strikes, lockouts etc. for
protecting the interest of their members.
 Positive/fraternal: It provides financial support to their members during time of temporary
unemployment.
 Intramural/extramural: intramural refers to welfare schemes & activities within the framework
of factory premises (safety, secure working environment, minimum wages, minimum working hours,
and leave with wages) Extramural refers to the welfare schemes outside the factory premises
(medical assistance, health care, education etc.)
TU are born out of the necessities of the workers to protect and defend them from injustice, encroachment
and wrong. Unions classified according to purpose: Under this head, normally two types of unions have
been kept 1) Reformist 2) Revolutionary
 Reformist Unions: These unions are those which aim at the preservation of the capitalist society
and maintenance of the usual employer-employee relationship, elimination of competitive system
of production. The reformist unions have been subdivided by hoxie according to the objectives:
into business unions and uplift unionism.
 Revolutionary Unions: These unions aim at destroying the present structure completely and
replacing it with new and different institution according to the ideas that are regarded as preferable.
The revolutionary unionism is also of two types namely, anarchist and political. Dr horie also
enumerates a third type of unionism namely predatory unions and gorilla union.
According to membership structure there are four types of Trade unions: 1.Craft unionism, 2. staff unionism,
3. Industrial union and 4.general union.
 Craft Union: Workers, those are working in same as similar type of work/trade/business. They
have similar skills, specialization. Members are mostly non manual workers. Members are craft
conscious than class conscious .They take the membership on the basis of similar type of work.
They strengthen their union by integration of their members.
 Staff Union: Organization, those are basing upon a sense of common status, same type of need.
They try to seek their membership from non manual sectors of the economy like clerical, supervisors,
operators, technicians, craftsmen etc. Unique feature of staff union was women workers were
also members of staff union. Staff union gained popularity by taking women workers as their
members.
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  Industrial Union: Irrespective of crafts, skill, grade, position, gender etc. The workers working
in one industry were members of industrial union. This union is more class conscious than trade
conscious.
 General union: It covers all types of industries. Labor class people from any type of industry can
be members of general union. It is more open than the industrial unions. Their numerical strength
is high.

12.4 Importance of Trade Union

The existence of a strong and recognized trade union is a pre-requisite to industrial peace. Decisions taken
through the process of collective bargaining and negotiations between employer and unions are more
influential. Trade unions play an important role and are helpful in effective communication between the
workers and the management. They provide the advice and support to ensure that the differences of
opinion do not turn into major conflicts. The central function of a trade union is to represent people at
work. But they also have a wider role in protecting their interests. They also play an important educational
role, organizing courses for their members on a wide range of matters. Seeking a healthy and safe working
environment is also prominent feature of union activity.
Trade unions help in accelerated pace of economic development in many ways as follows:
 By helping in the recruitment and selection of workers.
 By inculcating discipline among the workforce
 By enabling settlement of industrial disputes in a rational manner
 By helping social adjustments. Workers have to adjust themselves to the new working conditions,
the new rules and policies. Workers coming from different backgrounds may become disorganized,
unsatisfied and frustrated. Unions help them in such adjustment.
Trade unions are a part of society and as such, have to take into consideration the national integration as
well. Some important social responsibilities of trade unions include:
 Promoting and maintaining national integration by reducing the number of industrial disputes
 Incorporating a sense of corporate social responsibility in workers achieving industrial peace.

12.5 Rights and Liabilities of Trade Union

1. Disabilities of Unregistered Union: A trade union shall not enjoy any of the rights, immunities or
privileges of a registered trade union unless it is registered.
2. Immunity from Civil Suit in Certain Cases: No suit or other legal proceeding shall be maintainable
in any civil court against any registered trade union or any officer or member thereof in respect of any act
done in contemplation or in furtherance of a trade dispute to which a member of the trade union is a party
on the ground only that such act induces some other person to break a contract of employment, or that it
is an interference with the trade, business or employment of some other person or with the right of some
other person to dispose of his capital or of his labour as he will.
3. Liability in Tort:
(1) A suit against a registered trade union or against any members or officers thereof on behalf of
themselves and all other members of the trade union in respect of any tortuous act alleged to have
been committed by or on behalf of the trade union shall not be entertained by any court.
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 (2) Nothing in this section shall affect the liability of a trade union or any trustee or officers thereof to
be sued in any court touching or concerning the specific property or rights of a trade union or in
respect of any tortuous act arising substantially out of the use of any specific property of a trade
union except in respect of an act committed by or on behalf of the trade union in contemplation or
furtherance of a trade dispute.
4. Liability in Contract: Every registered trade union shall be liable on any contract entered into by it or
by an agent acting on its behalf: Provided that a trade union shall not be so liable on any contract which is
void or unenforceable at law.
5. Objects in Restraint of Trade Not Unlawful in Case of Registered Trade Union: The objects of
a registered trade union shall not, by reason only that they are in restraint of trade be deemed to be
unlawful so as to render any member of such trade union liable to criminal prosecution for conspiracy or
otherwise or to render void or voidable any agreement or trust.
6. Proceedings By and Against Trade Unions:
1. A registered trade union may sue and be sued and be prosecuted under its registered name.
2. An unregistered trade union may be sued and prosecuted under the name by which it has been
operating or is generally known.
3. A trade union whose registration has been cancelled or withdrawn may be sued and prosecuted
under the name by which it was registered.
4. Execution for any money recovered from a trade union in civil proceedings may issue against any
property belonging to or held in trust for the trade union other than the benevolent fund of a
registered trade union.
5. Any fine ordered to be paid by a trade union may be recovered by distress and sale of any
movable property belonging to or held in trust for the trade union in accordance with any written
law relating to criminal procedure.
6. In any civil or criminal proceedings in which a registered trade union is a party such trade union
may appear in such proceedings by anyone of its officers or by an advocate and solicitor.
7. Strikes and Lock-outs:
1. No trade union of workmen shall call for a strike, and no member thereof shall go on strike, and no
trade union of employers shall declare a lock-out –
a) in the case of a trade union of workmen, without first obtaining the consent by secret ballot of at
least two-thirds of its total number of members who are entitled to vote and in respect of whom
the strike is to be called; and in the case of a trade union of employers, without first obtaining by
secret ballot the consent of at least two-thirds of its total number of members who are entitled to
vote;
b) before the expiry of seven days after submitting to the Director General the results of such secret
ballot in accordance with section 40 (5);
c) if the secret ballot for the proposed strike or lock-out has become invalid or of no effect by virtue
of section 40 (2), (3), (6) or (9);
d) in contravention of, or without complying with, the rules of the trade union;
e) in respect of any matter covered by a direction or decision of the Minister given or made in any
appeal to him under this Act; or
f) in contravention of, or without complying with, any other provision of this Act or any provision of
any other written law.
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2. Any trade union which, and every member of its executive who, commences, promotes, organises or
finances any strike or lock-out which is in contravention of subsection (1) shall be guilty of an offence and
shall, on conviction, be liable to a fine not exceeding two

3. Any member of a trade union of workmen who commences, participates in, or otherwise acts in
furtherance of, any strike which is in contravention of subsection (1) shall forthwith cease to be a member
of the trade union, and thereafter such member shall not be eligible to become a member of any trade
union except with the prior approval of the Director General in writing; and the trade union of which he has
so ceased to be a member shall forthwith –
a) remove the name of such member from its membership register;
b) inform the Director General and the member concerned of such removal; and
c) exhibit conspicuously in its registered office in a place where it may be easily read a list of members
whose names are so removed.
4. The Director General may, where he is satisfied that subsection (1) has been contravened by any
person and the trade union concerned has failed to carry out the provisions of subsection (3), or where
there is undue delay in so doing, after such investigation as he deems necessary, order the trade union to
remove forthwith the names of the members concerned from its membership register.
5. The satisfaction of the Director General under subsection (4) that subsection (1) has been contravened
by any person may be arrived at regardless as to whether or not there is any prosecution of any person for
contravention of the said subsection (1).
6. Any registered trade union which, and every member of its executive who, fails to comply with subsection
(3) or with an order of the Director General under subsection (4) shall be guilty of an offence and shall, on
conviction, be liable to a fine not exceeding one thousand ringgit, and a further fine of one hundred ringgit
for every day during which such offence continues.
7. In every proceeding for an offence under this section the onus of proving that the requirements specified
in subsection (1) have been complied with shall be on the trade union, the member of its executive or the
member of the trade union, as the case may be.
Thousand ringgit, or to imprisonment for a term not exceeding one year, or to both, and a further fine of
one hundred ringgit for every day during which such offence continues.

12.6 Phases of Growth of Trade Union in India

Trade union is a direct product of Industrialization and a very recent development. In India, the foundation
of modern industry was laid between 1850 and 1870. Prior to that trade was confined to individuals and
families like craftsmen and artisans. They had expertise and specialized skills which was inherited by their
off springs. After Industrial revolution, these people started losing their individual identities and had to join
factories to earn their livelihood and compete with mass production. There was a psychological dislocation
as they were losing their identities.
Indian trade union movement can be divided into three phases.
The first phase falls between 1850 and 1900 during which the inception of trade unions took place.
During this period of the growth of Indian Capitalist enterprises, the working and living conditions of the
labour were poor and their working hours were long. Capitalists were only interested in their productivity
and profitability. In addition to long working hours, their wages were low and general economic conditions
were poor in industries. In order to regulate the working hours and other service conditions of the Indian
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textile labourers, the Indian Factories Act was enacted in 1881. As a result, employment of child labour
was prohibited. Mr. N M Lokhande organized people like Rickshawalas etc., prepared a study report on
their working conditions and submitted it to the Factory Labour Commission. The Indian Factory Act of
1881 was amended in 1891 due to his efforts. Guided by educated philanthropists and social workers like
Mr. Lokhande, the growth of trade union movement was slow in this phase. Many strikes took place in
the two decades following 1880 in all industrial cities. These strikes taught workers to understand the
power of united action even though there was no union in real terms. Small associations like Bombay Mill-
Hands Association came up.
The second phase of The Indian trade union movement falls between 1900 and 1947. this phase was
characterized by the development of organized trade unions and political movements of the working class.
It also witnessed the emergence of militant trade unionism. The First World War (1914-1918) and the
Russian revolution of 1917 gave a new turn to the Indian trade union movement and organized efforts on
part of the workers to form trade unions. In 1918, B P Wadia organized trade union movements with
Textile mills in Madras. He served strike notice to them and workers appealed to Madras High Court
because under ‘Common Law’, strike is a breach of law. In 1919, Mahatma Gandhi suggested to let
individual struggle be a Mass movement. In 1920, the First National Trade union organization (The All
India Trade Union Congress (AITUC)) was established. Many of the leaders of this organization were
leaders of the national Movement. In 1926, Trade union law came up with the efforts of Mr. N N Joshi
that became operative from 1927.
The third phase began with the emergence of independent India (in 1947), and the Government sought
the cooperation of the unions for planned economic development. The working class movement was also
politicized along the lines of political parties. For instance Indian national trade Union Congress (INTUC)
is the trade union arm of the Congress Party. The AITUC is the trade union arm of the Communist Party
of India. Besides workers, white-collar employees, supervisors and managers are also organized by the
trade unions, as for example in the Banking, Insurance and Petroleum industries.
 LABOUR LAWS
 Law-”Law is a rule or a system of rules recognized by a country or a community as regulating the actions
of its members and enforced by the imposition of penalties.”
 Factors responsible for development of Labor laws
   Exploitation of the workmen by the capitalists
   Social pressure and pressure from trade unions
   Government policies based on Government philosophy which in turn was based on the political
ideologies
   Constitution of India (Directive Principles of state policy)
   Supreme Court’s recommendations on the cases that came up in the courts
   Recommendations of various commissions and committees set up by government from time to
time
   Conventions and recommendations of International labor organization (ILO)
  Awareness about environment 
Common Features of All Laws
       Short title and commencement
        Preamble i.e. purpose of the law
        Definitions

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         Substantive provisions
        Penalty provisions
        Records/ Registers/ Returns
        Inspectorate/ Enforcement authority
 Categories of Labor Laws
   Regulatory legislations to oversee the conditions of work at workplace
Eg. Machinery arrangement, spittoons, working hours, leave with wages etc.
   Legislations related to wages
Eg. Payment of Wages Act, 1936, Minimum Wages Act, 1948
   Legislations related to social security
Eg. ESI Act, 1948, Employees Provident Fund Act, 1952
   Legislations related to Industrial Relations (IR)
Eg. Industrial disputes Act, 1947, Industrial Employments (Standing Orders) Act, 1946, Trade
Union Act, 1926
   Legislations related to service conditions
Eg. Regulations of environment Act (for Dock workers), Conditions of Service Act (for Sales
Promotion employees)
   Miscellaneous:
Eg. Apprentices Act, 1961, Environment protection Act, 1986
The trade unionism in India developed quite slowly as compared to the western nations. Indian trade
union movement can be divided into three phases.
The Indian workforce consists of 430 million workers, growing 2% annually. The Indian labor markets
consist of three sectors:
1. The rural workers, who constitute about 60 per cent of the workforce.
2. Organized sector, which employs 8 per cent of workforce, and
3. The urban informal sector (which includes the growing software industry and other services, not
included in the formal sector) which constitutes the rest 32 per cent of the workforce.
At present there are twelve Central Trade Union Organizations in India:
1. All India Trade Union Congress (AITUC)
2. Bharatiya Mazdoor Sangh (BMS)
3. Centre of Indian Trade Unions (CITU)
4. Hind Mazdoor Kisan Panchayat (HMKP)
5. Hind Mazdoor Sabha (HMS)
6. Indian Federation of Free Trade Unions (IFFTU)
7. Indian National Trade Union Congress (INTUC)
8. National Front of Indian Trade Unions (NFITU)
9. National Labor Organization (NLO)
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 10.Trade Unions Co-ordination Centre (TUCC)
11.United Trade Union Congress (UTUC) and United Trade Union Congress - Lenin Sarani (UTUC
- LS)

12.7 Multiplicity and Effectiveness of Trade Union

Multiple unionism leads to multiple enrolment in unions and no subscribing members, causing delay or
failure to get recognition. This restrains a union’s bargaining power during a period of prolonged strife
while the unions are squabbling among themselves for dominance, the workers are deprived of their
wages and the plant suffers a loss of production. Multiple unionism qualitatively weakens the movement
resulting in the formation of small- sized unions without effective organization.
However it must be noted that in spite of foregoing there are many organizations where multiple unions
exist and the management does effectively negotiate, and conclude agreements. In many plants, workers
are unionized –on a craft basis –their special skills or training bonding them together. Multi-unionism is
more a problem where general unions exist, for whom all categories can be organized in one general
union.
Activity A:
1. Visit any organization and discuss the feasibility of relevance of Trade Union in global economy.

12.8 Summary
The trade unions are organized by workers to solve their problems created by modern industry. They are
voluntary associations of workers formed to promote and protect their interests by collective action. They
play different roles; for example, they act as agents of the government and help in maintaining social
discipline and administering its policies.
To achieve their objectives, trade unions may employ Variety of means – depending on the attitude of the
unions regarding the economic system in which they operate; the degree of group and class consciousness
among workers, the nature of political organization; and the nature and type of trade union leadership.
Trade unionism in India suffers from a variety of problems, such as politicizations of the unions, multiplicity
of unions, inter and intra-union rivalry, small size and low membership, financial weakness, and lack of
financial weakness, and lack of welfare facilities for the members, weak bargaining power, reliance on
litigation and strikes, and dependence on outside leadership. This vicious circles has adversely affected
their status and bargaining power, and must be broken at as many points as possible.
The factors that make a trade union strong and healthy and unflinching adherence to the union’s constitution
and rules, regular payment of dues, fully representative character of the union, co-operation with sister
unions and a sound leadership. A methodological organization with an enlightened labor force is essential.

12.9 Self Assessment Questions

1. Define Trade Unions?

2. Describe different growth phases of trade union in India.

3. Explain the characteristics of Trade Union?

4. Explain Trade Union objectives?

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12.10 Reference Books
- Mamoria C.B.(2008); “ Dynamics of Industrial Relations”; Himalaya Publishing House, Mumbai.
- Flanders, Alan,(1963);Trade Unions., pp.46-47.
- Punekar, S.D. and Madhuri (1967); “Trade Union Leadership in India: A survey”, Bombay.
- Crouch, Harold (1966), “Trade Unions and Politicism in India”, Preface.
- Yoder, Dale, (1972); “Personnel Management and Industrial Relations”, pp.159-160.
- Ghosh, S.T., “Trade Unionism in Underdeveloped Countries”, p.13.
- Joshi, N.M. “Trade Unionism in India”, P.9.
- World Labor Report (1998); I.L.O., , p.64.

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 Unit - 13 : Collective Bargaining
Structure of Unit:
13.0 Objectives
13.1 Introduction
13.2 Concept/Definition of Collective Bargaining
13.2.1 Why Workers Join Unions?
13.2.2 Advantages of Collective Bargaining
13.3 Objectives and Features of Collective Bargaining
13.4 Types of Collective Bargaining
13.5 Process of Collective Bargaining
13.5.1 Developing a Bargaining Relationship
13.5.2 Preparation for Negotiation
13.5.3 Negotiation Stage
13.5.4 Collective Agreements
13.6 Collective Bargaining Practice in India
13.7 Summary
13.8 Self Assessment Questions
13.9 References Books

13.0 Objectives
After completing this unit, you would be able to:
 Understand the concept of collective bargaining;
 Understand the features and objectives of collective bargaining;
 Learn about the different types of collective bargaining;
 Learn the process of collective bargaining;
 Understand the collective bargaining practices in India.

13.1 Introduction
Collective bargaining is specifically an industrial relations mechanism or tool, and is an aspect ofnegotiation,
applicable to employment relationship. As a process, the two are in essence the same, and the principle
applicable to negotiations is relevant to collective bargaining as well. In collective bargaining the union
always has a collective interest since the negotiations are for the benefit of several employees. Where
collective bargaining is not for one employer but for several, collective interests become a feature for both
parties to the bargaining process. In collective bargaining certain essential conditions need to be satisfied,
such as the existence of freedom of association and a labor law system. Further, since the beneficiaries of
collective bargaining are in daily contact with each other, negotiations take place in the background of a
continuing relationship which ultimately motivates the parties to resolve the specific issues.
Collective bargaining is a process of negotiations between employers and the representatives of a unit of
employees aimed at reaching agreements that regulate working conditions. Collective agreement usually
set out wage scales, working hours, training, health and safety, overtime, grievances, mechanisms and
rights to participate in workplace or company affairs. Ultimately the term “bargaining” implies that the
process is one of haggling, which is more appropriate to one- time relationships such as a onetime purchaser
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or a claimant to damages. While collective bargaining may take the form of haggling, ideally it should
involve adjusting the respective positions of the parties in a way that is satisfactory to all.

13.2 Concept/Definition of Collective Bargaining

Collective bargaining is a process whereby organized labor and management negotiate the terms and the
conditions of employment. Let us explore some definitions from different sources:

“Collective bargaining is a method by which trade unions protect and improve the condition of their
member’s working lives.”

According to Flanders “Collective Bargaining as a means of joint regulation”

According to ILO, (convention no: 87) “Collective Bargaining is a fundamental right. The right to
Collective Bargaining forms an integral part of the ILO declaration on fundamental Principles (1998).”

OECD (Organization for Economic Co-operation and Development), WTO (World Trade Organization)
and the United Nations advocates Collective Bargaining in similar tones. Collective Bargaining is a part of
“Core Labor Standards, Social clause and Global Compact respectively” This means future that Collective
Bargaining should be considered as a Fundamental Right.

Today collective bargaining has assumed a complex nature, conducted in the most formal environment,
associating the services of a large number of experts, legal practitioners, consultants and specialized
personnel. Today it is regarded as a social process, because it occurs in a social setting.

In majority of the cases collective bargaining process deals with issues like:
 Rate of wages, pay.
 Hours of employment, working conditions
 Employment policies
 Productivity settlement

13.2.1 Why Workers Join Unions?

It is essential to understand why workers join unions to understand the importance of collective bargaining,
these are:
 Dissatisfaction with working environment, including working conditions, compensation, and
supervision
 A desire to have more influence in affective change in the work environment
 Employee beliefs regarding the potential benefits of unions.

13.2.2 Advantages of Collective Bargaining

To understand the collective bargaining it is necessary to know about the various advantages of collective
bargaining, these are:

 Collective bargaining has the advantage of settlement through dialogue and consensus rather than
through conflict and confrontation. Agreement resulting from collective bargaining usually represents
the choice or compromise of the parties themselves.

 Collective bargaining agreements often institutionalize settlement through dialogue. For instance, a
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 collective agreement may provide for methods by which disputes between the parties will be
settled. In that event parties know beforehand that if they are in disagreement there is an agreed
method by which such disagreement may be resolved.
 Collective bargaining is a form of participation because it involves a sharing of rule making power
between rule making power between employers and unions in the areas which in earlier times
were regarded as management prerogative e.g. transfer, promotion, redundancy.
 Collective bargaining agreements sometimes renounce or limit the settlement of disputes through
trade union action.
 Collective bargaining is an essential feature in the concept of social partnership towards which
labor relations should strive. Social partnership in this context may be described as a partnership
between organized employer institutions and organized labor institutions designed to maintain
non- confrontational process in the settlement of disputes which may arise between employers
and employees.
 Collective bargaining has a valuable by- products relevant to the relationship between the two
parties.
 In societies where there is a multiplicity of unions and shifting union loyalties, collective bargaining
a consequent agreements tend to stabilize union membership.
 Collective bargaining is the most important and effective in improving industrial relations.

13.3 Objectives and Features of Collective Bargaining

There are some basic objectives of collective bargaining on that basis whole process generally work,
these are:
 Settle the conflicts related to working conditions and wages.
 To protect the interest of the workers through collective action.
 To resolve the difference between the workers and management through voluntary negotiations
and to arrive at a consensus.
 To avoid third party intervention in matters relating to employment.
 Practically speaking any issues that has any relevance to management and workers becomes the
subject matter of bargaining.
Features of Collective Bargaining
“Collective Bargaining is a mutual obligation on the employer and employee to bargain in good faith
towards the settlement”. Keeping this statement in mind let’s explain the features of collective bargaining in
detail:
 Collective: It’s collective in two ways:
1) All the workers collectively bargain for their collective interest, because they do not have
individual capacity.
2) Workers and the management jointly arrive at an amicable solution through negotiations. The
Union is expected to bring out the common consensus on collective issues rather than individual
issues.
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 Bargaining Power: In collective bargaining the bargaining strength of both the parties across the
table is equal. Ideally it is industrial democracy at work. It will only be democratic only if both the
parties are equipped with knowledge and skill. The strength of the union also depends on the
demand and supply of working force. Similarly how much capital is invested upon one worker
also determines the ratio of bargaining power. For example: A pilots union would have more
bargaining power than the union of road transport. Because the capita land stake invested on the
pilot is much higher than the drivers.
 Flexible: In collective bargaining both the parties should have to flexible mental set up to arrive
amicably at a common consensus.
 Voluntary: Both the parties come in front of each other voluntary in order to arrive at a voluntary
agreement, which is mutually acceptable to both the parties.
 Continuous: Collective bargaining not only commences with negotiation and ends in argument,
but it’s a continuous process that includes implementation of the agreement and also further
negotiations.
 Dynamic: It’s a dynamic process because it involves the following:
1) A process of agreement which itself contains various concepts which may change and alter
time to time.
2) The implementation process is also on going.
3) The mental makeup of the parties keeps on changing.
4) Various strategies used by both the parties keeps on changing based on the demand
of the situation.
5) We all are a part of the global economy and the product, consumer’s taste; market place etc
keeps on changing. This has tremendous effect on companies. The same has impact on the
bargaining as well.
 Power relationship: Both the parties want to extract the maximum from each other. But to reach
a consensus both the parties have to retreat from their positions in order to reach a common
consensus. In such an attempt both the parties try to reach on a common ground without any
serious dilution of their power. Example: If the job of the worker is not skilled and he is being
easily replaceable, he would have lesser bargaining power. Because, there is a huge mass of
unemployed youth waiting to be replaced.

 Representation: The Collective Bargaining process must be represented by those who have the
capacity to take decisions.

 Bipartite Process: The employees and the employers negotiate the issue directly across the
table. And there is no third party intervention like pressure groups, legal consultants.

 Good Faith Bargaining Process: Good faith bargaining is characterized by the following events:
1) Meeting for the purposes of negotiations, the contract is used scheduled and conducted
with the union of responsible time and place.
2) Realistic proposals are submitted.
3) Reasonable counter proposal should be offered.
4) Each party has to sign once it has been completed.
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13.4 Types of Collective Bargaining
In bargaining situations, demands are pitched higher than what one would really settle for and offers are
initially made lower than what one is really prepare to give. On the other hand it’s a charter in which some
major and some minor demands consist. All these variations in bargaining can be divided in three types,
theses are:
1. Distributive Bargaining: Distributive bargaining is the most common type of bargaining and
involves zero-sum negotiation. In other words, one side wins and other side loses. Union employees
may try to convince management that they will strike if they don’t get the wages or working
conditions they desire. Management, in turn may be willing to try to ride the strike out, especially
if they have cross-trained other workers or have external replacements to fill in for those on strike.
In this bargaining, union and management have initial offers or demands, target points, resistance
points and settlement ranges.
2. Integrative Bargaining: Integrative bargaining is similar to problem- solving sessions in which
both sides are trying to reach mutually beneficial alternatives. Both the employer and union try to
resolve the conflict to the benefit of both parties.
3. Concessionary Bargaining: It involves a union’s giving back to management some of what it
has gained in previous bargaining. Why would labor be willing to give back what it worked so
hard to obtain? Usually such a move is prompted by labor leader who recognize the need to assist
employers in reducing operating cost in order to prevent layoffs and that motivates concessionary
bargaining.

13.5 Process of Collective Bargaining

13.5.1 Developing a Bargaining Relationship
One of the very important facets which need to be considered before studying the process of collective
bargaining is “Understanding and developing of a good Bargaining relationship”. This step consists of
these activities mainly;
1. Recognition of the Bargaining Agent: In those organizations where there is a single trade union, that
union is generally granted recognition to represent the workers. But where there is more than one union,
any of these criteria may be used for identifying the representative union, namely:
 Selection of the union by a secret ballot.
 Selection through verification of membership by some government agency if required.
 Bargaining with a joint committee of all major unions.
 Bargaining with a negotiation committee in which different unions would be represented in proportion
to their verified membership
 Bargaining with a negotiation committee which consists of elected representative of every
department of the organization selected by secret ballot, irrespective of their union affiliations.
2. Levels of bargaining. Collective bargaining is possible at all levels, such as:
 At the level of the enterprise,
 It may be at the level of the industry in a particular region.
 At the level of the entire industry in the country, that is, at the national level.
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From the point of view of an individual establishment, enterprise-level bargaining is generally useful in the
sense that the settlement is tailored to the conditions of that organization.
3. Scope and Coverage of Collective Bargaining: Though in many organizations bargaining is struck
only by specific issues like wage increase, bonus, or seniority, promotion, etc., yet it is considered
advantageous, both for the management and the trade unions, to cover as many issues of interests to both
parties as possible. Now a days the orientation of collective bargaining is changing from conflict to
cooperation and there by building an atmosphere of trust, progress and social welfare. For example: union
must strive for larger scope and coverage like wages and service conditions for contract labor, temporary,
part time employees, trainees etc.
4. Process Variation of Collective Bargaining: The negotiation process has been visualized in different
ways. Collective bargaining procedure can be compared with the similar to an exercise in politics where
the relative strength of the parties stems from decisiveness and that it resembles with a debate. They are
also of the view that both the parties on the bargaining table become entirely flexible and willing to be
persuaded only when all the facts have been presented.
However with the increasing maturity of collective bargaining, there has been enlargement of the rational
process. In addition several other factors also influence the negotiation process. Among these factors
some are mentioned below:
 Objectives of the parties.
 Kind of experience, knowledge the parties have.
 The Industrial legislation of the concerned country.
 The personalities and training of the negotiators.
 The history of the labor relations in the enterprise.
 The size of the bargaining unit and
 The economic environment.
Although several negotiators may attempt to bluff or outsmart the opposite group, others seldom think of
using these tactics. While some bargainers may attempt to dictate the contract on a unilateral ground,
others visualize that this process is eventually self defeating. While some negotiators may come together
with excessive unrealistic proposals, others may have quite realistic ones. In some negotiations, there may
be in each side implicit faith in the counterpart while in others there may prevail a climate of mutual distrust,
suspicion and even hatred, in view of the past adverse labor relations. Moreover if the objective is to
obtain solution to their mutual problems, the parties are likely to conduct the negotiation on the ground of
rationality and fairness. However if the objective is to “put management in its place” or to “weaken or to
even destroy the union”, the process of negotiation may take quite different forms. Thus several factors
operate causing variations in the conduct of collective bargaining negotiations. “Militant unions vs. irrational
management”, “Rational unions vs. oppressive management”, “Progressive union and progressive
management”-There can be many permutations and combinations and results of the bargaining process
would vary depending on these.
13.5.2 Preparation for Negotiation

Prior to the actual bargaining sessions, enough care should be taken by both the parties to have a thorough
preparation for the negotiations. This has become a pre – requisite to collective bargaining in view of
several reasons. Consultation with the lower level members of their respective organizations can help both
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the parties to obtain valuable information and evolve specific bargaining table approaches. The consultation
process also increases the morale of the two organizations. Again the technical assistance of legal and
public relations experts can also be utilized gainfully in the collective bargaining process. Finally care
should be taken to preplan with mutual consent the meeting places, ground rules relating to transcripts of
the sessions , publicity releases, the payment system of union representatives and allied issues.
13.5.3 Negotiation Stage
Methodology for bargaining is very important in negotiating process. It will help the negotiator to develop
those personal and managerial (administrative) qualities of preparedness, knowledge, ability, sensitivity,
timing, analytical abilities, composure and patience. These qualities develop as a result of observation,
experience involvement and conscious individual effort and experience.
As a bargaining methodology it is desirable to list all the bargaining items, whether introduced by the
employer or the employee that the parties will consider during the course of the collective bargaining
negotiations. These bargaining items could be separated into two parts –
 The cost or financial items
 The other for non cost or non financial items.
After listing the items priority rating can be determined for these items based on its value or importance
relative to all other items on the agenda. The range of the objectives could be decided. This methodology
provides a systematic framework for approaching collective bargaining negotiations. Some advantages to
collective bargaining negotiations result from the use of the methodology by objectives.

Management Strategies:

Prior to the bargaining session, management negotiators prepare by developing the strategies and proposals
they will use. Three major areas of preparation have been identified:

 Determination of the general size of the economic package that the company anticipates offering
during the negotiations.
 Preparation of statistical displays and supportive data that the company will use during negotiations.

 Preparation of a bargaining book for the use of company negotiators, a compilation of information
on issues that will be discussed, giving an analysis of the effect of each clause, its use in other
companies, another fact.
An important part of this calculation is the cost of various bargaining issues or demands. The relative cost
of pay increases, benefits, and other provisions should be determined prior to negotiations. Other costs
should also be considered. For instance, what is the cost to management, in terms of its ability to do its
job, of union demands for changes in grievance and discipline procedures or transfer and promotion
provisions? The goal is to be as well prepared as possible by considering the implications and ramifications
of the issues that will be discussed and by being able to present a strong argument for the positionmanagement
takes.
Union Strategies:
Like management, unions need to prepare for negotiations by collecting information. More and better
information gives the union the ability to be more convincing in negotiations. Since collective bargaining is
the major means by which the union can convince its members that it is effective and valuable, this is a
critical activity. Union should collect information in at least three areas:
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  The financial situation of its company and its ability to pay;
 The attitude of management towards various issues, as reflected in past negotiations of inferred
from negotiations in similar companies; and
 The attitudes and desires of the employees
The first two areas give the union an idea of what demands the management is likely to accept. The third
area is important but is sometimes overlooked. The union should be aware of the preferences of the
membership. For instance, is a pension preferred over increased vacation or holiday benefits? The preferences
will vary with the characteristics of the workers. Younger workers are more likely to prefer more holidays,
shorter work weeks, and limited overtime, whereas older workers are more interested in pension plans,
benefits and overtime. The union can determine these preferences by using a questionnaire to survey its
members.
13.5.4 Collective Agreements
Collective agreements are commonly classified under two headings –‘procedural’ and ‘substantive’.
(a) Procedure Agreements: Procedure agreements spell out the steps by which the industrial relations
processes are carried out. Procedure agreements are collective agreements which relate to:
(1) Machinery for consultation, negotiation or arbitration on terms and conditions of employment or
for any other matters which arise between trade unions and employers.
(2) Negotiating rights
(3) Facilities for trade union officials and
(4) Disciplinary matters and individual workers’ grievances.
(b) Substantive Agreements: These contain the ‘substance’ of any agreement on terms and conditions
of the employment. They cover payments of all kinds, i.e. wage rates, shift allowances, incentive payments
also holidays and fringe benefits such as pensions and sick pay and various other allowances.
(c) Mixed Procedural/ Substantive Agreements: The distinction between ‘procedural’ and ‘substantive’
agreements while useful, does not always apply in practice. It is possible to have both ’substantive’ and
‘procedural’ elements in the same agreement. There is, however, a tendency for procedural agreements to
have a separate and long term existence and consequently they are not subject to a great deal of alteration.
On the other hand, substantive agreements are altered from time to time to take account of on-going
negotiations.
Notwithstanding the variations in collective bargaining process, in recent days it is characterized by rational
discussions based on facts. In modern collective bargaining process the low level of behavioral patterns
such as emotional outburst, tricks, distortion of facts, misrepresentations and deceit are largely avoided.
The labor and management representatives have realized that these elements cause unhealthy labor relations
and increase the possibility of industrial conflict. Implicitly, one of the goals of collective bargaining is to
promote a rational and harmonious relationship in the organization. Accordingly, the negotiators should
have qualities of patience, trustworthiness, friendliness, integrity and fairness. Each party should share the
attitude of self assessment and consider that the other party may not necessarily be wrong all the time. If
such an open attitude is developed in both the parties, the negotiation process is likely to become successful.
Harvard Law School’s Program on Negotiation describes the collective bargaining process as comprising
five core phases:
1. Preparation and Framing. In this phase both the school board and the union examine their own
situation in order to develop the issues that they believe will be most important, including assessing
‘you’re interests as well as the interests of the other side’;
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2. Bargaining Over How to Bargain. Here, the parties decide the ground rules that will guide the
negotiations. This is where the logistics are determined, such as the rules for secrecy and the
frequency of negotiating meetings;
3. Opening and Exploring. This phase involves the initial opening statements and the possible
options that exist to resolve them. In a word, this phase could be described as ‘brainstorming’;
4. Focusing and Agreeing. This stage comprises the time when ‘what ifs’ and ‘proposals’ are set
forth and the drafting of agreements take place; and
5. Implementation and Administration. This stage is described as consisting of ‘effective joint
implementation through shared visions, strategic planning and negotiated change.’

13.6 Collective Bargaining Practices in India

Collective bargaining in India has been the subject matter of industrial adjudication since long and has
been defined by our Law Courts .Collective bargaining is a technique by which dispute as to conditions of
employment is resolved amicably by agreement rather than coercion. Collective Bargaining machinery
essentially is a reflection of a particular social and political climate. The history of the trade union movement
shows that union is affiliated to one or the other political parties. As a result most of the trade unions are
controlled by outsiders. Critic says that the presence of outsiders is one of the important reasons for the
failure of collective bargaining in India.
The Trade Unions Act, 1926, permits outsiders to be the office bearers of a union to the extent of half the
total number of office bearers. So, it permits one to be the leader of the union who does not actually work
in the industry. Sometimes a dismissed employee working as a union leader may create difficulties in the
relationship between the union and the employer. Nevertheless, experience shows that outsiders who
have little knowledge of the background of labor problems, history of labor movement, fundamentals of
trade unionism and the technique of the industry and with even little general education assume the charge
of labor union and become the self-appointed custodian of the welfare of workers. The employers, therefore,
have been reluctant to discuss and negotiate industrial matters with outsiders, who have no personal or
direct knowledge of day to day affairs of the industry.
The process of collective bargaining is not likely to succeed unless the threat of strike/lockout is there in
the back-ground. Strike and lock-out are the weapons used by both the parties daring the collective
bargaining process. Without having these weapons at hands, neither of the party to the dispute can defeat
the claim of the other. The peculiar feature of our country while compared to the advanced nations of the
world is that the economic condition of the workers is very poor and as a result they cannot afford a long-
standing strike.
In Indian labor arena we see, multiplicity of unions and Inter-union rivalry. Statutory provisions for
recognizing unions as bargaining agents are absent. It is believed that the institution of collective bargaining
is still in its preliminary and organizational stage. State, therefore, must play a progressive and positive role
in removing the pitfalls which have stood in the way of mutual, amicable and voluntary settlement of labor
disputes. The labor policy must reflect a new approach. Hitherto the State has been playing a dominant
role in controlling and guiding labor-management relation through its lopsided adjudication machinery. The
role of the industrial adjudicator virtually differs from that of a judge of ordinary civil court. The judge of a
civil court has to apply the law to the case before him and decide rights and liabilities according to its
established laws, whereas industrial adjudicator has to adjust and reconcile the conflicting claims of
disputants and rights and obligations of the disputants. In deciding industrial disputes the adjudicator is
free to apply the principle of equity and good conscience.
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For an effective Collective Bargaining in India, recognition of trade union has to be determined through
verification of fee membership method. The union having more membership should be recognized as the
effective bargaining agent. The State should enact suitable legislation providing for compulsory recognition
of trade union by employers. The provision for political fund by trade unions has to be done away with-
since it invariably encourages the politicians to prey upon the union. State has to play a progressive role in
removing the pitfalls which stand in the way of mutual, amicable and voluntary settlement of labor disputes.
Activity A:
1. Visit an organization and try to find out practical collective bargaining process between management
and trade unions.

13.7 Summary
Collective bargaining emerged initially has been purely Metter between the plant level union and the plant
management. The negotiations either at the state or at the industry level are yet not frequent. The collective
bargaining has not decentralized beyond the plant level because crafts unions are absent. There are three
important reasons as to why collective bargaining has not gone beyond the plant level: a) the varying sizes
not permit uniform employment conditions; b) the absence of homogeneous labor market owing to lack of
uniform skills and pattern of training which does not promote free mobility of labor market owing to lack
of uniform skills and pattern of training which does not promote free mobility of labor so that uniform
employment conditions could be evolved for the industry as a whole. c) the plant union leadership which
at present enjoys enormous powers and faces prospects of political climb is reluctant to get integrated into
an industry wise union where its power are likely to be restricted.

13.8 Self Assessment Questions

1. What do you mean by “Collective Bargaining” Explain?
2. What are the advantages of collective bargaining?
3. What are the levels of collective bargaining?
4. What are the current trends of collective bargaining in India?

13.9 References Books

- Mamoria C.B.(2008); “ Dynamics of Industrial Relations”; Himalaya Publishing House, Mumbai.
- Webb, Sydeny and Beatrice,(1902); “ Industrial Democracy” ;p.185.
- Richardson,J.H,(1964) “An Introduction to the study of industrial relations”; p.22.
- Dunlop,John J.,(1954) “Challenges to collective Bargaining”p.170-174.
- ILO;”Collective Bargaining”.p.70.

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 Unit - 14 : Discipline
Structure of Unit:
14.0 Objectives
14.1 Introduction
14.2 Meaning & Discipline
14.3 Concept of Discipline
14.3.1 Aspects of Discipline
14.3.2 Main Characteristics of Discipline
14.3.3 Aims & Objectives of Discipline
14.3.4 Importance of Discipline in Industry
14.4 Indiscipline
14.5 Misconduct
14.6 Causes & Approaches Towards Disciplinary Action
14.6.1 Causes for Infringement of Discipline
14.6.2 Principles of Industrial Discipline
14.6.3 Guidelines of a Disciplinary Action
14.6.4 Mc Gregor’s Hot Stove Rule
14.6.5 Procedure for Disciplinary Action
14.7 Code of Discipline in Indian Industry
14.8 Summary
14.9 Self Assessment Questions
14.10 Reference Books

14.0 Objectives
After studying this unit, you would be able to :
 Understand the fundamental nature of Industrial discipline
 Recognize difference between traditional and modern aspects of discipline.
 Point out the nature and major aims & objectives of discipline.
 Study and appreciate the significance of discipline in Industry.
 Know about various principles for maintenance of discipline.
 Understand the concepts of Indiscipline and misconduct.
 Know about the causes of Breach of discipline.
 Know about the guidelines governing the disciplinary action.
 Learn about the Mc Gregor’s hot stove rule.
 Learn about the code of discipline in Indian Industry.

14.1 Introduction
Discipline may be defined as an approach which aims at instilling orderly behaviour and respect for willing
obedience to a recognized authority. Industrial discipline is crucial for healthy industrial environment and
for escalating production & productivity. The promotion and maintenance of employee discipline brings
multifarious benefits to the organisation and its employees in form of say ; goal attainment , smooth functioning
of the organization etc.
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14.2 Meaning & Definition of Discipline
What does Discipline means?

Discipline means getting obedience to rules and regulations of the organization. Discipline is absolutely
essential for the smooth running of business. Fayol, stated that discipline is obedience, application, energy
and outward mark of respect. According to Webster’s Dictionary, the word discipline has three meanings
“First, its is the training that corrects moulds , strengthens or perfects individual behavior. Second, it is
control gained by enforcing obedience. The third meaning, it is punishment or chastisement.

Definition of Discipline

According to Dr. Spriegel, “Discipline is the 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; it
is force or fear of force which restrain an individual or a group from doing things which are deemed to be
destructive of group objectives. It is also the exercise of restraint or the enforcement of penalties for the
violation of group regulations.”

Thus discipline can be regarded as a force that requires employees to follow the rules and regulations of an
organization considered vital for its efficient working.

In brief, discipline is an employee’s self control which motivates him to comply with the organization’s
goals and objectives.

14.3 Concept of Discipline

The dialogue between the workers and managers in a work setting pave way to the emergence of the
concept of discipline.
14.3.1 Aspects of Discipline
Negative Aspect - This aspect uses “fear” as a force to enforce discipline in the organization. If any
employee or worker defies the rules and regulation strict punishment is levied on them. This is categorized
as traditional concept of discipline.
Positive Discipline – Now a days the management of various organizations have adopted positive
progressive outlook for disciplining the employees. With the ever increasing awareness among the workers
concerning their rights and responsibility, it was required on the part of management to reconsider the
negative approach of fear used by them so far.
Thus management emphasized on the concept of self – discipline. This approach of self control asserts on
cooperative efforts of employees to abide by the rules of the organization. Thus positive aspect of discipline
plays a much greater role in safeguarding industrial peace and prosperity.
Activity A:
1 According to you what is discipline? How does traditional concept of discipline differ from
the modern concept?
14.3.2 Main Characteristics of Discipline
The main characteristics of Discipline can be summed up as follows :-
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 (i) To guarantee successful fulfilment of organizational goals it motivates workers to abide by the
instructions issued by the management or superiors.

(ii) It is a negative approach in the sense that it discourages employees in under taking some activities
while encouraging to undertake the few others.

(iii) On Violation or disobedience of organization rules it imposes fine or reprimand, therefore, it is

also called as punitive or big stick approach.

14.3.3 Aims & Objectives of Discipline

The aims and objectives of discipline are as follows:-

(i) For the achievement of organizational goals it tries to earn the willing approval of employees.

(ii) To introduce the component of uniformity and assurance despite the numerous difference
despite the numerous differences in informal behaviour patterns in the organization.

(iii) For improving the quality of production by enhancing the morale and working efficiency of the
employees.

(iv) To generate respect for human relations in the organization.

(v) To confer and seek direction and responsibility.

14.3.4 Importance of Discipline in Industry

Discipline acts as a cornerstone for the smooth functioning of any enterprise. Absence of discipline in any
industry can create a great amount of commotion and confusion thereby decreasing its productivity. For
any enterprise however big or small manpower is the most pivotal resource and thereby all efforts should
be made to discipline them.

All steps should be taken to encourage mutual trust and confidence between the workers and the management
which is indispensable to bring about needed discipline at the workplace.

Maintenance of discipline is a precondition for attaining the aims and purposes of the organization swiftly.
Disciplined employers will assist in creation of pleasant industrial environment which will be beneficial for
the industry and the nation both.
Activity B:
1 Analyze the critical role of discipline in today’s modern, complex organizations.

14.4 Indiscipline
Meaning
Indiscipline may be expressed as non – compliance to formal and informal rules and regulations of an
organization. Indiscipline may prove to have detrimental effects on the morale and motivation of the
employees as well as on the organization as a whole. There are various socio-economic and cultural
factors that play a role in creating indiscipline in an organization which can be summed up in following
figure :-
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 UNFAIR LABOUR WAGE WRONG WORK
PRACTICES DIFFERENTIALS ASSIGNMENTS

DIFECTIVE FACTORS PAYMENT

GRIEVANCE RESULTING OF
PROCEDURE IN VERY LOW
INDISCIPLINE WAGES

POOR VICTIMISATION INEFFECTIVE

COMMUNICATION BY MGT. LEADERSHIP

Figure 14.1 Various Factors Responsible for Indiscipline

Ways to Cope With Indiscipline

Management can adopt various strategies as mentioned in the figure below to keep a check on indiscipline
in the organization.
.

COUNSELLING JOB - ENRICHMENT

&
EDUCATION

APPROACHES TO
MANAGE
INDISCIPLINE

GRIEVANCE HANDLING PROPER INDUCTION &

TRAINING PROGRAMME

Figure 14.2 Means to Cope With Indiscipline

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14.5 Misconduct

Meaning & Definition

An action or type of behaviour can be defined as misconduct if it is prejudicial to the interests of the
employer and other employees, inconsistent with the norms set for discharging duties, unsafe or unfaithful
to such a degree that it becomes incompatible to continue employer – employee relationships.

Categories of Misconduct

Disciplinary acts of misconduct can be categorized on the basis of the severity of the consequences.
(i) Minor Contravention– results in few serious consequences.
Example – negligence, minor disobedience to rules, carelessness.
(ii) Major Contravention – Partially hinders the working of the organization.
Example – lying, cheating, stealing
(iii) Intolerable Offences – are of unlawful and severe nature which endanger
employment relationship.
Example – threat to use weapon, use of drugs on the job, smoking near inflammables.
Misconduct Stated In Model Standing Orders
Here is an illustrative list of acts constituting misconduct under Model Standing Orders Act , 1946.
(i) Wilful insubordination or disobedience of any lawful and reasonable order , rule or
regulation.
(ii) Refusal to work on a job or a machine which has been assigned to him.
(iii) Refusal to accept or reply to a charge sheet within the prescribed period of time.
(iv) Theft , fraud , or dishonesty in connection with the property of the company.
(v) Theft of another employee’s property inside the industrial area or company premises.
(vi) Causing willful damage to , or loss of , the employer’s goods or property.
(vii) Causing damage to a product in process or to any property.
(viii) Interference with , safety devices.
(ix) Non-observance of safety precautions and rules.
(x) Taking or giving a bribe or any illegal gratification.
(xii) Acceptance of gifts from subordinates.
(xiii) Habitual late coming.
(xiv) Absence from duty without leave.
(xv) Overstay when on leave without prior authorized permission.
(xvi) Entering or leaving , or attempting to enter or leave , the work premises except through authorized
entrance and exits.

14.6 Causes & Approaches Towards Disciplinary Action

14.6.1 Causes for Infringement of Discipline

The main reasons for breach of discipline in any organization may be stated under following heads
(I) Causes Related To the Worker
(a) Illiteracy and low intellectual level of workers.
(b)Workers personal problems like their fears, hope, aspirations etc.
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 (c) Inborn tendencies of workers to flout rules.
(II) Causes Related To the Socio – Cultural Factors -
(a) Misunderstanding and rivalry among workers.
(b)Discrimination based on caste, colour, sex, place in imposing penalties.
(III) Causes Related To the Work Environment –
(a) Bad working conditions.
(b)Defective supervision
(c) Non-placement of right person on the right job.
(IV) Causes Related To the Management Practices –
(a) Lack of clarity in rules & regulation as laid out by the top management.
(b)Faulty performance appraisal systems leading to favoritism thereby generating indiscipline.
(c) Absence of sympathetic and scientific management.

14.6.2 Principles of Industrial Discipline

Industrial Discipline should be based on certain just and fair principles to be accepted by the employees.
The basic Prerequisites or principles to be observed are:-
(i) The very objectives of industrial discipline should be clearly laid out
(ii) The code of conduct should be framed with consultation & collaboration of the workers or their
representatives.
(iii) The code of conduct must be communicated to all concerned in the organization.
(iv) The rules and regulation concerning the discipline should understandable by all.
(v) The rules of conduct must able to settle the grievances if any arising during the period be of
employment.
(vi) The approach of discipline policy should be preventive i.e. stress be laid on prevention of violation
of discipline rather than on the administration of penalties.
(vii) The quantum of reprimand for each case of misconduct should be specified clearly in advance by
publishing them in employee’s handbook.
(viii) The enforcement authority must be specified.
(ix) Discipline policy should not discriminate against the employees; it should be uniform for all employees
without favoring any one worker or employee.
(x) A disciplinary committee in the advisory capacity be constituted to look into the matters of
indiscipline and put forth the necessary suggestions.
14.6.3 Guidelines of a Disciplinary Action
(a) Fixation of Responsibility – the responsibility for sustaining discipline in the organization should
be given to a responsible person, say personnel officer.
(b) Proper Framing & Communication of Rules – the rules and regulations should be cautiously
and accurately formulated and published in employee handbooks.
(c) Rules and Regulations Should be Reasonable – the work standards set Should be attainable
by the employees and the rules be modified at frequent intervals to suit the changing organizational
circumstances.
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 (d) Equal Treatment – Rules and penalties should be applied equitably. Identical punishment should
be granted for identical offences.
(e) Prompt Action – care should be taken to make sure that the penalty is imposed soon after the
violation of a rule has occurred.
(f) Search for the Facts – before proceeding to take any action against an employee , provide him
with sufficient time to present his side of the case i.e. What and why it
Happened ….?
(g) Natural Justice – the punishment or penalty imposed on the indisciplined worker must satisfy
the principle of natural justice. The punishment should always justify with the gravity of the offence.

14.6.4 Mc Gregor’s Hot Stove Rule

The model method for enforcement of discipline should have the four important characteristics of a red
– hot – stove.
(i) Advance Warning – a red – hot stove tells us, “don’t touch me, you will suffer” Similarly a
worker knows what is expected of him and what will be the result if he fails to live up to those
expectations.
(ii) Immediate Effect - if one overlooks the advance warning and touches the stove, gets immediate
result (fingers may suffer burns) likewise workers may get instantaneous effect on committing any
act of indiscipline.
(iii) Consistency – every time we touch a red – hot stove we get the same result. Every time a
worker commits the insufficient act , he should be penalized.
(iv) Impersonal Approach – red – hot stove functions uniformly for all, doing away with any favoritism.
In the same way, management should not discriminate in imposing punishment on basis of caste,
creed, colour, sex etc. It should guarantee the fundamental right to equality.
Thus these four characteristics should be kept in mind before administrating any disciplinary action.

14.6.5 Procedure for Disciplinary Action

The following steps should be taken care of while administrating a disciplinary action.
(a) Ascertaining the Statement of the Problem - First look into the violation of rule and the
number of employees involved in the matter. Then ascertain the gravity of the violation and the
conditions under which it occurred.
(b) Searching for the Underlying Facts – This calls for thorough examination of the case together
the relevant facts.
(c) Deciding upon the Type of Penalty – The penalty or punishment should be such which
discourages future reoccurrence of the offence or violation. But it should always relate to the
gravity of the offence.
(d) Application of Penalty – The selected penalty may be imposed on the wrong doers and if the
offence is not of a serious nature then it may be disposed off quickly.
(e) Follow-up on Disciplinary Action – Vigilant supervision of the person against whom a disciplinary
action is taken should be done.
Activity C:
1 with the help of an imaginary case elaborate the procedure of disciplinary action.
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14.7 Code of Discipline in Indian Industry
The Indian labour conference held in New Delhi in July 1957, discussed discipline in Indian Industries,
and laid down certain principles governing it, these were
(a) It is a State – induced voluntary agreement between labour unions and management to abide by
certain self-imposed rules of behavior in order to ensure that disputes do not arise ; and that , if
they do, to promote and orderly settlement through negotiation , conciliation and voluntary
arbitration.
(b) The Code enjoys upon the parties to accord due recognition to each other’s just rights and
responsibilities.
(c) It enjoins upon the parties to refrain from taking any unilateral action in connection with any
industrial matters ; to utilize the existing machinery for the settlement of disputes with the utmost
expedition ; and to abjure strikes and lock-outs without notice and without first exploring all
possible avenues of a settlement.
(d) It discourages litigation and lays emphasis on a mutual settlement of disputes through negotiation,
conciliation and voluntary arbitration rather than through adjudication.
(e) It enjoins that neither party should resort to demonstration , intimidation , victimization , violence,
coercion , discrimination , or interfere in union activities or with the normal work of employees , or
indulge insubordination or wilful damage to property.
(f) The code requires the employers to recognize the majority union in their establishments or industries,
and set up a well-defined and mutually agreed grievance redressal procedure. It requires workers
not to adopt go-slow tactics , or indulge in stay in or sit-down strikes while they are on duty.
(g) It emphasizes that awards , decisions , agreements and settlements should be promptly and readily
implemented ; and that any act which disturbs or impairs the cordial relations between employees
and management , or which is contrary to the spirit of the Code , is carefully avoided.
(h) It directs employees and their trade unions to take appropriate action against their officers and
members who indulge in activities which are contrary to the spirit and letter of the code.

14.8 Summary
Industry discipline is vital for creation and maintenance of healthy & peaceful industrial environment. It
brings numerous benefits to the organization and its employee as well. Discipline has two aspects i.e.
positive & negative. Indiscipline & misconduct can surge from number of factors like unfair labour practices,
wage differentials, poor communication, ineffective leadership etc. Indiscipline & misconduct are two
evils that can hamper the smooth functioning of an organization so they should be curbed at any cost.
Model standing orders and the code of discipline as stated by the Indian Labour Conference can help in
long term to keep a check on the Indiscipline in the Industry.

14.9 Self Assessment Questions

1. What do you mean by “Discipline”? State its major characteristics and objectives.
2. Discuss the significance of discipline in Industry?
3. Write short notes on
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 (a) Indiscipline & (b) Misconduct
4. Explain in brief the guidelines of a disciplinary action.
5. State the characteristics of Red Hot stove in context of disciplinary action.

14.10 Reference Books

- Spriegel, William R., and Schultz , Edward , Industrial Management , 1957.
- Webster’s, New Collegiate Dictionary, 1953, p.236
- Arun Monappa (2004); Industrial Relations; Tata Mc Graw-Hill Publishing Company Limited,
New Delhi.
- A.M. Sarma (2008); Industrial Relations (Conceptual and Legal Framework); Himalayan Publishing
House, New Delhi.
- C.B. Mamoria & S.V. Gankar (2010); Personnel Management (Text & Cases); Himalayan
Publishing House, New Delhi.
- T.N. Chhabra & R.K. Suri (2007); Industrial Relations (Concepts and Issues);
Dhanpat Rai & Co. (Pvt.) Ltd; Delhi
- PRN Sinha (2000); Industrial Relations, Trade Union and Labour Legislation; Pearson Educations;
New Delhi.

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 Unit - 15 : Human Resource Accounting
Structure of Unit:
15.0 Objectives
15.1 Introduction
15.2 Growth & Development of Human Resource Accounting
15.3 Concept of Human Resource Accounting
15.3.1 Meaning & Definition
15.3.2 Need and Importance of Human Resource Accounting
15.3.3 Objectives of Human Resource Accounting
15.4 Human Resource Valuation Models
15.5 Human Resource Reporting in India
15.5.1 Problems in HRA Reporting
15.5.2 Suggestions
15.6 Summary
15.7 Self Assessment Questions
15.8 Reference Books

15.0 Objectives
After completing this unit you should be able to :
 Understand Meaning & Definition of Human Resource Accounting
 Classify the various development stages of Human Resource Accounting
 Learn the need & importance of Human Resource Accounting
 Point out the major objectives of Human Resource Accounting
 Understand the various HR Valuation models

15.1 Introduction
Human resources is an old field of research in economics. Without human resources , the other resources
cannot be effective , thus we can say human resources mobilizes all the other resources. The evolution of
service based economies from the past few decades has shifted the importance from physical assets to
knowledge & attitudes of employees working in service providing firms.
The total value of any organization depends essentially on the skill set of its employees and the services
they deliver. Therefore, the survival of these organization is dependent on the quality of their human
resources, its knowledge, expertise, capability and perception of the organizational culture.
Hence in today’s globalize knowledge driven economies , it is crucial that the humans be recognized as an
central part of the total worth of an organization Thus, the importance of human resources cannot be
ignored and at this juncture, it becomes necessary to give due consideration to the development and
growth of such an important resource of the organization.

15.2 Growth & Development of Human Resource Accounting

Research into Human Research accounting began in the 1960’s by Rensis Likert. It supported long term
planning on diverse qualitative human resource variables yielding superior benefits in long run. Human
resource Accounting is the outcome of numerous research studies conducted in the field of accounting and
finance. Human resource as an asset if positioned & nurtured in the right direction may realize its full
potential.
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Lately, the Behavioral scientists criticized the conventional accounting practice of valuing human resource
along with physical resources and stressed on the concept of assigning monetary value to human resource
of the organization. They advocated that any expenses incurred on the development of human resources
should be treated as capital expenditure as in the long run it gives benefits which can be measured in
monetary terms.

Eric Falmholtz divided the development of Human Resource Accounting into five stages, which can be
summed up as follows:-

First Stage (1960 – 66) – This symbolizes the beginning of Human Resource Accounting where the
focus was to derive the concepts of Human Resource Accounting from other studies like economics etc.
Second Stage – (1966 – 71) – The objective here was to assess some models that would cover both
costs models & monetary & non – monetary value of Human Resource .
Third Stag - (1971 – 76) – Here noticeable significance in the field of Human Resource Accounting grew
leading to number of researches in the field. The focal point was the application of Human Resource
Accounting in business organizations.
Fourth Stage - (1976 – 80) – This period saw the collapse of the concept of Human Resource Accounting
as the organizations were not prepared to invest time , energy and most importantly the funds needed to
research further deep into the concepts of Human Resource Accounting.
Fifth Stage - (1980 Onwards) – The explosion of service economies in developed countries brought
about a renewal of interest in Human Resource Accounting. And further in mid 90’s the application of
Human Resource Accounting to business management gained greater impetus.

15.3 Concept of Human Resource Accounting

15.3.1 Meaning & Definition
The concept of human resource accounting can be better understood by following important definitions
given by eminent authors in the accounting field.
M.N. Baker defines, “H.R.A. is the term applied by the accountancy profession to quantify the cost and
value of employees to their employing organization”.
K.Foley Defined “Human Resource Accounting is the measurement of the cost and value of people for
organization.”
Prof. Davidson Defined “Human Resource Accounting is the term used to describe a variety of proposals
that seek to report and emphasize the importance of human resource knowledgeable , trained and loyal
employees in a company earning process and total assets”.
The American Accounting Society Committees on Human Resource Accounting defined it as follows:-
“Human Resource Accounting is the process of identifying and measuring data about human resources
and communicating this information to interested parties.”
Flamholtz defines “Human Resource Accounting as the measurement and reporting of the cost and value
of people in organizational resources.”
In short, the definition of Human Resource Accounting brings out following characteristic features:

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 Valuation of Human Resources Recording it in books of Account
act’s

Disclosure of this information

Figure
in financial 15.1
statement

15.3.2 Need and Importance of Human Resource Accounting

The need for Human Resource Accounting felt largely as a result of the emerging concern for human
relations management in industry. The very importance of Human Resource Accounting can be summed
up through following major points –
(a) Human Resource Accounting helps management in acquiring placing and in making
effective utilization of human resources.
(b) To retain the qualified employees
(c) It aids in deciding the transfers , promotion , training etc of human resources.
(d) It serves as a tool to measure and compare the expenditure incurred for imparting the
training to employees and in turn the benefits derived by the firm.
(e) Human Resource Accounting helps to improve the profile of the enterprise and its image.
15.3.3 Objectives of Human Resource Accounting
Putting in a capsule the main objectives of Human Resource Accounting are to:

Improve Mgt by investment in H.R. Consider people as its asset

OBJECTIVES

Attract & Retain qualified people Profile the organization

in financial terms
Figure 15.2

15.4 Human Resource Valuation Models

Human Resource Accounting can be explained in three ways :-
1. MONETARY MODELS – The Models which are created using monetary variable are called monetary
models.
(A) COST BASED MODELS
(i) Historical Cost Model :- This Model was developed by Willim C. P.yle , R. Lee Brummet and Eric.
G. Flamholtz. This is also called original cost method or outlay cost method. In this method actual cost
incurred on recruiting , selecting , hiring , training and developing the human resource of the organization
are capitalized and amortized over the expected useful life of human resources. If the human assets are
liquidated pre-maturely the whole of the amount not written off is charged to the income of the year in
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which year the assets is liquidated. If the useful life is recognized to be longer than originally expected
revision are affected in the amortization schedule. The un-expired value is shown in balance sheet as
investment in human assets.
Merits:
(i) it is a simple method.
(ii) This method can be used for evaluating return on investment in human resources.
(iii) This method is objective rather than being subjective.
Limitations :
(i) Accurate measurement not possible.
(ii) It is difficult to estimate the number of years an Employee is going to be with the firm.
Hence there is a problem of estimate the number of years over which the capital expenditure
is to be amortized.
(ii) Replacement Cost Model: The replacement cost method of valuation of human resource has been
developed by Eric G. Flamholtz. Under this method value to an organization of an individual’s services is
reflected by the amount that the organization would have to pay to replace these services.
Merits : -
(i) It considers the current value of the human resource.
(ii) Replacement cost are present oriented.
(iii) Replacement cost is better than historic cost.
Limitations :
(i) There may be no identical replacement of the existing human resources.
(ii) The valuation of human resources based on replacement cost is affected by subjective
consideration.
(iii) Opportunity Cost Model: This method was suggested by Hekimian and Jones This method is
based on economist’s concept of opportunity cost. Under opportunity cost method , the value of an
employee in his alternative use is determined. This value is taken as the basis for estimating the value of
human resources employed by the organization.
Merits :
(i) Opportunity cost approach gives more optimum allocation of personnel.
(ii) It provides quantitative base for evaluating human assets.
Limitation :
(i) This method is expensive.
(ii) The measure of reliability of opportunity cost is less.
(iv) Standard Cost Method: David Watson suggested this approach. Under this method , employees of
an organization are categorized into different groups as per their hierarchical positions. The standard cost
is fixed for each category and then their value is calculated. The standard cost of recruiting, placing,
training and developing per grade of employee is developed and established and made up to date every
year , Standard method provides easy implementation.
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 Replacement Cost Chart

Acquisition Cost Learning Cost Separation Cost

* Recruitment * Training * Separation pay

* Selection * Development * loss of efficiency
* Hiring due to vacant post
* Placement during search
* Promotion
* Transfer
(B). VALUE BASED MODELS
(i) Lev and Schwartz Present Value of Future Earning Model. s
(ii) Flamholtz Stochastic Rewards Valuation Model.
(i) Present Value of Future Earnings Model: This model is suggested by Branch Lev and Aba. Schwartz.
This model is also known as compensation model. What is the present value of an employee ? In orders
to find out the present value we take the discount rate. This discount rate is normally that rate which is cost
of capital. Each and every employee is classified according to his age and efficiency. Then we find out
what is average income of an employee in different groups. Then we calculate the income of every group
up to the date of retirement. Then we apply the cost of capital rate. Then we arrive at value of human
assets of the group.
Lev and Schwartz has given the following formulas

Vx  T
I (t )
 (1  r ) (t  x)
tx

Where
Vx = The human capital value of a person X year old.
I(+) = The person’s annual earnings up to the retirement
r = A discount rate specific to the person
T = Retirement age
Merits :-
(i) This method depends upon future earnings capacity of an employee.
(ii) This method is depending upon the present value of future earnings capacity so this
method appears to be most logical.
(iii) Discount rate is based on cost of capital, which appears to be fair.

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Demerits :-
(i) The method does not take in to consideration that the employees leave the organization
due to number of reason other than death & retirement.
(ii) This method ignores change in the profession of an employee due to age , health etc.
(ii) Flamttltz’s Stoochastic Rewars Valuation Model: The model is based on the presumption that a
person’s value to an organization depends upon the position he holds in the organization. This modelgives
five steps for valuing an individual in an organization.
(i) Find out the expected service life of an individual in any organization.
(ii) Identify how much time he will remain on particular status.
(iii) Estimate the value derived by the organization when a person holds a particular
position.
(iv) Estimate the probability of occupying each possible mutually exclusive status at
specified future time.
(v) Discount (at a predetermined rate) the expected service rewards to their present
value. The Model has used the following formulae.

n m
Ri P ( Ri )]
 ( RV )  t 1
[
i 1
(1  r )t

 (RV) Expected Realized value

Ri = Amount of service received
(R) at every possible state or status
P(Ri) = Status Possible expected service to be received by the organization
t = time period.
m = Retirement Stage
(1+ r) = Rate of Depreciation for money

Merits :-

(i) This method takes into account the probability of a person’s carrier movement and of his
leaving the organization prior to his retirement or death.

(ii) The model combines both monetary and non-monetary variables.

Demerits :
(i) It is expensive.
(ii) It is very difficult to estimate that for how much period an employee will continue in an
organization.
Dr. S.K. Chakraborty’s Model of Human Resource Valuation: -
According to Dr. Chakraboty human assets should be included in Balance sheet on assets side under the
heading “Investments” He is of the opinion that if we include it in the heading fixed Assets it will create
problems like depreciation, capital gains or losses , etc. The value of human resources on a group basis
can be found out by multiplying the average salary of the group with the average tenure if employment of
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the employee in that group. He has suggested that recruitment , hiring , selection , development and
training costs of each employee should be recorded separately , it can be treated as deferred revenue
expenditure to be written off over the expected average stay of the employee in the organization and the
deferred position should be shown in balance sheet of the organization. If there is a premature exit on
account of death , retirement etc then the balance on the deferred revenue account for the year attributable
to that person should be written off against the income of the year of exit itself.
2. NON-MONETARY MODEL
(A) Likert’s Casual, Intervening and End–Result Variable Model :-
This model is based on behavioural variable. This model was developed by Rensis Likert and David G.
Bowers of U.S.A. The model is comprised of three variables – Casual , intervening and end results.
(i) Casual Variable – The casual variables are independent variables which can be directly changed
by the organization and its management and which in turn determine the course of developments
within an organization.
(ii) The intervening variables reflect the internal state, health and performance capabilities of the
organization e.g. the loyalties, attitudes, motivation, performance goals and perceptions of all
members and their collective capacity for effective action , interaction , communications and decision
– making.
(iii) The end result variables are the dependent variable, which reflect the result achieved by the
organization such as its productivity costs, scrap loss, growth, share of market & earnings.
Merits :-
(i) Model is based on non-monetary variables.
(ii) The model is highly useful in decision making.
Demerits :-
(i) The degree of objectivity is less
(ii) The degree of reliability is low.
(iii) The method is expensive.
3. STATISTICAL BASED METHODS
Under statistical based method of Human resources no according is involved. The statistical information
regarding human resource is collected and they are presented in annual reports. They may be of following
types:-
(i) Monthly Statistics on.
(a) Recruitment Costs
(b) Selection Costs
(c) Training Costs
(d) Special Development programme costs
(e) Worker’s education programmes
(f) Auxiliary costs such as canteen, medical and other fringe benefits
(ii) Total Human Resource Investment analyzed workmen into
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 (a) Personnel Officers, staff and workmen
(b) Department wise
(c) Expenses Category wise
(iii) Periodical change in Human Resources Investment.
(iv) Statement of contribution factor separately for officers, staff and workmen.
(v) Statement on human resource cost co-efficient (human resource investment human resource
current cost) separately for officers, staff & Workmen.
(vi) Times rate of return analysis.
(vii) Statement of human resource performance index showing separately for officers , staff &
workmen.
(viii) Statement of per capital Human Resource performance index showing separately for officers,
staff & workmen and also total.
(ix) Age wise Service Status
(x) Monetary value of service statutory
(xi) Statistics on employee turnover.
(xiii) Any other statistics relevant to the organization.

15.5 Human Resource Reporting in India

In India, reporting practices of Human Resource Accounting is extremely low. A few companies do report
in their annual reports. The reporting of Human Resource Accounting is in some sentences. Some Companies
furnish information about number of employees working in the organization, how many working hours
have lost, what is the situation of industrial relation etc.
Both Public sector and private sector companies have used economic value approach instead of cost
approach. Most of the companies have used Lev and Schwartz model. They have Lev and Schwartz
model in modified way, which is similar to Flamholtz model. It has been discovered that most likely variety
of the companies is replacement cost model, Human resources reporting is not because their is no legal
compulsion by Indian Companies Act 1956. There is also problem in measuring Human Resources.
Human Resource Accounting has been reported by above – mentioned companies as a supplementary
information in their annual reports , such reporting by companies are audited. The companies have classified
their employees, age wise, they have further classified them in managers, executives, supervisors, Artisans,
clerical staff etc.
Some Companies in India shows human Resource development cost i.e. training and development cost in
detail while some corporation are showing them in short, some shows them in “Director’s Report or
chairman speech.”
Productivity / performance statistics of human resource have been presented by some companies in detail.
Average employee cost is shown by few companies only.
Appreciations and Awards received by the companies have been shown by the companies under the
heading “High light” or Director’s Report or elsewhere in the annual reports of the Companies Highlight’s.
For purpose of calculating the present value of future earning of employees , all the companies have
adopted a discount rate , which is not common. Majority of the companies adopted 12%.
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Some of the companies have not mentioned the purpose for which they are reporting HRA information in
their annual reports. Whereas some companies have clearly mentioned their objective of reporting human
resource data. It seems that some companies report HRA for image building purposes. Some companies
have also given additional information as regarding number of employees , average salary , average age of
employees , average production per employee etc.

15.5.1 Problems in HRA Reporting

1. Human Resource Accounting is shown as supplementary information in the annual reports , which
has no significance.

2. All the companies who are reporting Human Resource Accounting have used Lev and Schwartz
model but this model is suffering from some drawbacks. One it has assured state promotion
policy and consistent average salary to all the employees in a particular group. These two
assumptions are far from reality , difference in skill , experience qualifications and increasing
importance of employees union often lead to change in these policies.

3. Though human capital plays an important role in any organization , there is a wide spread ,
disagreement regarding the reorganization and valuation of human resource as assets on generally
the assets is one which fulfills the following three criteria. They are (i) the entity should have legally
enforceable claim to it. (ii) It should be owned by the entity (iii) the entity should posses it with the
expectation of deriving services from it in future HR are not fulfilling any criteria. As such there is
a problem in recognizing human resources as assets.
4. Proper matching of costs with revenue is not possible unless the costs on the recruitment training
and development of personnel are capitalized over their effective service lives. It is so because the
benefits from such expenses are usually derived over a period beyond the year of payment.
However in a number of cases, the earnings potential of employees may not depend upon the
expenditure incurred by the firms for the purpose. But it depends upon behaviour aspects like skill
, motivation group loyalty capacity for effective interaction and decision making etc , to influence
the end results of an enterprises effectively.
5. The very idea of showing human resource as an asset on the balance sheet of a firm tends to be
arbitrary for this purpose as per the methods available , human resource are to be valued either on
the basis of cost incurred by a firm on recruitment trainings etc or replacement cost. In both the
methods cost is taken as the value of human assets. But this hardly represent the real value of
personnel in particular and the firm in general. The other method like discounted wage, and salaries
method , economic value method , and opportunity cost method , involves the element of subjectivity
in valuing the human resources.
6. Yet another difficulty regarding HRA is Quantification and pricing of employees in respect of jobs
which do not yield any physical output. Determination of probabilities of the expected services of
the employees is also a difficult task. These practical difficulties are subject to the influence of age
qualification , the previous experience point of first entry , employment period and turn over as
well as the organizational pulls and pressures on different categories of employees.
7. In all the methods , the salaries earned by the employees are taken as the basis for valuing human
resources. Thus the career movement of employees either within the organization or elsewhere in
the other organization is kept outside the purview of valuation. Since the employees make constant
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 trials to occupy higher position during their effective service life , any valuation process without
considering this way tend to be less meaningful.

8. The provision of existing tax laws , do not recognize the amortized portion of capitalized human
resource value as deductible expenses for computing income. Even if attempts are made to amend
the existing provision of tax laws there is a greater amount of scope to misuse the facility as the
employers may adopt fictitious method to undertake the profitability of their business and may
show unrealistic value of the firm.

15.5.2 Suggestions

In India, human resource accounting has not been introduced so far as a system. The companies Act
1956, does not require , furnishing of any significant information about human resource in financialstatement
of the Companies. The Institute of Chartered Accountant of India has also developed 18 Accounting
Standards. The accounting standards are applicable to public and private sector companies & large
borrowers of funds from banks and financial institutions in the corporate sector. It is the duty of the
members Institute of Chartered Accountants of India to ensure that the accounting standards are
implemented in the presentation of financial statements covered by their audit report. All these accounting
standards are quite important from point of view of measurement and disclosure of accounting information.

15.6 Summary
In today’s globalized world it has become imperative to give necessary consideration to the Human
Resource of the organizations. Without human resource no other resource can function effectively, therefore
Human Resource has been recognized as a crucial part of total organization worth. Human Resource
Accounting facilitates the management of people as organizational Resources. Human Resource Accounting
in application of accounting concepts & methods to management of Human Resources it deals with
investments in people and with economic results of those investments. Human Resource Accounting field
underwent a number of stages beginning from 1960 to till date to assume the status of a fully fledged
subject. It greatly helps the management of the business organizations in acquiring, placing and in making
effective utilization of human resources. Human Resource Accounting has its number of models under the
purview of monetary , non - monetary and statistical methods. But the plight of Human Resource Accounting
in India is extremely poor and both public and private sector companies do not pay much head to Human
Resource Reporting. Therefore, the government needs to take steps in the right directions for promotion
of Human Resource Accounting Practices in India.

15.7 Self Assessment Questions

1. What do you mean by “HRA “. Explain & Detail.
2. Classify the various stages in development of Human Resource Accounting.
3. Discuss the importance of HRA in today’s globalized world.
4. Write short note on Human Resource Reporting in India.
5. What are the different valuation models of HRA ? State their merits and demerits.

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15.8 Reference Books
- A.M. Sarma (2009) ; Personnel & Human Resource Management ; Himalaya Publishing
House , New Delhi.
- P. Subba Rao (2008) ; Personnel & Human Resource Management ; Himalaya Publishing
House ; New Delhi.
- Dr. G. L. Dave (2001) ; Social Accounting ; Renuka Publisher ; Jodhpur.
- Ravi M. Kishore (2008) ; Advanced Management Accounting ; Taxmann Publication ; New
Delhi.
- Eric. G. Flamholtz (1999) ; Advances in concepts , methods and applications ; Kluwer
Academic Publishers.

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 Unit - 16 : Managing Ethical Issues in HRM
Structure of Unit:
16.0 Objectives
16.1 Introduction
16.2 Nature of Ethics
16.3 Need of Business Ethics
16.4 Sources of Ethics
16.5 Importance of Ethics
16.6 Ethical Dilemmas
16.7 How to Manage Ethics at Workplace
16.8 Ethical Decision Making
16.9 Five Sources of Ethical Standards
16.10 Summary: A Framework for Ethical Decision-Making
16.11 Self Assessment Questions
16.12 Reference Books

16.0 Objectives
After completing this unit, you will have good understanding of:
 The nature, need and sources of business ethics
 The importance of ethics
 Ethical misconduct in personnel function
 How to manage ethics
 Ethical decision making

16.1 Introduction
Ethics refers to the study of good and evil, right and wrong, and just and unjust actions of business people.
Business ethics is the same as the generally accepted norms of good or bad practices. Human resource
management (HRM) is the science of managing people systematically in organizations. The unique individual
actor in the organization - a given executive, manager, line worker - is not the focus of HRM, rather,
human resources practices and policies concerning recurring cycles of staffing, reward and compensation,
and performance management inform how any person or group of people is introduced into the organization,
managed while there, and exited from the organization. When these three overarching aspects of human
resource management are designed effectively, the organization benefits from a management system that
enhances the sustained competitive advantage of the organization. A critical part of designing these aspects
effectively requires consideration of ethical concerns at each stage. Staffing is comprised of systems designed
to recruit and select employees to undertake required roles in the organization. The purpose of recruiting
is to provide the organization with a group of candidates large enough for the organization to select the
qualified employees that it needs. Needs are formalized by (1) job or position descriptions, which are
written statements of content and organizational level of the job; and (2) hiring specification, which details
background, experience, and skills requirements.

16.2 Nature of Ethics

Business ethics does not differ from generally accepted norms of good or bad practices. If dishonesty is
considered to be unethical and immoral in the society, then any business person who is dishonest with his
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or her employees, customers, shareholders or competitors is an unethical and immoral person. If protecting
others from any harm is considered to be ethical, then a company which recalls a defective or harmful
product from the market is an ethical company. Two theories are important when one considers nature of
ethics.
The theory of moral unity essentially advocates the principle that business actions should be judged by the
general ethical standards of the society. There exists only one set of ethical standards which applies to
business and non-business situations.
Opposite to this is the theory of amorality, which argues that a business can be amoral, and actions of
business people need not be guided by general ethical standards. Managers may act selfishly because the
market mechanism distills their actions into benefits to shareholders and the society at large.
Activity A:
1 Break your class into groups of three and give each group a stack of 3-by-5 index cards with an
unethical situation written on it. For example, you may write, "You have found a bank error on
your business's line of credit and you have been charged $10,000 less than you should have
been."
One person in the group is the persuader, trying to convince another person (the decider) to make
the unethical choice. The third person is the observer, who watches how the persuader persuades
and the decider decides. After a few minutes, have the groups draw another card and switch
roles.
This activity will teach the subjective nature of ethics, emphasizing through discussion that unethical behavior
can be spun as ethical and vice versa.

16.3 Need of Business Ethics

The need of business ethics can be explained with the help of the following points:-
(1) Introducing Socialism in Business: This means the gains of business must be shared by all
concerned and not just by owner of business. Profit is the result of group efforts and hence all
concerned must share the same. In other words, the concept of socialism in business say that
workers, shareholders, consumers all others who contribute to the success of the business must
share its gain.
(2) Interest of Industry: Business ethics are required to protect the interest of small business firms.
Big firms normally try to dominate and eradicate small firms. If industry follows code of conduct,
small firms can fight for their existence and stay in the business for long.
(3) Buyers Market: In recent times, structural changes have taken place in the concept of business.
In case of many products, sellers market has been converted into buyers market. Under such
changed business conditions business ethics is needed to stress the importance of consumer
satisfaction and service orientation in place of profit orientation.
(4) Better Relations with Society: Code of conduct results in better relations between business
and society. It will reconcile conflicting interest of various sections of the society such as workers,
shareholders, consumers, distributors, suppliers, competitors and government.
(5) Advantages to Business and Society: Ethics point out what is good and bad, so also what is

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 right or wrong. It brings to the notice of the business community the importance of honesty,
sincerity, fairness which makes them alert and socially conscious.
In the final analysis, business ethics help the business and society at large. It ensures healthy atmosphere in
business which ensures improvement in social, economic and cultural values of the society.

16.4 Sources of Ethics

HR managers in every society are influenced by three repositories of ethical values-religion, culture and
law. These repositories contain unique systems of values that exert varying degrees of control over managers.
A common thread --- idea of reciprocity or mutual help --- runs through all the value systems. This idea
reflects the central purpose of all ethics-which is to bind the vast majority of individuals in the society into
a cooperative whole. Ethical values constitute a mechanism that controls behavior in HR situations and in
other walks of life. Ethics driven restraints are more effective than restrictive controls such as police, law
suits or economic incentives. Ethical values channelize the individual energies into pursuits that are benign
to others and beneficial to the society.
It is a code of conduct that is supposed to align behaviors within an organization and the social framework.
But the question that remains is, where and when did business ethics come into being?
It is for this reason we do not have uniform or completely similar standards across the globe. These three
factors exert influences to varying degrees on humans which ultimately get reflected in the ethics of the
organization. For example, ethics followed by Infosys are different than those followed by Reliance Industries
or by Tata group for that matter. Again ethical procedures vary across geographic boundaries.
Religion
It is one of the oldest foundations of ethical standards. Religion wields varying influences across various
sects of people. It is believed that ethics is a manifestation of the divine and so it draws a line between the
good and the bad in the society. Depending upon the degree of religious influence we have different sects
of people; we have sects, those who are referred to as orthodox or fundamentalists and those who are
called as moderates. Needless to mention, religion exerts itself to a greater degree among the orthodox
and to lesser extent in case of moderates. Fundamentally however all the religions such as Hinduism,
Buddhism, Christianity, Islam, Judaism and Confucianism, operate on the principle of reciprocity towards
ones fellow beings.
Culture
Culture is a pattern of behaviors and values that are transferred from one generation to another, those that
are considered as ideal or within the acceptable limits. No wonder therefore that it is the culture that
predominantly determines what is wrong and what is right. It is the culture that defines certain behavior as
acceptable and others as unacceptable. Culture determines what is ethical and what is not. Cultural norms
play important role in determining values because individuals anchor their conduct in the culture of the
group in which they belong.
Human civilization in fact has passed through various cultures, wherein the moral code was redrafted
depending upon the epoch that was. What was immoral or unacceptable in certain culture became acceptable
later on and vice versa.
During the early years of human development where ones who were the strongest were the ones who
survived! Violence, hostility and ferocity were thus the acceptable. Approximately 10,000 year ago when
human civilization entered the settlement phase, hard work, patience and peace were seen as virtues and
the earlier ones were considered otherwise. These values are still pt in practice by the managers of today!
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Still further, when human civilization witnessed the industrial revolution, the ethics of agrarian economy
was replaced by the law pertaining to technology, property rights etc. Ever since a tussle has ensued
between the values of the agrarian and the industrial economy!
Law
Laws are procedures and code of conduct that are laid down by the legal system of the state. They are
meant to guide human behavior within the social fabric. The major problem with the law is that all the
ethical expectations cannot be covered by the law and specially with ever changing outer environment the
law keeps on changing but often fails to keep pace. In business, complying with the rule of law is taken as
ethical behavior, but organizations often break laws by evading taxes, compromising on quality, service
norms etc.

16.5 Importance of Ethics

Have you ever given a thought as to why societies function? Why is it that since ages, human beings are
able to live with each other peacefully? Yes, there have been certain incidences such as crimes and wars
which do disturb the delicate fabric of the society once in a while, but still, on a whole, people have co-
existed and survived for so many years. The main reason why humanity has survived for so long is due to
certain rules, values, mores and ethics, which all of us abide by. Just imagine, what would happen if
suddenly we were left without any sense of morality or values. In such a scenario, no doubt, chaos will
prevail everywhere. Thus, ethics and values are the very foundations on which this society is standing.
Same is the case in business. Organizations which follow certain business ethics have better chances of
survival, compared to the ones whose only goal is to make profits, even if they have to compromise on a
lot of things for that. So what is the importance of business ethics? How does it benefit the business?
Profit Maximization
The importance of ethics in business can be understood by the fact that ethical businesses tend to make
much more profits than the others. The reason for this is that customers of businesses which follow ethics
are loyal and satisfied with the services and product offerings of such businesses. Let us take an example.
Suppose, there is an organization named XYZ which manufactures cosmetics. XYZ greatly believes in the
importance of business ethics. When XYZ advertises its cosmetics in the market, being an ethical
organization, it will be very truthful and honest in its communication with the probable customers. It will tell
correctly about the kind of ingredients it has used while manufacturing the cosmetics. It will not lie or
exaggerate about the benefits or uses of its products either. So the customers, who buy its cosmetics,
know precisely what they are buying and how useful that product is going to be for them. This way, the
product will meet their expectations and thus, satisfy the customers. When customers are satisfied, they
will become loyal to the company and come back again for re-purchasing. This will surely increase the
profits of the organization. Thus, the importance of business ethics is that it creates loyalty in customers
and maximizes the profits.
Efficient Utilization of Business Resources
In an organization, people working at the junior levels often emulate the ones working at the top. The same
applies with ethics too. If the management or seniors of an organization follow ethical business practices,
i.e, they do not bribe to get their way or they do not cheat the customers, investors, suppliers, etc., the
employees will follow suit. The employees too will refrain from using the office property or resources for
personal benefits. This will result in better and efficient utilization of the business resources.
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Creates Goodwill in the Market
An organization, which is well known for its ethical practices, creates goodwill for itself in the market.
Investors or venture capitalists are more willing to put their money in the businesses which they can trust.
Shareholders too, remain satisfied with the practices of ethical businesses. Thus, the importance ofbusiness
ethics in creating goodwill and building long term relationships, cannot be denied. Also, an ethical business
puts greater value on its employees and thus, employees remain loyal to such an organization too.
The chief goal of any organization is to maximize its profits. The importance of business ethics can be
understood from the fact that it helps the businesses in achieving its goal of profit making by creating
goodwill for the business in the market, increasing its loyalty among the customers, by aiding in employee
retention and by maximum utilization of its resources.

16.6 Ethical Dilemmas

An ethical dilemma is a situation wherein moral precepts or ethical obligations conflict in such a way that
any possible resolution to the dilemma is morally intolerable. In other words, an ethical dilemma is any
situation in which guiding moral principles cannot determine which course of action is right or wrong.
Several ethical dilemmas confront an HR manager. The ethical dilemmas arise from three sources--- face
to face ethics, corporate policy ethics, and functional area ethics.
Face -to-face Ethics
These arise mainly because there is a human element in most business transactions. For example, a purchasing
agent of a company develops personal relationship with sales representative who sells supplies to the
company. They may address one another on first name basis, have lunch together, and talk often on
phone. A company's best customers may be well known to people in the production department as it
helps to ensure that the company's products fit the customer needs.
Corporate -policy Ethics
Companies are often faced with ethical dilemmas that affect their operations across all departments and
divisions. Following conflicting situations are typical:
1. Your R & D department has modernized one of your products. It is not really' new and improved'.
But you know printing these statements on the package and using it in advertisement will increase
its sales. What would you do?
2. You have a chance to win a big account that will mean a lot to you and your company assistant
recommends sending a color television set to his home. What would you do?
Another issue relates to the results of employment contraction in labour intensive basic industries because
of the improved methods of production. Modern technology has replaced older methods of production
which has in turn resulted in hundreds being rendered jobless. The issue therefore is - global economic
competitiveness or local social-psychological stability?
The ethical burden of deciding corporate policy matters normally rests upon a company's HR management.
The HR managers and directors are responsible for making policies and implementing them too.
Functional -Area Ethics
Functional area of a business are likely to confront ethical issues. Accounting is a critical function of any
business. Accounting statements reveal to the manager and owners the financial soundness of a company.
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Managers, investors, regulating agencies, tax collectors, and trade unions rely on accounting data to make
decisions. Honesty, integrity and accuracy are absolute requirements of the accounting functions.
Marketing lends itself to several ethical issues. Pricing, promotions, advertising and product information
are the areas of unethical practices.
Ethical dilemmas crop up in purchasing departments where strong pressures are felt to obtain the lowest
possible prices from suppliers and where suppliers too feel a similar need to bag lucrative contracts.
Bribes, kickbacks, and discriminatory pricing are temptations to both the parties.

16.7 How to Manage Ethics at Workplace

The effective management of ethics is sound business practice. Employees' morale is raised; bottom-line
performance is improved, your corporate image is enhanced; and customers choose to form business
relationships with companies that adhere to high standards of ethical conduct. One of your key management
tasks is to persuade employees to accept your organization's ethical values. Following are some points to
consider in managing ethics:

1. Understand the Benefits of Ethical Conduct.

All key parties benefit from ethical conduct within the organization. Employees who have confidence in
their management contribute to their organization's prosperity. Conversely, in an unethical climate, employee
productivity declines, creativity is channelled into seeking ways to profit personally from the business,
loyalty diminishes, and absenteeism and staff turnover increase. Customers prefer to be associated with
and remain loyal to companies that adhere to codes of ethical behavior. Shareholders derive up to fifteen
times greater return from companies with a dedicated commitment to ethical conduct.

2. Focus on Ethical Conduct.

When referring to codes of behavior, the term 'ethical conduct' is more comprehensive and more meaningful
than 'ethics'. The best ethical values and intentions are relatively meaningless unless they generate fair, just,
and observable behaviors in the workplace. Ethical conduct focuses on demonstrated behavior-doing,
not just saying.

3. Develop a Code of Ethical Conduct.

The best way to handle ethical dilemmas is to avoid their occurrence in the first place. The process
involved in developing a code of ethical conduct helps to sensitize employees to ethical considerations and
minimizes the likelihood that unethical behavior will occur.

4. Promote Process.

When it comes to managing ethics and, in particular, developing a code of ethical conduct, the journey is
just as important as the destination. Codes, policies, procedures, and budgets are important. So, too, is
the process of reflection and dialogue that produces those deliverables. Where possible use group decision
making to actively involve participation in, and ownership of, the final outcome.

5. Link Ethics to Other Management Practices.

The development of a code of ethical conduct should not occur in isolation. The creation of a values
statement, for example, should occur as part of a strategic planning process. A link to ethical conduct fits

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ideally with this process. Similarly, any discussion about personnel policies could also reflect ethical values
as they apply to the organization's culture.
6. Demonstrate Ethical Practices.
The best way for an organization to gain a reputation for operating ethically is to demonstrate that behavior-
the most important way to remain ethical is to be ethical. And the best advertisement your ethics management
program can have is everyone's commitment to it. Be prepared for an increase in the number of ethical
issues to be dealt with. As staff becomes increasingly aware of the importance of ethics management, it is
to be expected that more issues will be identified. 'The most damaging thing is for management to come
out with a code of ethics, or a value statement, and model a different type of behavior.'
7. Allocate Roles and Responsibilities.
The approach will vary according to the organization, but an appropriate structure could include the
following:
 An ethics management committee, representing the entire organization, with responsibilities to
include implementing and administering an ethics management program. The creation and monitoring
of a code of ethical conduct would be part of that overall program.
 An ethics officer who ideally should be a senior executive but not from HR or the Legal Department.
He or she must be trained in matters of ethics in the workplace and have ultimate responsibility for
managing the program.
 Demonstrated involvement and support of top management. Staff and Board must see that senior
management takes ethical conduct seriously.
8. Identify and Model Industry Benchmarks.
An increasing number of companies strive to match practices with espoused values. The Soul of a Business,
for example, is an account of the way in which ethical considerations guided the day-to-day operations of
the American company, Tom's of Maine. One of the company's stated values was its commitment to the
health of the environment. The company, therefore, used glass containers instead of plastic, even though
plastic was cheaper to purchase, label, and ship. Tom's of Maine was also committed to supporting its
regional economy. Only when it couldn't purchase a resource in its local area would Tom's go farther
afield. This demonstrated commitment to espoused values contributed to the company's growth and
profitability and inspired others to follow its lead.

16.8 Ethical Decision-Making

Here is a short guide to help you think through ethical issues and make effective decisions.
1. Is it an Ethical Issue?
Being ethical does not always mean following the law. And just because something is possible doesn't
mean it is ethical, hence the global debates about bio-technology advances such as cloning. And ethics
and religion do not always concur.
This is perhaps the trickiest stage in ethical decision making, as sometimes the subtleties of the issue are
above and beyond our knowledge and experience. Listen to your instincts - if it feels uncomfortable
making the decision on your own, get others involved and use their collective knowledge and experience
to make a more considered decision.
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2. Get the Facts
What do you know, and just as importantly, what don't you know? Who are the people affected by your
decision? Have they been consulted? What are your options? Have you reviewed your options with
someone you respect?
3. Evaluate Alternative Actions
There are different ethical approaches which may help you make the most ethical decision.
a. Utilitarian Approach - which action results in the most good and least harm?
b. Rights Based Approach - which action respects the rights of everyone involved?
c. Fairness or Justice Approach- which action treats people fairly?
d. Common Good Approach - which action contributes most to the quality of life of the people
affected?
e. Virtue Approach - which action embodies the character strengths you value?
4. Test Your Decision
Could you comfortably explain your decision to your mother? To the man in the street? On television? If
not, you may have to re-think your decision before you take action.
5. Just Do It - but what did you learn?
Once you've made the decision, then don't waste time in implementing it. Set a date to review your
decision and make adjustments if necessary. Often decisions are made with the best information to hand
at the time, but things change, and your decision making needs to be flexible enough to change too.

16.9 Five Sources of Ethical Standards

1. The Utilitarian Approach
Some ethicists emphasize that the ethical action is the one that provides the most good or does the least
harm, or, to put it another way, produces the greatest balance of good over harm. The ethical corporate
action, then, is the one that produces the greatest good and does the least harm for all who are affected-
customers, employees, shareholders, the community, and the environment. Ethical warfare balances the
good achieved in ending terrorism with the harm done to all parties through death, injuries, and destruction.
The utilitarian approach deals with consequences; it tries both to increase the good done and to reduce the
harm done.
2. The Rights Approach
Other philosophers and ethicists suggest that the ethical action is the one that best protects and respects
the moral rights of those affected. This approach starts from the belief that humans have a dignity based on
their human nature per se or on their ability to choose freely what they do with their lives. On the basis of
such dignity, they have a right to be treated as ends and not merely as means to other ends. The list of
moral rights -including the rights to make one's own choices about what kind of life to lead, to be told the
truth, not to be injured, to a degree of privacy, and so on-is widely debated; some now argue that non-
humans have rights, too. Also, it is often said that rights imply duties-in particular, the duty to respect
others' rights.
3. The Fairness or Justice Approach
Aristotle and other Greek philosophers have contributed the idea that all equals should be treated equally.

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Today we use this idea to say that ethical actions treat all human beings equally-or if unequally, then fairly
based on some standard that is defensible. We pay people more based on their harder work or the greater
amount that they contribute to an organization, and say that is fair. But there is a debate over CEO salaries
that are hundreds of times larger than the pay of others; many ask whether the huge disparity is based on
a defensible standard or whether it is the result of an imbalance of power and hence is unfair.
4. The Common Good Approach
The Greek philosophers have also contributed the notion that life in community is a good in itself and our
actions should contribute to that life. This approach suggests that the interlocking relationships of society
are the basis of ethical reasoning and that respect and compassion for all others-especially the vulnerable-
are requirements of such reasoning. This approach also calls attention to the common conditions that are
important to the welfare of everyone. This may be a system of laws, effective police and fire departments,
health care, a public educational system, or even public recreational areas.
5. The Virtue Approach
A very ancient approach to ethics is that ethical actions ought to be consistent with certain idealvirtues that
provide for the full development of our humanity. These virtues are dispositions and habits that enable us
to act according to the highest potential of our character and on behalf of values like truth and beauty.
Honesty, courage, compassion, generosity, tolerance, love, fidelity, integrity, fairness, self-control, and
prudence are all examples of virtues. Virtue ethics asks of any action, "What kind of person will I become
if I do this?" or "Is this action consistent with my acting at my best?"
Putting the Approaches Together
Each of the approaches helps us determine what standards of behavior can be considered ethical. There
are still problems to be solved, however.
The first problem is that we may not agree on the content of some of these specific approaches. We may
not all agree to the same set of human and civil rights.
We may not agree on what constitutes the common good. We may not even agree on what is a good and
what is a harm.
The second problem is that the different approaches may not all answer the question "What is ethical?" in
the same way. Nonetheless, each approach gives us important information with which to determine what
is ethical in a particular circumstance. And much more often than not, the different approaches do lead to
similar answers.
Making Ethical Decisions
Making good ethical decisions requires a trained sensitivity to ethical issues and a practiced method for
exploring the ethical aspects of a decision and weighing the considerations that should impact our choice
of a course of action. Having a method for ethical decision making is absolutely essential. When practiced
regularly, the method becomes so familiar that we work through it automatically without consulting the
specific steps.
The more novel and difficult the ethical choice we face, the more we need to rely on discussion and
dialogue with others about the dilemma. Only by careful exploration of the problem, aided by the insights
and different perspectives of others, can we make good ethical choices in such situations.
We have found the following framework for ethical decision making a useful method for exploring ethical
dilemmas and identifying ethical courses of action.
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16.10 Summary: A Framework for Ethical Decision-Making
Recognize an Ethical Issue
1. Could this decision or situation be damaging to someone or to some group? Does this decision
involve a choice between a good and bad alternative, or perhaps between two "good" or between
two "bad"?
2. Is this issue about more than what is legal or what is most efficient? If so, how?
Get the Facts
3. What are the relevant facts of the case? What facts are not known? Can I learn more about the
situation? Do I know enough to make a decision?
4. What individuals and groups have an important stake in the outcome? Are some concerns more
important? Why?
5. What are the options for acting? Have all the relevant persons and groups been consulted? Have
I identified creative options?
Evaluate Alternative Actions
6. Evaluate the options by asking the following questions:
 Which option will produce the most good and do the least harm? (The Utilitarian Approach)
 Which option best respects the rights of all who have a stake? (The Rights Approach)
 Which option treats people equally or proportionately? (The Justice Approach)
 Which option best serves the community
as a whole, not just some member? (The Common Good Approach)
Which option leads me to act as the sort of person I want to be? (The Virtue Approach)
Make a Decision and Test It
7. Considering all these approaches, which option best addresses the situation?
8. If I told someone I respect-or told a television audience-which option I have chosen, what would
they say?
Act and Reflect on the Outcome
9. How can my decision be implemented with the greatest care and attention to the concerns of all
stakeholders?
10. How did my decision turn out and what have I learned from this specific situation?

16.11 Self Assessment Questions

1. Define the term Ethics. Trace the sources of ethics. Why is ethics important?
2. What are ethical dilemmas? Explain each.
3. Why is ethical decision making difficult? Discuss.
4. How does HR function become involved with business ethics in the organization?
5. Explain the various HR ethical issues?
6. What are the different points to be considered in managing ethics in a workplace?
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16.12 Reference Books
- K Aswathappa, Human Resource Managemnet, TMH, Fifth edition.
- Fisher, choenfeldt, Shaw., Managing Human Resource, Cengage Learning
- S.S. Khanka, Human Resource Managemnet (Text and Case), S.Chand Publications.

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 Unit - 17 : The Future of HRM
Structure of Unit:
17.0 Objectives
17.1 Introduction
17.2 Significance of Human Resource Management
17.3 Role of HR Managers in Present Times
17.4 Recent Trends In HRM
17.5 Forces Changing HRM
17.6 Emerging Concepts
17.7 Impact of Technology on HRM
17.8 Workforce Trends
17.9 E-Human Resource Management
17.10 Challenges before HRM
17.11 HRM Practices In India
17.12 Self Assessment Questions
17.13 References Books

17.0 Objectives
After completing the unit you will be able to:
 Understand the importance of HRM in the emerging scenario.
 Role of HR manager in modern time.
 Forces affecting HRM
 Challenges faced in the changed business scenario
 Current practices of HRM in India

17.1 Introduction
The importance of Human Resource Management can be traced back to Vedic ages! Yes, in The Bhagavad
Gita, Lord Krishna not only makes Arjuna spiritually enlightened, but also teaches him the art of self
management, anger management, stress management, conflict management, transformational leadership,
motivation, goal setting and many other aspects which are now essential parts of any HRM curriculum.
Human resource management is a process of bringing people and organizations together so that the goals
of each other are met. The role of HR manager is shifting from that of a protector and screener to the role
of a planner and change agent. Personnel directors are the new corporate heroes. The name of the game
today in business is Personnel. Nowadays it is not possible to show a good financial or operating report
unless your personnel relations are in order.

17.2 Significance of Human Resource Management

The Human Resources (HR) function provides significant support and advice to line management. The
attraction, preservation and development of high calibre people are a source of competitive advantage for
our business, and are the responsibility of HR. Industries in India in general and Human Resources function
in particular, will open new avenues in future. One clear trend concerns joint decision making. From
largely paternalistic efforts to help needy employees solve their personnel problems, industrial organizations
in India have moved to a joint consultative process of decision making which influences employees.
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The scope of Human Resource function depends, to a large extent, on its importance in the organization
and the attitude of the top management to executives in the HR department. The basic objectives of
Human Resource Department of an organization are an effective and efficient utilization of human resources,
harmonious relations among all employees and maximum development of individuals. These objectives
are generally achieved by hiring capable people, using their efforts effectively and encouraging a willingness
to work kind of environment to achieve organization’s goals.
Human Resources manager’s style of supervision, his plans, policies and procedures have a significant
impact on an individual’s performance. Changes in HR function, to a large extent reflect changing needs of
the organization. Changes in the organizational atmosphere, hopes and aspirations of the workforce, and
the external environment all demand an innovative problem-solving approach from the personnel department.
The functions of HR manager in future will definitely be enhanced from traditional areas such as management
of manpower planning, recruitment, selection, training, internal mobility and welfare.

17.3 Role of HR Managers in Present Times

HR Managers today are focusing attention on the following-
a) Policies- HR policies are based on trust, openness, equity and consensus.
b) Motivation- Create conditions in which people are willing to work with zeal, initiative and
enthusiasm; make people feel like winners.
c) Relations- Fair treatment of people and prompt redress of grievances which would pave the
way for healthy work-place relations.
d) Change Agent- Prepare workers to accept technological changes by clarifying doubts.
e) Quality Consciousness- Commitment to quality in all aspects of personnel administration will
ensure success.
Due to the new trends in HR, in a nutshell the HR manager should treat people as resources, reward them
equitably, and integrate their aspirations with corporate goals through suitable HR policies.
Traditionally, the role of the Human Resource professional in many organizations has been to serve as the
systematizing, policing arm of executive management.
In this role, the HR professional served executive agendas well, but was frequently viewed as a road
block by much of the rest of the organization. The role of the HR manager must parallel the needs of his or
her changing organization. Successful organizations are becoming more adaptive, resilient, quick to change
direction and customer-centered. Within this environment, the HR professional, who is considered necessary
by line managers, is a strategic partner, an employee sponsor or advocate and a change mentor.
Strategic Partner
In today’s organizations, to guarantee their viability and ability to contribute, HR managers need to think of
themselves as strategic partners. In this role, the HR person contributes to the development of and the
accomplishment of the organization-wide business plan and objectives.
The HR business objectives are established to support the attainment of the overall strategic business plan
and objectives. The tactical HR representative is deeply knowledgeable about the design of work systems
in which people succeed and contribute. This strategic partnership impacts HR services such as the design
of work positions; hiring; reward, recognition and strategic pay; performance development and appraisal
systems; career and succession planning; and employee development.

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Employee Advocate
As an employee sponsor or advocate, the HR manager plays an integral role in organizational success via
his knowledge about and advocacy of people. This advocacy includes expertise in how to create a work
environment in which people will choose to be motivated, contributing, and happy.
Fostering effective methods of goal setting, communication and empowerment through responsibility, builds
employee ownership of the organization. The HR professional helps establish the organizational culture
and climate in which people have the competency, concern and commitment to serve customers well.
In this role, the HR manager provides employee development opportunities, employee assistance programs,
gain sharing and profit-sharing strategies, organization development interventions, due process approaches
to problem solving and regularly scheduled communication opportunities.
Change Agent
People often resist change. A significant change occurs when an individual moves from his home environment
to work environment, or when there is a transition from a traditional work method to an advanced
technological method. Technological advancement brings about changes which a worker may resist. At
this point, the personnel manager has a crucial role to play. He has to convince workers of the need for
automation and prepare them to accept changes well before they are introduced. Implementation is mainly
a method of getting new methods and ideas accepted and used with the least friction but with ample scope
of improvement. Hence changes should be phased gradually and thoughtfully without provoking negative
reactions from the workers.
The constant evaluation of the effectiveness of the organization results in the need for the HR professional
to frequently support change. Both knowledge about and the ability to execute successful change strategies
make the HR professional exceptionally valued. Knowing how to link change to the strategic needs of the
organization will minimize employee dissatisfaction and resistance to change.
The HR professional contributes to the organization by constantly assessing the effectiveness of the HR
function. He also sponsors change in other departments and in work practices. To promote the overall
success of his organization, he supports the identification of the organizational mission, vision, values,
goals and action plans. Finally, he helps determine the measures that will tell his organization how well it is
succeeding in all of this.
Activity A:
Prepare the activity report of an HR manager of a company known for its proactive HR Practices.

17.4 Recent Trends In HRM

Over the years, highly skilled and knowledge based jobs are increasing while low skilled jobs are decreasing.
This calls for future skill mapping through proper HRM initiatives. Indian organizations are also witnessing
a change in systems, management cultures and philosophy due to the global alignment of Indian organizations.
There is a need for multi skill development. Role of HRM is becoming all the more important.
Some of the recent trends that are being observed are as follows:
 The recent quality management standards ISO 9001 and ISO 9004 of 2000 focus more on
people centric organizations. Organizations now need to prepare themselves in order to address
people centered issues with commitment from the top management, with renewed thrust on HR
issues, more particularly on training.
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  To move ahead of competition in this world of uncertainty, organizations have introduced six-
sigma practices. Six- sigma uses rigorous analytical tools with leadership from the top and
develops a method for sustainable improvement. These practices improve organizational values
and helps in creating defect free product or services at minimum cost.
 Human resource outsourcing is a new accession that makes a traditional HR department
redundant in an organization. Exult, the international pioneer in HR BPO has already roped in
Bank of America, international players BP Amoco & over the years plan to spread their business
to most of the Fortune 500 companies.
 With the increase of global job mobility, recruiting competent people is also increasingly becoming
difficult, especially in India. Therefore by creating an enabling culture, organizations are also
required to work out a retention strategy for the existing skilled manpower.

17.5 Forces Changing HRM

In the 1990s several forces were shaping the broad field of HRM. The first key force, new technologies—
particularly information technology—brought about the decentralization of communications and the shake-
up of existing paradigms of human interaction and organizational theory. Satellite communications, computers
and networking systems, fax machines, and other devices were facilitating rapid change. Moreover, since
these technologies helped blur the lines between work time and personal time by enabling employees to
work at home, Human Resource Management professionals began adopting “Management by Objective”
approaches to human resources instead of the traditional “management by Sight” method.
A second important change affecting HRM was new organizational structures that began to emerge during
the 1980s and continued through the 1990s. Because many companies began expanding their operations
and diversifying their products and services, the central decision-making system failed to respond quickly
enough to managers’ needs and concerns. Therefore, companies started scrapping traditional, hierarchical
organizational structures in favor of flatter, decentralized management systems. Consequently, fewer
managers were involved in the decision-making process and companies were adopting more of a team
approach to management. HRM professionals, as the agents of change, were charged with reorganizing
workers and increasing their efficiency. These efforts also resulted in the proliferation of part-time, or
contract, employees, which required human resource strategies that contrasted with those applicable to
full time workers.

A third change factor was accelerating market globalization, which was increasing competition and
demanding greater performance out of workers, often at diminished levels of compensation. To compete
abroad, companies were looking to their HRM professionals to enhance initiatives related to quality,
productivity, and innovation.

Other factors changing HRM include: an accelerating rate of change and turbulence, resulting in higher
employee turnover and the need for more responsive, open-minded workers; rapidly changing
demographics; and increasing income disparity as the demand for highly educated workers increases at
the expense of lower-wage employees.

17.6 Emerging Concepts

Of late, a number of new concepts have emerged in the management field to improve the overall effectiveness
of the organizations. The HR manager not only has to know them well but has to prepare himself/herself to
implement some of these new ideas.
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1. Total Quality Management
The concept of TQM is based on the 14 principles of Deming that deal with this subject. Deming was
born and brought up in USA and migrated to Japan in the early 50’s, where he evolved these total quality
principles. TQM is a culture based on the realization that the high quality of products and services and
associated customer satisfaction are the keys to organizational survival.
At its core, Total Quality Management (TQM) is a management approach to long-term success through
customer satisfaction.
In a TQM effort, all members of an organization participate in improving processes, products, services
and the culture in which they work.
The methods for implementing this approach come from the teachings of such quality leaders as Philip B.
Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa and Joseph M. Juran.4
A core concept in implementing TQM is Deming’s 14 points, a set of management practices to help
companies increase their quality and productivity:
1. Create constancy of purpose for improving products and services.
2. Adopt the new philosophy.
3. Cease dependence on inspection to achieve quality.
4. End the practice of awarding business on price alone; instead, minimize total cost by working with
a single supplier.
5. Improve constantly and forever every process for planning, production and service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, exhortations and targets for the workforce.
11. Eliminate numerical quotas for the workforce and numerical goals for management.
12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or merit
system.
13. Institute a vigorous program of education and self-improvement for everyone.
14. Put everybody in the company to work accomplishing the transformation.
2. Assessment Centres
An assessment centre is a comprehensive, standardized procedure in which multiple assessment techniques
such as situational exercises and job simulation (business games, discussions, reports, and presentations)
are used to evaluate employees for a variety of manpower decisions.
“An assessment centre consists of a standardized evaluation of behaviour based on multiple inputs. Several
trained observers and techniques are used. Judgments about behaviour are made by these specially trained
observers. At the end of the assessment the assessors get together to share their data which is scientifically
recorded on a set of evaluation forms. They come to a consensus on the assessments of each candidate.
Most frequently the approach has been applied to individuals being considered for selection, promotion,
placement, or special training and development in management.
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History of Assessment Centres: Assessment centres methodology is known to have been used or
recommended at least 1500 years ago in India as mentioned in Kautilya’s Arthashastra. Different methods
of assessing a candidate for ministerial positions have been spelt out in the Arthashastra including: observation,
performance appraisal, assessment by those who knew him, interviewing, and other forms of testing.
Early application of assessment centres can be traced to the German military assessment programme
developed for selection of officers for the German Army. Both multiple assessment techniques and multiple
assessors to evaluate complex behaviour with special focus on leadership were used. Assessment was
based on subjective opinions and very little rating was done.
How are Assessment Centres Different Now?: Early assessment centres were used essentially for
selection purposes since the traditional methods were thought to be inadequate. The assessment centre
method since then has been subjected to scrutiny and research much more than any other personnel
practice.5 Because of the high quality research and high reported validity, the methodology finds widespread
use in a number of organizations. Besides selection, it is used for early identification of management talent,
promotion, and diagnosis of developmental needs.
The basic purpose of Assessment Centre is:
(a) Making selection and promotion decisions; and
(b) Identify the strengths and weaknesses of an individual for development purposes.
The requirements of Assessment Centre are listed below:
1.
Multiple assessment techniques must be used like in basket exercises, management games, leaderless
group discussions, tests, personality inventories etc.
2. Multiple assessors must be used. They can be line managers who are two to three levels senior to
the candidate and or professional psychologists.
3. Judgment should be based on pooling of information among assessors.
4. An overall evaluation of behavior should be made, separate from the observation of behavior.
5. Simulation exercises must be used.
3. Quality Circles
Quality Circles are (informal) groups of employees who voluntarily meet together on a regular basis to
identify, define, analyze and solve work related problems.
Usually the members of a particular team (quality circle) should be from the same work area or who do
similar work so that the problems they select will be familiar to all of them. In addition, interdepartmental
or cross functional quality circles may also be formed.
An ideal size of quality circle is seven to eight members. But the number of members in a quality circle can
vary.
The Main Objectives of Quality Circles are
 Promote job involvement
 Create problem solving capability
 Improve communication
 Promote leadership qualities
 Promote personal development
 Develop a greater awareness for cleanliness
 Develop greater awareness for safety
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  Improve morale through closer identity of employee objectives with organization’s objectives
 Reduce errors.
 Enhance quality
 Inspire more effective team work
 Build an attitude of problem prevention
 Promote cost reduction
 Develop harmonious manager, supervisor and worker relationship
 Improve productivity
 Reduce downtime of machines and equipment
 Increase employee motivation
Problem Solving Tools and Techniques Used by Quality Circles: Given below are the most commonly
used tools and techniques. These are called the old QC tools:
 Brainstorming.
 Pareto analysis.
 Cause and effect diagram (or fish bone diagram or Ishikawa diagram).
 Histogram.
 Scatter diagram
 Stratification
 Check sheet
 Control charts and graphs
New QC Tools: Quality circles started using additional seven tools as they started maturing. These are:
1. Relations diagram.
2. Affinity diagram.
3. Systematic diagram or Tree diagram.
4. Matrix diagram.
5. Matrix data analysis diagram.
6. PDPC (Process Decision Program Chart).
7. Arrow diagram.
Benefits of QC:
 Self development.
 Promotes leadership qualities among participants.
 Recognition.
 Achievement satisfaction.
 Promotes group/team working.
 Serves as cementing force between management/non-management groups.
 Promotes continuous improvement in products and services.
 Brings about a change in environment of more productivity, better quality, reduced costs, safety
and corresponding rewards.
While some of the organizations have started practicing these ideas, a large number are still waiting to see
the effects elsewhere.
Given their significance in quality improvement and involvement of people, these ideas show tremendous
potential for widespread acceptance. The HR managers have the responsibility to educate other managers
about benefits coming from them and help them implement these ideas.
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The HR manager faces challenge to involve himself in all functional areas of an organization. He will need
training not only in human resources but in production, marketing, finance, etc., to give him a greater
understanding of the problems of employees in various functional areas.

17.7 Impact of Technology on HRM

Technological advances in office equipment over the past thirty years have enabled organizations to improve
operating efficiencies, improve communications, reduce costs, increase their global presence, and gain
competitive advantage through the implementation of information technology systems.
Since the 1960’s, Information Technology has dramatically changed the landscape of the workplace
through advances in office equipment, speed of information transmission and methods of communication.
From a human capital perspective, Information Technology has allowed companies and their employees
to increase efficiencies, communicate more rapidly, and work from remote locations. The ability of the
workforce to perform organizational tasks from a remote location also known as “Telecommuting” has
enabled employees to improve quality of life and manage the professional and personal aspects of their
lives.
From an operational perspective, investments in Information Technology by organizations willing to embrace
technology have resulted in increased efficiencies, cost reductions, global expansion, improved intra-
company and customer communications, improved reporting and tracking methods, and increased
competitive advantage in the market place.
Computers loaded with word processing, spreadsheet analysis and presentation software programs have
become standard fixtures on each employee’s desk. Some of the workforce became mobile, conducting
business outside of the traditional office settings through the use of Personal Digital Assistants (PDAs),
cellular phones and laptop computers. The initial users of mobile technology were salespeople and executive
management; however, easier access to the internet allowed more employees to become “Telecommuters,”
who conducted work-related activities either from their homes or from some other remote location.
Technological advances in electronic communication may continue to decrease the need for traditional
office setting while increasing the number of telecommuters. Electronic capabilities will also continue to
affect outsourcing, off-shoring and globalization efforts by many organizations.
Collaboration technologies, currently being enhanced by Microsoft and IBM, enables companies to conduct
“virtual meetings” . In a virtual meeting, employees from remote locations conduct real-time meetings from
their own computers using peer-to-peer software. Participants can see one another on computer screens,
share computer space and make to product designs or contract documents via a “virtual whiteboard.”

17.8 Workforce Trends

a. Telecommuting: Telecommuting is working from one’s home or some other remote location outside
the company’s office. Telecommuting offers benefits to both employees and companies. For employees,
telecommuting increases quality of life by enabling a meshing of personal and professional lives. The ability
to work from home can assist workers with child/elder care issues, transportation restrictions, or employees
who may be physically unable to report to work on a daily basis due to health-related issues (e.g., need
for regular medical treatments such as dialysis or chemotherapy). Other economic benefits that companies
can realize from telecommuting include productivity gains, reduced absenteeism, reduced employee turnover
costs, reduced real estate costs, and reduced relocation costs to name a few.
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b. Globalization: In the future, multinational companies (corporations operating in more than one country)
may utilize telecommuting to attract local talent that can work effectively across international borders
through electronic communication. Training such “home grown talent” can allow companies to reduce
international relocation expenses, manage competition levels for talented resources, and reduce issues
related to working in foreign countries such as personal safety, security, political, and regulatory issues.
Reducing globalization efforts through telecommuting can help to address some of the issues related to
dealing with international workforces, such as language barriers, cultural relationship differences, and time
zone differences that often lead to companies needing to maintain continuous operations known as “24/7”.
c. Outsourcing/Off-shoring: Outsourcing is defined as “turning over all or part of an organization’s
information systems operation to outside contractors or service providers”. Outsourcing seems to be the
wave of the future. Many companies are outsourcing parts of their operations in order to move parts of
their businesses off site in order to focus on their core competencies and try to give them an advantage
over their peers. One of the more popular departments which are outsourced is the Human Resources
Department. This is because most companies aren’t focused on HR and their needs might be better
served by an outside company. There are advantages and disadvantages to outsourcing this vital department.
Offshoring refers to outsourcing in another country. Conceptually, outsourcing and off-shoring can be
viewed together, since both involve employing individuals outside of the organization to handle operational
work.
There are some major drawbacks to sending operations overseas, such as a loss of domestic talent, loss
of intellectual assets, decreased levels of customer satisfaction resulting from diminished organizational
values that do not translate across cultures, and threats to organizational performance
Advantages of Outsourcing
a) Cost Savings: The main benefit to outsourcing the HR department is the cost savings which
will be associated with such a move. These cost savings can manifest themselves in several ways.
Many times a company can get the same level of service for less cost. They can then use the
savings to reinvest in their business. By doing this, they might be able to hire more people or
operate more efficiently which might put them a step above their competitors.
b) Regaining Primary Focus: Outsourcing also allows a company to regain its primary focus.
When there is an internal HR department, senior management may have to spend some time
dealing with that department’s issues. This is time which might be better spent on whatever business
the company is in. The company as a whole will begin to shift toward its primary business.
Disadvantages of Outsourcing
a) Employee Morale: There are some drawbacks to outsourcing, however. The biggest of
these is the morale of the employees of the outsourcing company. “Outsourcing” is a loaded word
which brings connotations of sending jobs overseas and the loss of income. If the employees
aren’t behind the move to an offsite HR department, there may be less productivity from them.
Any company considering moving the HR department off site should carefully gauge the attitude
of the employees to get a feel for how this will affect them.
b) Loss of Expertise: Another disadvantage to this process is a loss of in-house expertise.
When there is an in-house HR department, any questions related to labor laws or benefits can be
answered quickly and sufficiently. If the HR is done off-site, it can cause a delay in knowing how
to proceed in an employee issue, or worse, a manager may act in conflict with the law, opening the
company up to bigger issues in the
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 c) Issues with the Workplace of the Future: Security is the main issue facing companies with
mobile workforces. Employees in the field, such as salespeople or telecommuters, have access to
“mission critical” data and pose a significant threat to organizational systems security. There are
numerous potential breaches of security related to mobile electronic devices such as PDAs and
laptop computers that can be misplaced, stolen or damaged. The challenge facing IT departments
is to protect sensitive company data, enable secure remote access, and provide user-friendly and
productive electronic tools for its mobile workforce. IT departments must also implement an
education process for training employees not to use unauthorized devices or install any unauthorized
programs that might threaten the integrity of company data.

17.9 E-Human Resource Management

Nature of e-HRM
E-HRM is the relatively new term for this IT supported HRM, especially through the use of web technology.
The major goals of e-HRM are mainly to improve HR’s administrative efficiency/to achieve cost reduction.
Next to these goals, international companies seem to use the introduction of e-HRM to Standardize/
harmonize HR policies and processes.
Though e- HRM hardly helped to improve employee competences, but resulted in cost reduction and a
reduction of the administrative burden.
There is a fundamental difference between HRIS and e-HR in that basically HRIS are directed towards
the HR department itself. Users of these systems are mainly HR staff. These types of systems aim to
improve the processes within the HR departments itself, although in order to improve the service towards
the business. With e-HR, the target group is not the HR staff but people outside this department: the
employees and management.
HRM services are being offered through an intranet for use by employees. The difference between HRIS
and e-HR can be identified as the switch from the automation of HR services towards technological
support of information on HR services.
e-HRM is a way of implementing HR strategies, policies, and practices in organizations through a conscious
and directed support of and/or with the full use of web-technology-based channels. The word ‘implementing’
in this context has a broad meaning, such as making something work, putting something into practice, or
having something realized. e-HRM, therefore, is a concept - a way of ‘doing’ HRM.
The e-HRM business solution is designed for human resources professionals and executive managers
who need support to manage the work force, monitor changes and gather the information needed in
decision-making. At the same time it enables all employees to participate in the process and keep track of
relevant information.
The e-HRM business solution excels in:

 Modularity
 The solution can be accessed and used in a web browser
 Security of data, protected levels of access to individual modules, records documents and their
component parts
 Parametric and customizability
 Access to archived records and documents
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  User-friendly interface
 Connectivity with the client’s existing information system (payroll accounting, ERP, attendance
registration, document systems…)
 Multi-language support
Advantages of the e-HRM business solution:
 Gradual implementation
 Adaptability to any client
 Collection of information as the basis for strategic decision-making
 Integral support for the management of human resources and all other basic and support processes
within the company
 Prompt insight into reporting and analysis
 A more dynamic workflow in the business process, productivity and employee satisfaction
 A decisive step towards a paperless office
 Lower business costs
e-HR Activities

We talk about using technology in HR functions. Here we focus on recruitment, selection, training,
performance management and compensation.

1. e- Recruitment: e- recruitment strategy is the integration and utilization of internet technology to

improve efficiency and effectiveness of the recruitment process. Most companies understand this and
have begun the evolution by integrating e-recruitment strategy into their hiring process.

e-Recruitment Methods: Methods of E-recruitment are many, among those the more important ones
are:

Job Boards: These are the places where the employers post jobs and search for candidates.
Candidates become aware of the vacancies. One of the disadvantages is, it is generic in nature.

Employer Websites: These sites can be of the company owned sites, or a site developed by
various employers. For an example, Directemployers.com is the first cooperative, employer-
owned e-recruiting consortium formed by Direct Employers Association. It is a non profit
organization formed by the executives from leading U.S corporations.

Professional Websites: These are for specific professions, skills and not general in nature. For
an example, for HR jobs Human Resource Management sites to be visited like www.shrm.org.
The professional associations will have their own site or society.
Advantages of e-Recruitment: e-recruiting offers several benefits to the firms practising it
1) Centralised Platform

 Collects candidate information in a standard format.

 Consolidate data from multiple recruitment sources.
2) Streamline Workflow

 Automates workflow from job requisition to completion of the hiring process.

 Captures and files candidate information and history for future retrieval by all users of the syatem.
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3) Better Communication and Increased Productivity

 Shares knowledge and information between hiring team members online in real time.
 Collaboration with colleagues to increase productivity.
4) Less Wastage of Paper
 Electronically collects and files information to reduce paper usage.
 Reduces manual administrative workload.
5) Candidates Pool
 Locates qualified candidates within a private pool of talent with precision.
 Centralized database collects and provides candidate information for various units and location.
6) Centralised Reports
 Provides consolidated HR reports for the entire organization.
7) Save Cost and Time
 Improves productivity and reduces hiring expenses in the long run.
Drawbacks of E-Recruitment
1) Require being Computer Savvy: The process is restricted within computer savvy candidates.
2) Legal Consequences: Alike other recruitment sources this source also should be aware of the
words used in the advertisements otherwise it may lead to the charge of discrimination.
3) Vast Pool of Applicants: This benefits the Organizations as well as it is disadvantage to them
also. Because the huge database cannot be scanned in depth. Either first few candidates are
called for interview or the resumes are screened based on some key words.
4) Non-serious Applicants: Lot of applicants forward their resumes just to know their market
value.
5) Disclosure of Information: Candidates profile and company details are available to public. The
applicants do not want their employer to know that they are looking for a change. Phone number,
address information has lead to many security problems. Again the companies do not want their
competitors always to know the current scenario.
Activity B:
1. Analyse the emerging trends in e-recruitment and prepare the report detailing the challenges and
opportunities for the organization.
2. e- Selection: Usually it is difficult to decide where recruiting ends and selection begins. The main
purpose of selection process is to distinguish individuals on the basis of important characteristics. In a
changing environment, the speed of selection process becomes very important. There are many formal
selection tools available to measure applicants on the characteristics:
 Work Samples
 Structured Interviews
 Personality inventories
 Situational Judgment Tests
 Cognitive Ability Tests
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e-selection process is a paperless process where electronic documents and information can be quickly
disseminated nationwide or worldwide.
3. e- Performance Management: e-performance management also known as Business Intelligence
(BI) or Business Performance Management is a growing field. Use of technology in performance
management leads to increment in productivity, enhances competitiveness, and motivates employees. This
is possible through two ways:
(i) Technology become a tool to facilitate the process of writing reviews or generating performance
feedback.
(ii) Technology may facilitate measuring individual’s performance via computer monitoring activities.
Examples here include multirater appraising that supervisors or team members generate online, as
well as of-the –shelf appraisal software packages that a construct an evaluation for a manager.
Technology can be applied in several ways in performance management. In the first place , routine jobs
can be subject to computerized performance monitoring (CPM) system that helps generate performance
data. Second , softwares are available that helps generate appraisal forms. Third, performance management
system can be integrated with an overall enterprise resource planning system (ERP) software system. This
helps HR professional to identify high performers, spot skill and competency gaps and to analyze pay
relative to performance. With this information being available, HR manager can plan for training, coaching
and education. Forth, firm intranets and internet may also help performance management process. Fifth,
stand-alone software packages are a great help in performance management system. The greatest benefits
of appraisal software are the elimination of paperwork and simplification of the logistics for evaluators,
workers and administrators.
4. e-Learning: e-Learning is the use of technology to enable people to learn anytime and anywhere. e-
Learning can include training, the delivery of just-in-time information and guidance from experts. 13
e-Learning is learning that takes place in an electronically simulated environment. e-Learning, web-based
training, internet-based training and computer-based training are the next-generation instruction methods
being developed today. With e-Learning, users can immerse themselves in a three-dimensional environment
to further enhance their learning experience. Moreover, e-Learning can be done anywhere and anytime as
long as the user has the proper hardware. Today, e-Learning is fast becoming a reality through companies
like Trainersoft and others.
e-Learning can be done using an internet connection, a network, an intranet, or a storage disk. It uses a
variety of media like audio, text, virtual environments, video, and animation. e-Learning, in some ways, is
even better than classroom learning methods as it is a one-on-one learning method, it is self-paced and it
has an experiential-learning format.
As with any other forms of learning, e-Learning depends on its delivery method and content to ensure its
success. For this reason, e-Learning modules have to be interesting, interactive and informative in order to
be effective. Because it is computer/software based however, e-Learning has the capability of immersing
its students completely within an environment most conducive to learning. This sets it apart from classroom-
style learning..
Advantages of e-Learning
1) Lower Costs and Larger Capacity
With e-Learning, students don’t have to physically attend classes, seminars or training programs.
e-Learning is web-based and disk-based so participants don’t have to spend a lot of time away
from their work. They can choose how much time or what specific time to devote to learning the
subject matter offered.
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 A web-based e-Learning program is a lot less expensive to maintain. e-Learning program operators
need only maintain the networking infrastructure that will deliver their e-Learning content to their
students and participants. This is a small investment compared to what is required to pay for
instructors and training personnel in classroom-style learning. Moreover, participants need not
spend money on travel and other expenses just to attend seminars and training courses.
e-Learning also allows for more participants than traditional learning methods since the number of
participants is not constrained by venue limitations.
2) Convenient Learning
Students can fit their learning activities easily with their daily routine. They need not leave home to
participate in an e-Learning program and learning does not require complex logistics. All a participant
needs is a computer, internet connectivity, access to the web-based server, and if necessary, the
special e-Learning software provided by the e-Learning program operators.
3) Easily Updated and Upgraded
e-Learning modules can be easily revised. Activities can be easily added and incorporated. The
e-Learning software can also be automatically updated by connecting to the server. This is definitely
a lot faster than retraining professors and reprinting books and manuals.14

 Class work can be scheduled around personal and professional work

 Reduces travel cost and time to and from school
 Learners may have the option to select learning materials that meets their level of knowledge
and interest
Learners can study wherever they have access to a computer and Internet
Self-paced learning modules allow learners to work at their own pace
Flexibility to join discussions in the bulletin board threaded discussion areas at any hour, or
visit with classmates and instructors remotely in chat rooms
Different learning styles are addressed and facilitation of learning occurs through varied activities
Development of computer and Internet skills that are transferable to other facets of learner’s
lives
Successfully completing online or computer-based courses builds self-knowledge and self-
confidence and encourages students to take responsibility for their learning
Disadvantages of e-Learning
 Unmotivated learners or those with poor study habits may fall behind
 Lack of familiar structure and routine may take getting used to
 Students may feel isolated or miss social interaction
 Instructor may not always be available on demand
 Slow or unreliable Internet connections can be frustrating
 Managing learning software can involve a learning curve
 Some courses such as traditional hands-on courses can be difficult to simulate
Knowing e-learning advantages and disadvantages helps with learning software selection as well as online
distance learning programs structure and selection. It is important to know the merits and demerits of e-
learning to make a decision..
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17.10 Challenges before HRM
The HR Managers of today may find it difficult because of the rapidly changing business environment and
therefore they should update their knowledge and skills by looking at the organization’s need and objectives.
1. Managing the Vision: Vision of the organization provides the direction to business strategy and
helps managers to evaluate management practices and make decisions. So vision management
becomes the integral part of the process of Man management in times to come .
2. Internal Environment: Creating an environment which is responsive to external changes, providing
satisfaction to the employees and sustaining through culture and systems is a challenging task.
3. Changing Industrial Relations: Both the workers and managers have to be managed by the
same HRM Philosophy and this is going to be a difficult task for the managers of tomorrow.
4. Building Organizational Capability: Even in the adverse circumstances the employees have to
be made to live in psychological state of readiness to continually change.
5. Job Design and Organization Structure: Instead of depending on foreign concepts we need to
focus on understanding the job, technology and the people involved in carrying out the tasks.
6. Managing the Large Work Force: Management of large workforce poses the biggest problem
as the workers are conscious of their rights.
8. Employee Satisfaction: Managers should be aware of techniques to motivate their employees
so that their higher level needs can be satisfied.
9. Modern Technology: There will be unemployment due to modern technology and this could be
corrected by assessing manpower needs and finding alternate employment.
10. Computerized Information System: This is revolutionary in managerial decision making and is
having impact on coordination in the organization.
11. Managing Human Resource Relations: As the workforce comprises of both educated and
uneducated, managing the relations will be of greatchallenge. One of the challenges HR managers
face is issues of up gradation of the skill set through training and development in the face of high
attrition. Indian companies are recognizing their responsibilities to enhance the employee’s
opportunity to develop skills and abilities for full performance within the position and for career
advancement.

17.11 HRM Practices In India

India’s Changing HRM Horizon
The outlook to Human Resource Management in India has witnessed sea-change in last two decades.
Economic liberalization in 1991 created a hyper-competitive environment. As international firms entered
the Indian market bringing with them innovative and fierce competitiveness, Indian companies were forced
to adopt and implement innovative changes in their HR practices. Increasing demand for skilled performers
forced the companies to shift focus on attracting and retaining high-performing employees in a competitive
marketplace.
Emphasis on Employees: Human Resource policies, forming the framework for the culture in the business
management, create awareness towards the need to achieve the business goals in the best possible and
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ethical manner. Indian companies have realized that in today’s competitive business milieu, the quality of
people you employ can make all the difference. In the last few years, the Human Resource has become a
key player in strategic planning – it has come a long way from traditional HR operations like managing the
recruitment process, handling staff appraisals.
HRM Challenges: One of the challenges HR managers face is issues of up gradation of the skill set
through training and development in the face of high attrition. Indian companies are recognizing their
responsibilities to enhance the employee’s opportunity to develop skills and abilities for full performance
within the position and for career advancement.
Progressive HR Policies: Today, most Indian companies are committed to providing equal employment
opportunities for both men and women. The employers are increasingly realizing the value of trained
human resource, especially women in India. Some organizations are changing their HR policies to stick
with their valuable employees. MNCs like Pepsico are providing flexibility so that female employees at
various life stages could benefit from these policies like working from a different city, sabbatical from
corporate life, and extended maternity leave.
Entrepreneurship by Employees: India Inc. is encouraging ‘intrapreneurs’ or employees who have
ideas that could potentially become a venture. Companies like Pepsico, NIIT, and Adobe are actively
promoting practice of entrepreneurship by employees within the organization. Human Resource Management
has taken a leading role in encouraging corporate social responsibility activities at all levels. Companies
like Wipro inculcate corporate social responsibility values amongst its workforce right at the beginning
during the induction process. Corporate presentations and keeping employees updated through regular
newsletters are the instruments used by HR to keep employees energized about the organization’s socially
responsible initiatives.
Over the last decade, India’s vast manpower has played an instrumental role in its economic success
story. Indeed, the success of Indian companies is not based on superior access to raw materials or
technology or patents, but fundamentally upon human skills. The synergy between the strategic planning
and innovative HRM practices will be important as Indian Industries embarks itself on the global journey.

17.12 Self Assessment Questions

1. What do you understand by human resource management? Why is it needed?
2. Explain the role of HR manager in present times?
3. Discuss the recent trends or emerging issues in HRM?
4. Discuss the changing role of HRM. In which particular business areas HR can play its role?
5. What are the challenges faced by HR managers in present time?

17.13 Reference Books

- Aswathapa.K, Human Resource Management, TMH, 2007, p.695
- Rao,T.V.2004, Performance Management and Appraisal Systems—HR Tools for Global
Competitiveness, Sage Publications, London, UK, pp.173-99.
- Marchand,D.A., Kiettinger,W.J. and Rollis, J.D., Information Orientation-The link to Business
Performance, OUP, Oxford, UK, pp.173-90
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