MODULE 3

Performance Management and Appraisal

• Objectives of Performance Management, Performance Management and Performance Appraisal,
Common Problems with Performance Appraisals, Performance Management Process, Types of
Performance Rating Systems, Future of Performance Management.
Compensation and Benefits
• Introduction, Definitions, Total Compensation, Total Rewards System, Forms of Pay, Theories of
Compensation, External Factors, Internal Factors, Establishing Pay Rates, Employee Benefits.
Industrial Relations
• Decent Workplace: International Labor Organisation, Industrial Relations, The Objectives of
Industrial Relations, Approaches of Industrial Relations Systems, The Actors in Industrial
Relations, Indian Context, Industrial Relations and Human Resource Management.
Employment Relations
• The Definition, Traditional Employment Relations, Actors in the Fray: Role-taking, The New
Frameworks for Employment Relations, The Future of Employee Relations.
 Performance Appraisal

Performance Appraisal
• Concept of Performance Appraisal
• The Performance Appraisal Process
• Methods of Performance Appraisal.

Compensation
Objectives of Compensation Planning
Job Evaluation
Compensation Pay Structure in India.
Meaning and definition
DEFINITION
Performance appraisal is a
systematic method of
evaluating the behavior of
employees in the work
environment .

Performance refers to the

degree of accomplishment
of the tasks that make up
an individuals job.
Meaning and definition
It indicates how well an
individual is fulfilling the
job demands.

PA is the comparison
between the standard
performance and actual
performance to correct
deviations on a regular
basis.
 Objectives of Performance Appraisal
• It provides performance feedback to employees.
• Recognize individual performance levels.
• It provides information
to take decisions regarding
1. Salary fixation
2. Confirmation
3. Promotion
4. Transfer
5. Demotion
6. Change in job assignments
Objectives of Performance Appraisal
• It provides a formal platform for discussion and communication between
the boss and the subordinate.
• It analyses the strength and weakness of the candidate.
• It assess the employees skills, knowledge, abilities on the job
performance.
• Identify poor performance areas of employees.
• It identifies the area of (Individual) training to be imparted to the
employees.
• Evaluate the effectiveness of training programmes.
• Determine the organizational training needs.
• Helps to take decisions on layoffs, retention and termination.
• Meet the legal requirements.
 Performance Management and Performance Appraisal
Performance Appraisal Performance Management
Focus is on performance appraisal and generation of ratings. Focus is on performance management.
Emphasis is on relative evaluation of individuals. Emphasis is on performance improvements of individual officer and
his departmental or team performance.
Annual exercisethough normally periodic evaluations are Continuous process with quarterly or periodic performance made
continuous process with quarterly or periodic performance made. review discussions.

Emphasis is on ratings and evaluation. Emphasis is on performance planning, analysis, review,

development and improvements.
Rewards and recognition of good performance is an important  Performance rewarding may or may not be an integral part
component.  Defining and setting performance standards is an integral part.=
Designed and monitored by the personnel/administration Designed by the personnel/HR department but could be monitored
department. by the respective departments themselves.
Ownership is mostly with the administration/personnel. Ownership is with line managers; personnel/administration
facilitates its implementation.
KPAs and KRAs are used for bringing in objectivity. KPAs or KRAs are used as planning mechanisms
Developmental needs are identified at the end of the year on the Developmental needs are identified in the beginning of the year on
basis of the appraisal of competency gaps. the basis of the competency requirements for the coming year.
There are review mechanisms to ensure objectivity in ratings. There are review mechanisms essentially to bring performance
Improvements.
It is a system with deadlines, meetings, input, and a format and It is a system with deadlines, meetings, input, output, and a format.
output.
Format-driven with emphasis on those Linked to promotions, Process driven with emphasis on the format as an aid Linked to
rewards, training and development interventions, placements, etc. performance improvements and through them to other career
decisions as and when necessary.
The Performance Appraisal Process
 Who will appraise the employee?
• Immediate Boss/manager
• Supervisors
• Peers
• Subordinates
• Self Appraisal
• Customers
• Clients
• Suppliers
• Consultants
When and how to appraise ?

• Annually
• Twice in a Year.

• Individual appraisal
• Team appraisal
Methods of Performance Appraisal.

Traditional Modern
• Graphic rating method • Critical incident method
• Ranking method • BARS
• Paired Comparison method • Assessment Centre
• Forced distribution method • Balance Score Card
• Checklist method • MBO
• Essay /free form appraisal • 360 degree appraisal
• Group appraisal
• Confidential reports
Graphic rating method
Rank Ordering
There are two methods:
Simple : the rater orders all rates , from lowest to highest.
Alternation : also referred to as multi-person comparison
methods, each employee’s performance is matched with that of
her peers, eventually producing a rank order from top to bottom.
Paired Comparison
It is a method of evaluation in which
each employee is compared with each
other employee. Scores derived from
paired comparison are often compared
with the standard deviation and mean
of all scores to arrive at standard scores
for future comparisons.

The rater’s task is simply to choose the

better of each pair and each individual’s
rank is determined by counting the
number of times he or she was rated
superior.
Forced Ranking
• It is also known as vitality curve, rank and
yank and forced distribution.
• The forced ranking system is based on the
much debated assumption that ratees
confirm to a pattern of normal distribution.
• One of the criticism of forced ranking
system is that the system may introduce a
great deal of error, if a group of ratees do
not confirm to the usual distribution and
may ,as a group, be either superior or
substandard.
• In short, rather than eliminating error,
forced distribution may introduce another
kind of error.
• It may lead to unintended negative effects
on employee morale, teamwork and
collaboration, thus affecting shareholder
perceptions.
Checklist method
 The Narrative or the Essay Method

 One of the simplest among absolute ratings, a rater is required to write a

description of the ratee’s performance, his strengths, weaknesses and areas of
improvement.
 The narrative structure provides the rater with the opportunity to make their
evaluative assessment form that can go beyond a mere ticking of a box.
 The underlying belief is that a rater who is conversant with the rate and his
work can produce a narration which can be as powerful as acceptable as a
formal appraisal system. Narratives can be used alone, or combined with
another method or form.
 The positives of a properly executive Narrative rating include scope for
detailed feedback.
 The difficulties with this form are: quantitative information, comparisons
between individual employees, groups or teams become virtually impossible.
 Critical Incidents Method
• The ’critical incident method’ is a set of procedures used for collecting direct observations of employee behavior
which have critical significance and meet methodically defined criteria.
• Critical incidents refer to reports prepared by knowledgeable observers of specific employee behaviors that focus
on either particularly outstanding behaviors or particularly questionable behaviors. Supervisors document critical
incidents as they occur usually in a file folder (kept for each employee, either a hard copy or an electronic one).
• Advantages : they provide rich source of data, represent the employee’s perspectives adequately, and can capture
rare incidents which may not be captured in any other formal method. The supervisors can concentrate on actual
behaviour on job, rather than exercising one’s mind about abstract traits, and use them to provide meaningful
feedback to the rates.
• Disadvantages: excessive reliance on memory, requirement of accurate and truthful reporting of them, a bias for
recent events, and difficulty experienced by employees in telling a complete story in necessary details. The
supervisors may resend the workload arising out of meticulous process of documentation, and give it low priority,
as a consequence of which the feedback may be delayed.
 Behaviorally Anchored Rating Scales

• BARS comprises five to ten vertical scales, depending on the

nature of the job under review. Each scale describes a key
performance dimension of the job. Each dimension is
typically depicted by five or more critical incidents
corresponding to ‘highly effective’ to ‘highly ineffective’
visible job behaviours on the job dimension.
• Disadvantages : inter-rater reliability and rater errors (due to
multiple developmental processes and formats) and high cost
associated with the employee time and effort required to
develop and use the instrument.
 Sample Behaviorally Anchored Rating Scale
for Sales Performance by Sales Trainee

Excellent 7 Can expect the trainee to make valuable suggestions for increased sales and
to have positive relations with customers all over the country.

Good 6 Can expect to initiate creative ideas for improvement of Sales.

Above average 5 Can expect to keep in touch with the customer throughout the year.

Average 4 Can manage, with difficulty, to deliver the goods in time.

Below Average 3 Can expect to unload the trucks when asked by the supervisor.

Poor 2 Can expect to inform only some of the customers.

Extremely Poor 1 Can expect to take extended Tea/Lunch breaks and loiter without purpose.
 MBO
• MBO implies a management approach by which employees participate in a
vertically cascading process of setting objectives, covering production, costs, sales
and profits, together with their superiors.

• The goals set in the participative manner become the basis of subsequent
periodical evaluation and rewards.
 Balanced Scorecard
It is a strategic performance management tool that can be used by managers to keep
track of the execution of activities by the staff within their control and to monitor the
consequences arising from these actions. It talks about four domains of performance:
• Financial: measures which answer the question "How do we look to shareholders?"
Examples: cash flow, sales growth, operating income, return on equity.
• Customer: measures that answer the question "How do customers see us?"
Examples: percent of sales from new products, on time delivery, share of important
customers’ purchases, ranking by important customers.
• Internal business processes: measures that answer the question "What must we excel
at?" Examples: cycle time, unit cost, yield, new product introductions.
• Learning and growth: measures that answer the question "How can we continue to
improve, create value and innovate?” Examples: time to develop new generation of
products, life cycle to product maturity, time to market versus competition.
 360-degree feedback
• 360-degree feedback or
multi-source feedback
is an appraisal or
performance
assessment tool that
incorporates feedback
from all who observe
and are affected by the
performance of a
candidate.
Common Problems with Performance
Appraisals

1. Performance appraisal and total quality management.

2. The second set of problems with the system of performance appraisals is that it is
often a flawed process. The common flaws are as follows:
•Inaccurate
•Infrequent
•Comparison with peers

•Unsuitable for the millennials

Common Problems with Performance
Appraisals
• Partiality.
• Stereotyping.
• Halo effect.
• Similarity errors.
• Recency error.
 Future of Performance Management

• Performance Management system, like all HR processes have witnessed

disruptions.
• The most debated component of PMS seems to be the used of forced ranking
or Bell curve.
• The annual 'performance management' process has yielded place to a new
'performance achievement' system.
• The focus is on real-time, forward-looking conversations about setting
priorities, growing strengths and creating rewarding career opportunities for
employees.
• With a holistic view of performance management, the future process will foster
achievements and talents of each employee with the help of leaders, who will
spend more time coaching and talking with employees.
 Compensation and Benefits

• Introduction
• Definitions
• Total Compensation
• Total Rewards System
• Forms of Pay
• Theories of Compensation
• External Factors
• Internal Factors
• Establishing Pay Rates
• Employee Benefits.
Compensation
Compensation is the total cash and non-cash payments given to an employee in exchange for
the services rendered to the organization.
It is typically one of the biggest expenses for businesses with employees. Compensation is
more than an employee’s regular paid wages. It also includes many other types of wages and
benefits.
Job Evaluation is a process of determining the relative worth of the various jobs within the
organization ,so that differential wages may be paid to jobs of different job.

• Base pay (hourly or salary wages)

• Sales commission
• Overtime wages
• Bonus pay
• Recognition or merit pay
• Benefits (insurances, standard vacation policy, retirement)
• Stock options
• Other non-cash benefits
Objectives of Compensation Planning
To acquire qualified and competent personnel.
To retain the present employees.
To secure internal and external equity
To ensure desired behavior
To keep labour and administrative costs.
To comply with legal regulations.
 Compensation Pay Structure

Basic
DA
HRA
Conveyance
DA /dearness allowance is a special feature of the wage system for
adjustment of the wages when there are frequent fluctuations in the
cost of living.
HRA or the House Rent Allowance is an amount paid by employers to
employees as a part of their salaries. It provides employees with tax
benefits for what they pay towards accommodations every year.
City Compensatory Allowance (CCA) is a type of allowance offered by
companies to their employees to compensate for the high cost of living
in metropolises and large cities.
 TOTAL COMPENSATION AND REWARDS SYSTEM
The WorldatWork Model represent 6 elements of total rewards that collectively define an organization's
strategy to attract, motivate, retain and engage employees:
• Compensation: Pay provided by an employer to its employees for services rendered (i.e., time, effort,
skill). This includes both fixed and variable pay tied to performance levels.
• Benefits: Programs an employer uses to supplement the cash compensation employees receive. These
health, income protection, savings and retirement programs provide security for employees and their
families.
• Work-Life Effectiveness: A specific set of organizational practices, policies and programs, plus a
philosophy that actively supports efforts to help employees achieve success at both work and home.
• Recognition: Either formal or informal programs that acknowledge or give special attention to
employee actions, efforts, behavior or performance and support business strategy by reinforcing
behaviors (e.g., extraordinary accomplishments) that contribute to organizational success.
• Performance management: The alignment of organizational, team and individual efforts toward the
achievement of business goals and organizational success. Performance management includes
establishing expectations, skill demonstration, assessment, feedback and continuous improvement.
• Talent development and career opportunities: Provides the opportunity and tools for employees to
advance their skills and competencies in both their short- and long-term careers
TOTAL COMPENSATION AND REWARDS SYSTEM
TOTAL REWARDS MIX
 FORMS OF PAY

BASIC PAY : Basic salary is a fixed amount paid to employees by their

employers in return for the work performed or performance of
professional duties by the former.

Base salary, therefore, does not include bonuses, benefits or any other
compensation from employers.

As the name suggests, basic salary is the core of the salary of an

employee.

It is a fixed part of the compensation structure of an employee and

generally depends on her or her designation
 FORMS OF PAY
• VARIABLE PAY

• Company Performance Linked Pay

• Group/Team Performance Linked Pay

• Individual Performance Linked Pay

• FRINGE BENEFITS :Pension plans, profit-sharing programs, vacation pay, and

company-paid life, health, and unemployment insurance programs
• PERQUISITES/Perks : Medical Facilities & Reimbursements, Recreational
Facilities, Education for Children, Food and Beverage, Loan to Employees, Free
domestic servant provided

• ALLOWANCES: Overtime allowance, Travelling , Fuel allowance

 THEORIES OF COMPENSATION

• REINFORCEMENT AND EXPECTANCY THEORY

• EQUITY THEORY

• AGENCY THEORY
 Reinforcement Theory

• Similar to goal-setting theory, but focused on a behavioral approach rather than a

cognitive one.

• Behavior is environmentally caused

• Behavior is controlled by its consequences – Reinforcers
• Is not a motivational theory but a means of analysis of behavior
• Reinforcement strongly influences behavior but is not likely to be the sole
cause
• Positive Reinforcers : Praise , Promotion, Incentives
• Negative Reinforcers : Demotion, Punishment, Memo
 Vroom’s Expectancy Theory

The strength of a tendency to act in a certain way depends on the strength of an

expectation that the act will be followed by a given outcome and on the
attractiveness of the outcome to the individual.

Expectancy of Instrumentality of Valuation of the

performance success in getting reward in
success reward employee’s eyes
 Adams’ Equity Theory

• Employees compare their ratios of outcomes-to-inputs of relevant others.

• When ratios are equal: state of equity exists – there is no tension as the
situation is considered fair
• When ratios are unequal: tension exists due to unfairness

• Under-rewarded states cause anger

• Over-rewarded states cause guilt

• Tension motivates people to act to bring their situation into equity

 Adams’ Equity Theory
TYPES OF EQUITY
1. EXTERNAL EQUITY – External equity denotes employee perception of fairness while comparing with the
wages prevailing in external labour markets

2. INTERNAL EQUITY – Internal equity exists when the employees perceive that the wages are
commensurate with the relative internal value of each job

3. INDIVIDUAL EQUITY – When individuals who on similar jobs are compensated on the basis of variations
in individual performance, in so-called pay for performance, individual equity occurs

4. PERSONAL EQUITY – Personal equity involves no direct comparison between employees. It exists when
the compensation that an employee receives, matches an employee's own image of his or her worth

5. PROCEDURAL EQUITY – It refers to the perceived fairness of the processes and procedures used to
make decisions regarding the allocation of pay
AGENCY THEORY
 AGENCY THEORY

• Agency theory is a concept used to explain the important

relationships between principals and their relative agent.
• In the most basic sense, the principal is someone who heavily relies
on an agent to execute specific financial decisions and transactions
that can result in fluctuating outcomes.
 Factors influencing compensation
External Factors & Internal Factors

Fa ctors influe ncing Comp e nsa tion

Wage Legislations

Employers Compensation Labour Market Conditions

Policy

Compensation
Market Rates

Factors
Factors

Comparative value of Jobs

Cost of living

External
Internal

Relative value of employees

Societal Factors

Employers capacity to pay Collective Bargaining

The condition of the economy

14
 Establishing pay rates

There are several steps to designing a pay structure

1. Collect and summarize work content information for each job through Job Analysis.

2. Establish relative worth of different jobs through Job Evaluation.

3. Gather Compensation data from other employers for comparable jobs through Salary survey.

4. Formulate the Compensation policy in respect of external competitiveness.

5. Integrate the internal structure (Step 2) with the external market pay rates and create a

Compensation structure.
Determining an Internally Aligned Job Structure

Internal alignment
Job analysis Job description Job evaluation Job structure

Work relationships
within organization

Some
Some Major
Major Decisions
Decisions inin Job
Job Evaluation
Evaluation
•• Establish
Establish purpose
purpose ofof evaluation
evaluation
•• Decide
Decide whether
whether toto use
use single
single or
or multiple
multiple plans
plans
•• Choose
Choose among
among alternative
alternative approaches
approaches
•• Obtain
Obtain involvement
involvement ofof relevant
relevant stakeholders
stakeholders
•• Evaluate
Evaluate plan’s
plan’s usefulness
usefulness
 Ranking Method

• Orders job descriptions from highest to lowest based on a global definition of relative value
or contribution to the organization’s success

• Two approaches

• Alternation ranking

• Paired comparison method

Paired Comparison Ranking
 Factor Comparison Method
Similar to the ranking method, the Factor Comparison method ranks each several
times-once for each compensable factor. Binge had suggested five factors as
universally present in all jobs:
1. Mental requirements
2. Skill requirements
3. Physical requirements
4. Responsibilities
5. Working conditions.
A Factor comparison exercise is usually carried out in the following steps:
6. Select the benchmark jobs
7. Agree factors
8. Analyze benchmark jobs
9. Rank benchmark jobs by factors
10.Determine the relative importance of factors in each job
11.Allocate money value to factors.
12.Evaluate other jobs.
Factor Comparison Method
 Classification Method

• Uses class descriptions that

serve as the standard for
comparing job descriptions
• Classes include benchmark
jobs
• Outcome
• Series of classes with a
number of jobs in each
 Point Method
• Three common characteristics of point methods
• Compensable factors
• Factor degrees numerically scaled
• Weights reflect relative importance of each factor
• Most commonly used approach to establish pay structures in U.S.
• Differ from other methods by making explicit the criteria for evaluating jobs -- compensable
factors
Point Method
Designing a Point Plan: Six Steps
1. Conduct job analysis
2. Determine compensable factors.
3. Scale the factors.
4. Weight the factors according to importance.
5. Communicate the plan, train users, prepare manual.
6. Apply to nonbenchmark jobs.
 Comparison of Job Evaluation Methods
Advantage Disadvantage

Cumbersome as number of jobs increases. Basis for

Ranking or
Factor
Fast, simple, easy to explain, cheaper initially. comparisons is not called out. Criteria poorly defined,
subjective, evaluator must be knowledgeable about every job

Can group a wide range of work together in one system.

Classification Descriptions may leave too much room for manipulation.
Sufficient yet general

Compensable factors call out basis for comparisons.

Point Can become bureaucratic and rule-bound.
Compensable factors communicate what is valued.
 COMPENSATION POLICY
The Compensation policy of an organization is usually expressed explicitly or implicitly
as where it wants its rates to be positioned relatively to the market place. Does the
organization want to lead, lag or meet the market in compensation?
The Compensation policy could cover the following matters:
1. How will internal compensation levels compete with market rates?
2. How will internal equity and external competitiveness be balanced?
3. How much information to be shared on compensation?
4. How will pay be fixed on appointment or on progression?
5. How employees will be fitted into revised grades?
6. How employees’ pay be covered to avoid stagnation at maximum of the grade
 Market Survey
• Salary survey is the process of analyzing compensation data gathered from other employers in a
survey of the relevant labor market
• The essential objective of a salary survey is to enable an organization achieve external equity, that
is, to pay its employees equally in relation to similar employees working in other establishments
• Surveys can be done in formal or informal manner. Some organizations prefer to conduct their own
salary surveys

• Following steps are used in conducting wage and salary surveys:

1. Select the jobs to be used in the survey
2. Identify the target organizations to include in the survey based on who they actually compete
for sourcing employees.
3. Identify the key jobs for survey, since it is not feasible to survey all the jobs in an organization.
4. Decide on what information to gather on wages, benefit types, and pay policies.
5. Send the Survey Questionnaire
6. Tabulate the survey data.
 Pay Structure Creation
Depending on whether the organization wants to lead, lag or meet the market, the market pay line can be
adjusted up or down. Pay structure also includes pay grades and pay ranges

Pay Grades
A Pay grade consists of jobs of approximately equal difficulty or importance. In Job classification
system, jobs get grouped into grades as part of the process.

Grade structures
A grade structure consists of a sequence of grades, bands or levels into which groups of jobs that are
broadly comparable in size are placed .The number of grades in a wage structure depends on a variety
of factors including the incline of the wage curve, the number and distribu­tion of the jobs within the
structure, and the compensation policies and career progression policies of the organization.

The main types of graded structure are: narrow graded structure, broad graded structure, broad
banded structure, career family structure job family structure and pay spines.
Pay Grades
Grade structures
 Employee Benefits
 Employee Benefits (also covering fringe benefits, perquisites, or perks) constitute the indirect
financial and non financial remuneration, which an employee is eligible to receive in addition to
their normal wages or salaries, by virtue of being employed
 The objective of employee benefits is to address the economic security concerns of the employees,
and while doing so, to improve employee retention in the organization.
 Benefits include:
 Housing accommodation
 Accident insurance
 Retirement benefits
 Crèche
 Scholarships
 Educational assistance
 Various kinds of leave
 Leave Fare assistance
 Social security
 Profit sharing, and such specialized benefits
Components of Employee Benefits

 Employee benefits have two major components:

 1. Allowances
 2. Perquisites.

 Allowances include Dearness Allowance, Compensatory allowances (City

Compensatory, Hill allowance, duty allowances, Hardship allowance, Shift allowance,
and Hazard allowance), Conveyance allowance, House Rent allowance, Deputation
allowance, Education allowance etc.

 Perquisites include Leave Travel concession, Advances, Soft Furnishing

reimbursements, Club membership, and Expense account etc.
Components of Employee Benefits - INDIA
FACTORS INFLUENCING CHOICE OF BENEFITS
PACKAGE
 Flexible Benefit programs
Flexible benefits schemes or ‘cafeteria benefits’ / ‘flex plans’ provide the employees choices to
personalize their pay and benefits package in line with their personal needs

 Some of the advantages of flexible benefits plans are:

i. freedom of choice to suit personal needs
ii. Increased involvement leads to better understanding of benefits, and
iii. Cost containment for benefits

 The negative consequences include:

i. employee vulnerability to bad choices, and
ii. Additional cost of administration
 Flexible Benefit programs
Steps in implementing a Flexible benefit program:
1. Setting up a menu of benefits options
2. Working out the cash value for each option.
3. Estimate the likely take-up of specific benefit
4. Present the choice of benefits to employees.
5. Fix dates for next review.

Flextime, Job sharing and Telecommuting are some of the other examples of Flexible
Benefit Programs.
 Industrial Relations

• Decent Workplace: International Labor Organisation, Industrial

Relations, The Objectives of Industrial Relations, Approaches of
Industrial Relations Systems, The Actors in Industrial Relations,
Indian Context, Industrial Relations and Human Resource
Management.
 Industrial Relations

According to Encyclopedia Britannica, industrial relations denote “the relations of the state with
employers, workers, and other organizations. The subject, therefore, includes individual relations
and joint consultation between employers and workers at their places of work, collective
relations between employers and trade unions; and the part played by the State in regulating
these relations”.

Dale Yoder (Personnel Management and Industrial Relations. Prentice Hall. 1942) considers IR to
be “a designation of a whole field of relationship that exists because of the necessary collaboration
of men and women in the employment processes of Industry”.

According to Armstrong IR is “concerned with the systems and procedures used by unions and
employers to determine the reward for effort and other conditions of employment, to protect
the interests of the employed and their employers and to regulate the ways in which employers
treat their employees”(Human Resource Management. Kogan Page)
Objectives of industrial relations
1. No. of Strikes & lockouts and their intensity - man days / man-hours lost & production loss during last
five years.
2. Productivity improvement initiatives and result achieved.
3. Welfare measures and CSR activities launched by the company.
4. Training/re-training and skill development initiatives taken by the company for employee's
development.
5. Number of Industrial Disputes pending.
6. Information about grievance machinery set up by the management at various levels for redressal of
genuine grievances of workers.
7. Whether Works Committees have been set up: if so, details about their composition, functioning and
settlement of issues referred to it.
8. Voluntary welfare measures initiated by the company.
9. Whether the company has initiated steps towards involving workers' in various decision making
process.
10.Formal as well as informal forums & number of committees.
11.The system of communication adopted with employees & its relevance in the industrial relations.
12.Employee retention rate during the last 5 years.

Criteria adopted by AIOE to award for IR excellence.

 Approaches to industrial relations

1.Unitarist approach
2.Systems approach
3.Oxford approach/Pluralist approach
4.Sociology approach.
5.Marxist approach
6.Gandhian Approach
7.Human Relations Approach
Unitary Approach/Unitarist approach

• This theory believes that the conflicts are non-permanent

malformations, which are a result of improper management in the
organization.
Objectives
• To create a productive, effective and harmonious work environment;
• To develops a trustworthy, open, fair and transparent work culture;
• To create a cordial work environment;
• To restrict the role of the tribunals and other government associations
like the trade unions and initiates direct negotiation between the
management and the employees.
 Systems approach

• Actors: Actors are the individuals or parties involved in the process of

developing sound industrial relations. This variable is denoted by ‘A’.

• Contexts: The contexts refer to the setup in which the actors perform
the given tasks. It includes the industry markets (M), technologies (T)
and the power distribution in the organization and labour unions(P).

• Ideology: The similar ideas, mentality or beliefs shared by the actors

helps to blend the system. It can be expressed by the initial (I)
R=f(A,T,M,P,I)
Oxford approach/Pluralist approach
• The pluralist theory also called the ‘Oxford Approach’, was proposed by Flanders in
the year 1970.
• This approach explained that the management and the trade unions are the
different and robust sub-groups which unanimously form an organization.
• The organization should appoint personnel experts and industrial relations specialists
to act as mediators between the management and trade unions. They need to look
into the matters of staffing, provide consultation to the managers and the unions, and
negotiate with both the parties in case of conflicts.
• The organization should ensure that the trade unions get recognized and the union
leaders or representatives can perform their duties freely.
• In the case of industrial disputes, the organization can avail the services of
the external agent for settlement of such issues.
• The managers should resolve to a collective bargaining agreement when there is a
need for negotiation and settlement with the trade unions.
 Sociology approach.

• The industries comprise of different human beings who need to

communicate with the individuals of other organizations.
• Difference in their attitude, skills, perception, personality, interests,
likes and dislikes, needs, they are usually involved in one or the other
conflict.
• Even the social mobility and other aspects including transfer, default,
group dynamics, stress, norms, regulations and status of the workers
influence their output and the industrial relations.
• This theory also emphasizes on the impact of various changes in the
work environment (i.e., economic, technical and political) on the
interactions and relationship shared by the employer, employees,
institutions and the government bodies.
 Marxist approach

• Lenin came up with the concept of a Marxist approach in the year 1978, where he
emphasized the social perspective of the organization.
• This theory perceived that the industrial relations depend upon the relationship
between the workers (i.e., employees or labour) and the owners (i.e., employer or
capital).
• There exists a class conflict between both the groups to exercise a higher control or
influence over each other.
• The assumptions of this approach are as follows:
• Industrial relations are a significant and never-ending source of conflicts under
capitalism which cannot be avoided.
• Understanding the conceptions of capitalized society, capital accumulation process
and the pertaining social relations, give a better overview of the industrial relations.
• The Marxist theory assumed that the survival of the employees without any work is
more crucial than the survival of the employer without the labours.
 Gandhian Approach

• The Gandhian approach to industrial relations was proposed by the

father of our nation, Mahatma Gandhi or Mohandas Karamchand
Gandhi, who was also a well-known labour leader.
• Following are the various features of the trusteeship or Gandhian
theory:
• Gandhi Ji was not against strikes; instead, he gave the
following conditions to carry out a favourable strike:
• The workers or labours can go on a strike only if there is a specific grievance.
• There should be complete non-violence while carrying out strikes.
• The ones who are not involved in the strikes should not be tormented.
 Human Relations Approach

• The person behind the concept of the human relations approach is Keith
Davis. The organization and the society comprise of human beings who vary
in various aspects as their behaviour, emotions, attitude, mindset and
personality. But, they have come together to achieve common organizational
goals and objectives.
• The concept of human relations approach underlines the need for making the
individuals familiar with the work situations of the organization and uniting
the efforts of the workers. The purpose is to meet the social, psychological
and economic objectives, by enhancing the overall productivity.
Primary objectives of the human relations approach are as follows:
• To ensure cooperation by promoting the mutual interest of the organization;
• To enhance the productivity of the individuals;
• To satisfy the psychological, social and economic needs of the employees.
 The role of government in industrial relations

Role Task
An employer in its own right Set the standards of responsible employment practice
A regulator of incomes and prices Control prices and wages, either through direct intervention or
in its management of the economy
An economic manager Formulate Macro-economic policies of the State which affect
labour market demand, employment and manpower
utilization
A protector of standards It establishes and monitors minimum standards through its
agencies
A rule-maker and legislator Enacting legislation to create auxiliary, restrictive and
regulatory rules that affect the other parties in employment
relations.

A promoter of social citizenship guidelines The extension of political citizenship rights to the workplace
through legislation and policy.

Hyman, R. ‘The State in industrial relations’,

The Actors in Industrial Relations
 The decline of trade unions
In line with a global trend, researchers found a drop in the number of unions submitting
annual "returns" to the central government.

In West Bengal, for example, during the period 1982-90 prior to liberalization , 4,380 new
unions with a total membership of 629,151 were registered; but in the subsequent nine years
post liberalization, , the number shrank to 2,686 with 240,624 new members .

Regarding the causes for the decline, there is a view that innovative HRM practices pose a
threat to trade unions in four ways;

1. The individualization of employment contract,

2. The demise of union representation,
3. The intensification/opportunities of work and
4. Undermining of union solidarity through organizational commitment .
 IR AND HRM
• The tightly drawn borders between HRM and IR needs to melt and
IR thinking would need to change to become strategic.
• Two-way communication, training and motivation of individual
employees are irreversible processes.
• But the bottleneck appears to be in workplace flexibility
(functional, working time, types of contracts, workforce size), job
design and pay systems, where traditional IR and HRM are bound
to lock horns.
 Employment Relations

• The Definition, Traditional Employment Relations, Actors in the Fray:

Role-taking, The New Frameworks for Employment Relations, The
Future of Employee Relations.
 Employment Relations
Employment Relations is defined by Cambridge dictionary as –
“ behaviours and interaction between an employee and their employer,
especially relating to employees' rights and their happiness in their jobs”.

According to ILO, The employment relationship is the legal link between employers
and employees. It exists when a person performs work or services under certain
conditions in return for remuneration.

The existence of an employment relationship is the condition that determines the

application of the labour and social security law provisions addressed to
employees.
 Factors influencing employee relations
• The guiding principles in the industrial policy in India post-independence were: heavy industry, public
ownership, import substitution and protection for both capital and labour.

• Interactions between primary and secondary parties result in employment relations practices.
• The employer and the employees constitute the primary parties

• The secondary level comprises of the management and trade unions, who represent the primary
parties

• The tertiary parties are primary agents of state, who attempt to mediate between different sets of
primary and secondary parties. National unions, employers’ associations, and political parties ,
which influence formulation and implementation of public policies, also act as tertiary parties

• Some institutions and factors outside national boundaries like International Labour Organization
(ILO) Conventions and policies of MNCs also influence firm’s employment relations.
 Traditional employee relations

• A critical feature of the traditional employment relationship is the hierarchical power of employers
over employees.
• Hierarchical power has three subsets –
• (i) directional power
• (ii) control power
• (iii) the disciplinary power
 Traditional Employment Relationship
Shared value Employee mindset Employer mindset
Specialized employment Work in a clearly defined Offer clearly defined and
employment area specialized employment
opportunities.
Internal Focus Follow organizational policies Reinforce the need to follow
and practices organizational policies and
practices
Job Focus Fulfill job requirement Link rewards and benefits to
fulfilling job requirements
Functional based work Focus on job functions Structure work around functions
Human dispirit and work Value a stable and secure job Offer secure jobs
Loyalty Display loyalty to the employer. Reward employees who are loyal
to the company.
Training Commit to gain technical Provide opportunities for
qualification employees to develop technical
skills
Closed information Comply with managerial Provide sufficient information for
instructions employees to do their job
 Traditional employee relations in India
• Prevailed in the initial years of independence in India

• The hierarchical pattern of relationship was the central structure, with the
supervisor wielding complete power to recruit, terminate or compensate the
employees

• Principles of scientific management system were used to organize work, to

compensate the employees and to formulate employment rules

• The guiding principles in the industrial policy in India post-independence were:

heavy industry, public ownership, import substitution and protection for both
capital and labour
 Winds of change
• Some of the contextual factors which have steered in the shift:
• Globalization
• Governments of many countries have changed their development strategies and adopted policies
that favour deregulation, privatization and liberalization of trade and commerce
• The renewed activities of the MNCs, who are drawn to the developing countries by low wage rates
and the withdrawal of restrictions on foreign investments.
• Economic reforms
• A policy thrust on creation of job/employment opportunities boosts union power, and contrarily, if
the policy aims at reducing inflationary rate, then it creates an upswing in the employer power
• Technology adoption
• Technological changes do significantly influence the employment relations in a firm.
• Social, political and legal factors
• One of the most powerful political factor influencing employment relations in India is the extent of
hold the political parties exercise through their associations with the affiliated unions
 Government interventions
Intervention Provision in India Act and Rules
Protection of workers’ rights Workers can form unions. Unions can Trade union Act 1926.
negotiate wages and conditions of work. Industrial Disputes Act 1948.
Protection of the vulnerable Regulation and prohibition of child Child labour Act 1986. Equal
labour; equal wage and equal Remuneration act 1976.Maternity
employment opportunity for women; Benefit Act 1961.
maternity benefit.
Establishment of minimum Workers to be paid minimum wages, and Minimum Wage Act 1948.Plantation
compensation for work minimum non-wage benefits like Labour Act 1951.
medical , housing etc.
Assurances of decent working Minimum occupational and safety health Factories Act 1948.
conditions standards, maximum hours of work.
Provisions for income security Social Security. Workers get payment Provident Fund Act 1952.ESI Act
during sickness, disability or old age. 1948.Payment of Gratuity Act 1972.
Workmen Compensation Act 1923.
Provisions for job security Limited right not to be dismissed. Industrial Disputes Act, 1948.
Compensation when retrenched.
Actors in the fray: role taking

1. The Management
2. The Trade unions
3. The State
 Actor 1: The Management

Pre- independence, the managerial style, mostly of private owners, was

authoritarian
The managerial style mirrors manifold influences of authoritarian practices
within the family, the educational system, society's hierarchical structure, and
religious institutions to create a strong sense of dependence
Other factors which are believed to have influenced the managerial style are
the traditional values of rejection, giving away, self‐sacrifice.
 Actor 2: The Trade unions
Trade unionism in India can be traced back to the nineteenth century

The trade unions need to ignore adversarial and shed political agendas from their
trade union activities.

They need to undertake reskilling and literacy programs for their members. There
should also be partnership with the employer to build the quality of their
leadership by getting trained in advanced negotiation techniques and teamwork &
collaboration.
 Actor 3: The state

Main functions of the state are :

• Encourage trade unions
• Maintain industrial peace
• Involve unions in the formulation of five‐year plans
• Exercise political control over the union movement without jeopardizing
the legal rights of unions
 Employment Relations in a transnational environment
• One approach of the MNCs is to create mirror images of the employment relations
technique that they developed at home in their foreign subsidiaries, virtually in the
same form regardless of the local environment
• The opposite also is known to have happened, whereby the traits of the local
environment have deeply shaped the employment relations strategy in
multinational subsidiaries
• MNCs are often seen to use their considerable clout to subvert existing employment
relations arrangements in the host countries to suit their interests
• The host countries frequently offer MNCs incentives, like exemption from
employment regulations, or even changes in employment laws as a way of
attracting investment or of preventing them from going elsewhere
 Employment Relations in SMEs

Some key findings:

• Researches on the status of employment relations practices in SMEs have
indicated a general lack of formal processes and informal engagement in
routine day to day tasks
• Formal people practices are conspicuous by their absence, and the internal
environment is relaxed and friendly with strong focus on relationships
• Employee relations were characterized by informality and close personalities
 Future of employee relations

• Constantly evolving technology, rapid globalization, and the arrival of new

millennial employees- are all combining to unsettle the arrangements that have
been regulate the modern workplace.
• The advocacy for continued relevance of employee relations should have four key
plans:
• Work dominates and likely to dominate the lives of people and the vast
multitude of them are employees, rather than employers
• The management of employees, both collectively and individually, is the
fulcrum of organizational life
• It is difficult to hoist a unitary mindset on the employees or compel the
development of common interest between the manager and the managed
• Finally, the decline of trade union and the march of human resources
management notwithstanding
 Future of employee relations
If employment relations has to remain relevant:
• Needs to define a coherent set of values and priorities: greater equity, trust and reciprocity
• Improved employment standards required by a decent workplace which will incorporate fair
wages
• Greater employment security
• Flexibility in work to create a work life balance demanded by the new employees
• Slew of legislations to foster industrial democracy
• Individual and collective employment rights
• Strategy for vocation-oriented curricula, learning and skill enrichment
Thank you!