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
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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
kiled 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 apeon 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 personnelfunction whichis concerned with procurement, development, compensation,
integration and maintenance of the personnel of an organization for the purpose of contributing

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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 untilhe 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

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that flow from it.

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 Union/Labour Relations

Personnel Researchand Information System Compensation and Benefits

Human
resource planning Employee Assistance
Human resource management

Design of the Organization and Job

Organizational
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 inhuman 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 veryimportant 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

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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
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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
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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 ofpay 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 ofworkers 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

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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
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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 personnelmanagement 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:

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

Figure 1.4 : Current Classification of HR roles

Fig 1.4 Current Classification of HR
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

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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
ofHR 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
equalemployment 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 successfulin 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
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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
2
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 toshed 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 thechanges 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.

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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.

2
A past CEO of Sony once said that organizations have access to the same technology and the
same information. The difference between anytwo organizations is the “people”- the human resource.
Empowering the workforce is an essential tool for aligning human resources with the achievement
ofcorporate objectives. It is the duty of HR manager to hire talented human resource and to provide
themwith a positive environment where they will be able to utilize their skills and potentials and to
create an environment in whichthese 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
simplyconsider 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
2
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 withoverall corporate objectives ensures that people are working toward
the same goal

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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 theeffectiveness, 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.

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 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 strategyof 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
derivedfrom 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
planningaffects 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

2
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, “HRPis 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 withtwo things: Planning ofmanpower
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 identifywhat 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.

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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 ofemployees,
developing

3
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
theforecasting, (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 byan
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 bydeveloping appropriate strategies
that will result inthe 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. Allthese 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 suchas 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

3
the part of the on-going revolution in information technology which emphasis planning and
newer ways of handling voluminous personnel records.

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 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 problemthat manyprivate
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
willalso 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

3
investments in human resource development compelling the increased need for HRP.
Organizations are realizing

3
 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

3
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.

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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 theplan is flexible and adaptable.

Organizational Growth cycle and Planning

Type and Strategy of Organization.

Environmental Uncertainties

HRP
Time horizons Outsourcing

Type and quality of forecasting information

N ature of jobs 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
thenature and extends of HRP. Small organizations in the earlier stages ofgrowth 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
4
planners deal with such environmental uncertainties by carefully formulating recruitment, selection,
training and

4
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
personnelrelated 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 change
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
thequality 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 Mana gement 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 programmes
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.

4
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 overal 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.

4
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
uponwhich 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,
necessaryfor 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 oforganization so as to avoid
unnecessary costs to theorganization,
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:

4
HR implementation requires converting an HR plan into action. Aseries of action are initiated as
apart 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.

4
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
4
operating managers and HR personnel.

4
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 themto 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 willaffect 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.

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 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 ofdoing 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.” Aposition consists ofa particular set of duties
assigned to an individual.
4
 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, whichare 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
specificjob. 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
thequalities 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 personnelmanagement activities:

Organizational design

O rganiz a tion a nd m
an

JobDescription
Placement & orientation
Job Analysis

Recruitment &selection
JobSpecification
Training&developme
nt

Safety and health

Employee counseling

Performance appraisal

Figure 3.2 : Uses of Job Analysis

Figure 3.2: Usesof Job
1. Achievement of Goals: Weather and Davis have stated, “Jobs are at the core of every
organization’s productivity, if theyare designed welland done right, the organization makes progress
towards itsobjectives. 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.

3
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
onwhich you decide what sort of people to recruit and hire.

3
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 dutiesthat 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
Description

3
 Job
Specificati

Figure 3.3 : Job Analysis Process

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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 byreviewing 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 towhich 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. Ajob 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

3
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.

3
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 jobholder maymaintain 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,
3
standardized, and short job cycle activities. This method also requires that the entire range of
activities be observable; possible with some jobs.

3
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:
Daily Duties:
Periodical Duties:
Occasional Duties: Your knowledge Requirements:
7. Store Procedure and Methods:
Merchandise:

What Equipment do you use?

What Materials do you work with or sell?
If you supervise the work of others, state how many and what their jobs are.
To what job would you normally expect to be promoted?
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.
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 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
resultscan 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 managerialresponsibilities,
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.

4
  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

4
establishing assessment standards and objectives.

4
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 custodyof money, supervisionand training ofstaff etc. are
alsodescribed
in this
Example of a Job Description
part.
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
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.

4
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
facilitateselection 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:
4
 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.

4
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
productivityand anincrease 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
4
weeks attaching

4
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 withdifferent cycles.
Because job rotation does not change the basic nature of jobs, it is criticized as nothing more
thanhaving 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 themto 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
4
the job is increased because there are many tasks to be performed by the same worker. Job
enlargement programs change

5
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 ofa 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 designedto 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, thejob 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

5
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.

5
 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.” Afew limitations
of or problems with job enrichment are as follows:

5
  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 responsibilityof 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, andinnovation 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 ofhis 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
5
person should be tested”.

5
  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), “ATextbook 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.

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 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 willwant 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.

5
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 beginswhen new recruits are sought and ends whentheir
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.
5
 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.

5
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
Human Resource Planning
Recruitment Selection Placement

Search for Prospective Employees

Evaluating Recruiting Effectiveness

Upgrading in Same Position

Personnel Research

Internal Sources Transferring to New Job

Job Posting
Prompting to Higher
Responsibilities

Employee Referrals

External Sources Advertising Evaluating for Selection

Scouting

organisation.
Figure 4.2 : Place of Recruitment in Selection System
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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 thepersonnel 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
6
manpower.” It establishes broad guidelines for the staffing process. Generally, the following factors
are involved in a recruitment policy:

6
  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 eachemployee of the organisation interest in his personalgoals 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 ofthe 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;

6
  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 byemployees. 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 theywould be
preferred in filling up vacancies.
6
  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 loyaltyand commitment among employees due to sense of jobsecurityand 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 willbe 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 playa vital role in making available suitable employees
fordifferent positions in the organisations. Besides public agencies, private agencies have developed
markedly inlarge 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 classifyand assess applicants and use advanced techniques of vocational guidance
6
for effective placement purposes.

6
Educational and technical institutes also form an effective source ofmanpower 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-
campusinterview 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.
6
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 maybe 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:
6
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 usuallyprovides 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 veryeffective 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
6
services and charge a fee. They are usually specialised for different categories of operatives, office
workers, salesmen,

7
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
beused 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 ofwrong 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,
7
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

7
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 canbe 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), “ATextbook 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.

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 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 upthe 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.”
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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 withsecuring relevant informationabout 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 ofthe 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
barrierswhich an applicant must cross. These hurdles are designed to eliminate an unqualified

7
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

7
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. Acomprehensive selection
process involves the various steps as shown in Figure 5.1.

Application pool from recruitment process “

Eliminate those who does

Primary screening & interview
not fulfil job requirement.

Application Blank
Unfavourable personnel data

Selection tests Eliminate those who

obtain unfavourable
test score

Interviews Eliminate those not meeting

job and organisational
requirements
Background investigations

Eliminate those with adverse remarks

Physical examination

Eliminate those not meeting physical standards

Approval by appropriate authority

Adopt objectivity

Final Employment decision

Congratulate

Evaluation
Check the reliability and validity

7
Figure 5.1 Steps in Selection Process

7
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
selectionsteps. For this purpose, usually, preliminaryinterviews, 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 fromthe 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 orApplication 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 indicatingareas 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 ofduties, and responsibilities and the duration ofvarious
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.

7
Application form helps to serve many functions like:

8
  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 maycontain
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 everydaylife, capacityfor
interpersonalrelations 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,
8
amusements, peculiarities of people, and particular activities.

8
 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
oralinquiries 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 wheninterviewing skilled, technical, professional and even managerialemployees. It
involves two-wayexchange 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 mentalsetting should be one of rapport. The interviewer must be aware ofnon-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 theloss 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
6
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

6
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. Aperiod audit, conducted bypeople 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
anyselection 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 decision Reject error

Successful
Later Job

Unsuccessful Accept error Correct decision

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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 performbetter by providing himinformation of the
company rules, andpractices.

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 manyways 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,
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formalized activities associated with an employee’s socialisation into the organisation.”

7
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 humanresource 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

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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), “ATextbook 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 companyto 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

7
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
pairsup 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 gainexperience so theymight eventuallyhave more
promotionopportunities. That’s employee development.
In other words employee development is a broader term that includes training as one, and only one
ofits methods for encouraging employee learning. The important point here is that different activities
arebetter 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.
TRAININGAND 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

7
forcurrent employees helps them adjust to rapidly changing job requirements. Reasons for
emphasizing the growth and development of personnel include

7
  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 byassessing 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
trainingeffort 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
andemployees 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. FewerAccidents- 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
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effective in inculcating concepts and ideas.

8
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 technicalknowledge and can effectivelyuse 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 fromoutside 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 ofthe 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

8
perspective. For managers being developed for executive roles, rotation to different functions in the
companyisregular 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 trainingprogram. 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
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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
 TRANSACTIONALANALYSIS
 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 feeland
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 stepconsists 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
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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
verbalclues 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. Aperson in this ego
state verifies, updates the data which she has received from the other two states. It is a shift from
thetaught and felt concepts to tested concepts. All of us evoke behavior from one ego state which is
responded toby 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 wil be used in training that means the trainer is using the lecture method. It is difficult to
imagine trainingwithout 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 trainerin 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. Agood
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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 canentail 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
theycan 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.

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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 willdetermine how effective and profitable your training program has been. Methodsfor
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 wellas the trainer.
There are several obvious benefits for evaluating a training program. First, evaluations will provide
feedback on the trainer’s performance, allowing themto 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
youneed 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 befully 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.
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 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
individualand 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

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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
iswhat keeps a person satisfied and charmed with his job. Companies have understood this fact and
thereforeare 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 pressuresmake 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
continuouslyrestructure 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.-

Competitive Environm ent

Organizational Strategy
Stage I

Organizational Objectives
Stage II

Com petenc y Ma pping Id entif y Com pete ncy Gaps Career Planning

T raining needs asse ssme nt

Annual T raining Plan

Stage III

Conduct of Training
Figure 7.1 :Review
Executive Development Process
of Tra ining Activities

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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 strategyis 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 facilitatorshould 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 efficacyand 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: Aqualitative 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.
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4. Establishing Training and Development Programme: The HR department prepares
comprehensive and well conceived programmes.

1
 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
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involved in the managerial training.

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 Organizational Stage I

Program Stage II

Discovering the key position Stage III

Appraisal Stage IV

Replacement skill abilities Stage V

Individual development Stage VI

Figure 7.2 : Stages of Managerial Training

Evaluation Stage VII
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 ofexecutive development methods are available. Generallythese methods are used in
combination of two or more.
The various techniques of executive development may be classified into two broad categories: -

1
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. Atime-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 understudymay 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 himto have a generalunderstanding ofhow the organization functions. Apart fromreleasing
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 providefor 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 smallgroup 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
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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 pathsand 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 ofsuccessful 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 anemployment
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,

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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 verydifficult. Long range goals/objectives, however, may be
easilymodified 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
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sense of self-awareness for participants. Employees should be able to identify their strengths and
weaknesses, in order to applytheir skills more effectively. Understanding shortcomings is also usefulin
teachingemployees 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 identifyand 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 FigureReality Check

7.3 : The Goal Setting
Career Management Action Planning

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 typicalwork day entails and to
gain perspective ofwhat the environment is like and the typical job responsibilities of someone
working in the field. Research what types ofjobs 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 unquestioninglymaking the right
decision. Thisuncertainty 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 offat 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
changejobs 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 mayinitially 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
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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
determinethe 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 designand development of EDP have been discussed
inbrief and the EDP hasbeen 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 systemof performance appraisal and its timing. Appraisal has objectivity also. It’s important
aspect is that it attempts at precisemeasurement 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 inworking
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, “Aregular 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

1
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
neededin 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 appraisalevaluation, 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 onlycommunicates 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 appraisalis basically used by the

1
organization to blame employees and to take corrective actions. An employee may feel that
performance appraisal is

1
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.
Ifnecessary what additional training is required. Similarly it could be used for demotion,
discharge of an employee and transfer.

3. Training and Development: Performance appraisalgives 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 ful 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

1
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 therewill be seven ranks from 1 to 7.
Rating scales offer the advantages of flexibility comparatively easy use and low cost. Nearly
everytype 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 ofcomparisons 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,
12
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

12
 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 iseven 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 bea 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 propensityof 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
12
bound to limitations of rater’s bias while rating employee’s behavior at job.

12
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 locationsand 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
12
better performances in future. Few advantages of MBO are a) it is outcome –oriented. It co-
ordinates the

12
planning and control functions and provides motivation) Employees are clear about the task that
theyare 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 groupsof behavior incidents are then
scalednumerically 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, andhandles 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 costlyand 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

12
4. Peer Appraisal.

13
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 betweenthe cost included in keeping the employee in an organization and the benefit the
organization gets fromhim 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 appraisalsystem of one organization may vary from other organizations, though
someof 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
13
be measured and what should be measured, thus four important sources frequently used by
managersare personal observation, statistical reports, oral reports, and written reports.
However, combination of all

13
 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. Acomparison 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
13
subjectivity performance appraisal system. Asuperior may evaluate the subordinate on the
basis of following elements:

13
 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 ofnonstop 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 everynew or difficult situation new idea is generated for improvement or for overcoming

13
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 anyemployee 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 usuallyretain information about the recent actions ofthe
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. 107
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 asManagement by objectives.
10
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.

10
f) Finally, reviewing, the appraisal systems everynow 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

11
 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 ofgetting 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 appraisalpractices 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 onlyon 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

11
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 individualwith 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) BehaviorallyAnchored 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 SalaryAdministration
9.3 Essentials of Sound Wage and SalaryAdministration
9.4 Factors Affecting Wage and SalaryAdministration
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 SalaryAdministration 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 ofan individualin terms ofhisperformance 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
11
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

11
consideration.

11
 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 maytries 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 crucialand critical. Major
factors affecting wage and salary administration are discussed as under:

Rate
Deman d & Su pp ly of S kill or L ab our Or ganizat ion’s Ability to Pay

Le gislat ive c onside rat ion s Pr evaili n g M ark et R are or “ Goi ng W age R ate”

Psych ologic al and S ocial Fact ors

C ompe nsat ion Prod uc tivit y

Cost of Living

T rad e Union ’s B argain in g P ower

11
 Job Re qu ir em ent s

Figure 9.1 : Factors Affecting Wage and Salary Administration

11
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 himand 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 inan organization. Generallywagesin most of the
organizationdecide 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.

12
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

12
 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 byfixing 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 satisfytheir 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 emolumentsand 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
12
a rate of per hour, per day, per week, per fortnight, or per month or any other fixed period of
time. According

12
 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 hurryto 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
12
average time.

12
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, maydamage 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, byboth the number of hours he works and the pieces he produces. So

12
it a hybrid system producing the same benefits and limitations of both the time rate and
piece rare system.

12
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 Determinin
Analysi s Job g
Rul es, Decidin
Evaluati Performan
Policies Figure 9.2:
g Job
WageAnalysis Wag
on ce
for Wage Structu e
1. Job Analysis and Job Evaluation: This may be the primary exercise that an organization
& Salary re Surv
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.

12
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 SalaryAdministration 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

12
 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 onlymeans 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 anemployee receives in return for his or her contributionin
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.
13
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. Salaryis
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
andemployers 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
13
compensation; whereas the situation when anything works to decrease the supply of labour,
such as restriction by a particular

13
 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
universaland 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.

13
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.”

13
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.

13
 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..

13
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

13
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
includeexpected 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.
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 Compensation are depend on labour market conditions, legislations, management philosophy
and organisations ability to pay.

13
  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. Individualincentives are
based on individualperformance 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 ofmodern 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.
14
  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
dueto 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
1
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, andall 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
13
oriented, multi-skilled and ready to tackle with efficiency whatever tasks are required.

13
  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 bysecuring 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.

13
 Capitalists and workers would compete/be in contention to win ground and establish their
constant win-lose struggles would be evident

13
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 philosophyof 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
13
beachieved, there must be harmonious relationship between management and union. Such relations
will lead to the following benefits:

13
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

13
industry acting in combination or a concerted refusal under a common understanding of a
number of

13
 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 verynature, 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
13
practices:

13
  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 ofboth 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,
listensto 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.
14
3) Grievance Redresal Procedure: Agrievance may be understood as an employee’s
dissatisfaction or feeling of personal injustice relating to his or her employment relationship.
Agrievance 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
allthe disputes and grievance bymutual 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
essentiallybipartite 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
14
as soon as it arises by framing model rules for maintaining discipline and better relations.

14
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 partystudies 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
themand 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 bymutual
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 canappoint 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 aslitigation, 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: Agrievance 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

14
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 :

14
  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 industrialdispute remains unresolved by the conciliation officer and the board
of conciliation, the matter is referred in a court of inquiry. Acourt 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
14
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

14
sound and harmonious relations between employers and employees. The HRD Manager should try
to build labour management relations around mutualtrust, 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
14
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 difficultywith 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 bythe level of wages and duration of their employment, but also bythe 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
14
real earnings,

15
secure better conditions of work and life and fight against exploitation and arbitrariness to
ensurefairness 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) establishminimum 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 theplace, 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 aimof 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
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 To encourage sincerity and discipline among workers

15
  To provide opportunities for promotion and growth
 To protect women workers against discrimination.

12.3 Types of Trade Union

Trade UnionAct 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
1) 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.
2) Positive/fraternal: It provides financial support to their members during time of
temporary unemployment.
3) Intramural/extramural: intramural refers to welfare schemes & activities within the
framework of factorypremises (safety, secure working environment, minimumwages,
minimumworking 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
1) 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.
2) 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.
1) 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.
2) 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
15
workers were also members of staff union. Staff union gained popularity by taking women
workers as their members.

15
 3) 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.
4) 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 betweenthe 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
15
to have been committed by or on behalf of the trade union shall not be entertained by any
court.

15
 (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. 145
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. Anyregistered 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
andshall, 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 everyproceeding 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 inheritedby 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

14
and other service conditions of the Indian

14
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 FactoryAct 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 BombayMill- 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

14
 Definitions

14
  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 protectionAct, 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)

15
 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 unionismin 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 healthyand 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. Amethodological organization with an
enlightened labor force is essential.

12.9 Self Assessment Questions

1. Define Trade Unions?

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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 featurefor both parties to the bargaining process. In collective bargaining certain
essential conditions need to besatisfied, 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

15
term “bargaining” implies that the process is one of haggling, which is more appropriate to one- time
relationships such as a onetime purchaser

15
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 apart 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
usuallyrepresents the choice or compromise of the parties themselves.
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 Collective bargaining agreements often institutionalize settlement through dialogue. For instance, a

15
 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 boththe 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 theyhave 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 whichdifferent 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
16
bargaining in view of several reasons. Consultation with the lower level members of their respective
organizations can help both

16
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 advantagesto 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 willuse 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

16
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:

16
  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 holidaybenefits? 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 agreementsto 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 characterizedby
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 becomesuccessful.
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

16
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’;

16
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
actualy work in the industry. Sometimes a dismissed employee working as a union leader may
create difficulties inthe 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
andpositive role in removing the pitfalls which have stood in the way of mutual, amicable and
voluntary settlement oflabor 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
16
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 industrylevel are yet not frequent.
Thecollective 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 DisciplinaryAction
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 ofsay;
goalattainment , 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 deemedto 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 bythe rules of the organization. Thus positive
aspect ofdiscipline 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

17
The main characteristics of Discipline can be summed up as follows :-

17
 (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
organizationswiftly. 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

17
in following figure :-

17
 UNFAIR LABOUR PRACTICES WAGE DIFFERENTIALS WRONG WORK ASSIGNMENT

FACTORS RESULTING
DIFECTIVE GRIEVANCE PROCEDURE
IN INDISCIPLINE PAYMENT
OF VERY LOW
WAGES

POOR COMMUNICATION VICTIMISATION BY MGT. INEFFECTIVE 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.
.

JOB - ENRICHMENT
COUNSELLING
& EDUCATION

APPROACHES TO MANAGE INDISCIPLINE

GRIEVANCE HANDLING TRAINING PROPER INDUCTION & PROGRAMME

Figure 14.2 Means to Cope With Indiscipline

17
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) Habituallate 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

17
(a) Illiteracy and low intellectual level of workers.
(b) Workers personal problems like their fears, hope, aspirations etc.

17
 (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 policyshould not discriminate against the employees; it should be uniformfor 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.
17
 (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 justifywith 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 maysuffer 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) ImpersonalApproach – red – hot stove functions uniformlyfor all, doing awaywith 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:

17
1 with the help of an imaginary case elaborate the procedure of disciplinary action.

18
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.

18
2. Discuss the significance of discipline in Industry?
3. Write short notes on

18
 (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.

18
 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
accountingand finance. Human resource as an asset if positioned & nurtured in the right direction
may realize its full
potential.
170
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:
17
 Valuation of Human Resources Recording it in books ofacAccount

Disclosure of this information in finFanicgiaul rseta1te5m.e1nt

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
actualcost 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

17
the income of the year in

17
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.

17
 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 modelis 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.

17
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.

m
Ri P1 (Ri)]
n
(RV ) [ i
 t 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 willcreate problems like depreciation, capital gains or losses , etc. The value of human

17
resources on a group basis can be found out by multiplying the average salary of the group with the
average tenure if employment of

17
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 andthe 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 capacityfor 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

17
 (e) Worker’s education programmes
(f) Auxiliary costs such as canteen, medical and other fringe benefits
(ii) Total Human Resource Investment analyzed workmen into

17
 (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. Afew 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 likelyvariety 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.

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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%.

18
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 annualreports ,

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 thereis 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 firmin 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 HRAis 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 ofage 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
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elsewhere in the other organization is kept outside the purview of valuation. Since the
employees make constant

18
 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, doesnot require , furnishing of anysignificant 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 inmaking effective utilization of
human resources. Human Resource Accounting has its number of models under the purview of
monetary, non - monetaryand statistical methods. But the plight of Human ResourceAccounting 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 HRAin today’s globalized world.
4. Write short note on Human Resource Reporting in India.
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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: AFramework 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 systematicallyin 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 anyperson or group
ofpeople 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. Acritical part of designing theseaspects 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
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dishonest with his

18
or her employees, customers, shareholders or competitors is an unethical and immoralperson. 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
judgedby 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.

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(5) Advantages to Business and Society: Ethics point out what is good and bad, so also what is

19
 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
overmanagers. 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.
Thesethree 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 RelianceIndustries 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. Culturalnorms play important role in determining values because individuals anchor
their conduct in the culture ofthe 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
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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 oftoday!

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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 willbe 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,
19
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 ethicalbusiness 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
away 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 inmost 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
industriesbecause 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

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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.

19
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 ethicalconduct. 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.

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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

19
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
thatbehavior- 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

19
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
dignitybased on their human nature per se or on their ability to choose freely what they do with
their lives. On thebasis 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 CEOsalaries 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 Ibecome 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

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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, inThe
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 needyemployees solve their personnel
problems, industrial organizations in India have moved to a joint consultative process of decision
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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 externalenvironment all demand aninnovative problem-solving approach
fromthe personnel department.
The functions of HR manager in future willdefinitelybe enhanced from traditional areas such as
management of manpower planning, recruitment, selection, training, internalmobility 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 ofhis or her changing organization. Successful organizations are becoming more adaptive,
resilient, quick tochange 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
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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
successvia 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. Asignificant change occurs when an individualmoves fromhis 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 ofthe 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 howwell 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 philosophydue to the
globalalignment 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

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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 ofAmerica, international players BPAmoco & 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 ofexisting paradigms ofhumaninteraction and organizationaltheory.
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
overalleffectiveness of the organizations. The HR manager not only has to know them well but has to
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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 USAand 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 byworking
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

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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 ministerialpositions 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

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 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 wil
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
toimprove operating efficiencies, improve communications, reduce costs, increase their global
presence, andgain 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

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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
productivitygains, 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 regulatoryissues.
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 byan 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.
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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, especiallythrough 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

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 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 mayfacilitate 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 anytimeas 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 inorder 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
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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 ane-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

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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 theyshould 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 externalchanges,
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

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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, sabbaticalfrom 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 byemployees 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

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Business Performance, OUP, Oxford, UK, pp.173-90

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