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Compensation Administration

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After reading this chapter, you should be able to:To resolve the challenges of compensation administration. Explain the concept of wages.Elucidate the objectives of remuneration.

What is compensation? Compensation is the sum of the rewards for the job-related efforts of the employees and also for their commitment to and involvement in the job.

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Objectives of compensation administration Equity in compensation. Enhancing individual and organizational efficiency. Employee motivation and retention. Goodwill in the labour market. Adherence to laws and regulations. Controlling HR cost. Improving industrial relations.

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Types of compensation Direct compensation Direct compensation normally includes the amount payable to the employees as direct cash rewards for the work extracted from them.

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Types of compensation (contd.)ExamplesBasic pay Variable pay Profit-sharing Gain-sharing Equity plans

Types of compensation (contd.)Indirect Compensation Indirect compensation includes the benefits enjoyed by the employees but paid by the organization. It is available to all the employees irrespective of their performance in the job.

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Types of compensation (contd.)ExamplesMediclaim Insurance schemes Leave travel concessionsRetirement benefits

Theories of compensation Equity theory Expectancy theory Contingency theoryAgency theory

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Equity theoryAccording to this theory, ensuring a fair balance between an employees contributions to the job and his rewards is critical for developing a cordial relationship between the employer and the employees. When the rewards are greater than the employees job efforts, they will be satisfied.

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Equity theory (contd.)In contrast, when the employees believe that their efforts are greater than their rewards, they will be de-motivated.

Expectancy theory According to this theory, employees work hard in the job whey they are sure of a positive outcome in the form of attractive rewards from the job. Positive expectations about the eventual job outcome creates high employee motivation in the firm and vice-versa.

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Contingency theory According to this theory, different compensation strategies act equally well in different circumstances. As such, there is no one best compensation strategy available for all conditions. The effectiveness of compensation strategy certainly depends on the congruence among the firm, the environment and the compensation strategies.

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Agency theory Agency theory views the employer as the principal and the managers as the agents. According to this theory, it is necessary for the firm to use compensation as an effective means for creating ownership interest among the managers.

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Agency theory (contd.)This theory insists that the firms develop labour marketoriented and performance-linked contractual relationship with the managers to motivate them.

Concept of wages

Real wages- When the income earned by the employees as a reward for their job efforts is expressed in real purchasing power, it is called real wages. Minimum wages- This refers to the legally permissible minimum compensation payable to the employees for their job efforts.

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Concept of wages (contd.)Fair wages- Fair wages are the wages which are usually positioned above the minimum wages but below the living wages.

Concept of wages (contd.)

Living Wages- Highest level of wages that should enable the earner to provide for himself and his family not only the bare essentials of food, clothing and shelter but a measure of frugal comfort, including education for his children, protection against ill-health, requirements of essential social needs and a measure of insurance against the more important misfortunes, including old age. - Committee on fair wages.

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Essentials of a sound pay structure Aligning with the business objectives and needs. Internal equity. External equity. Rewarding desired performance and behaviour. Legal compliance. Reconciling individual and organizational interest.

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Factors influencing compensation (wages and salary) administration

Internal factors and external factors

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External factors Labour market conditions Labour legislationsComparative pay scales Cost of livingGeographical location Collective bargainingTechnologyGlobalization

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Internal factorsCapacity of the organization to pay. Corporate policies and philosophy. Human resource policies and strategies. Performance evaluation report.

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Steps in compensation administration Analysis of the job.Evaluation of the job. Developing the pay structure. Survey of wages and salary.Pricing of the job.Compensation revision and control.

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Steps in compensation administration

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Challenges facing compensation administration Emergence of innovative job designs. Relevance of money as a prime motivator. Lack of objectivity in the fixation of pay structure. Political and legal challenges in compensation administration.

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Challenges facing compensation administrationDifficulties in fixing compensation for distinct and critical skills.Balancing organizational and individual needs. Ethical issues in pay fixation.

Executive compensation Executive compensation refers to the compensation package offered to the managerial personnel of an organization.

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Objectives of executive compensation packages Aligning managerial interest with ownership interest. Bringing in the best executives.Enhancing employee motivation, involvement and commitment. Promoting managerial efficiency. Ensuring complete financial security. Encouraging progressive learning.

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Elements of executive compensation

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Criticisms of executive compensation Complaints of over-payments. Undue influence on compensation determination. Disregard for the financial health of the organization. Secrecy shrouding executive compensation. Inequality of income in the organization.

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Golden parachutes scheme It is a unique executive compensation plan in which a top executive is eligible for severance pay in the event of his present company being taken over by some other company as part of a merger plan.

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Wage Incentives

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After reading this chapter, you should be able to (contd.):Enumerate the types of incentives. Evaluate wage incentive schemes. List the objectives of fringe benefits. List the forms of benefits.

Meaning of wage incentives Wage incentives are any form of performance-based financial and/or non-financial rewards payable to attract and retain the best talents without any permanent financial commitment to the organization.

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Objectives of wage incentives Developing an ownership interest. Enhancing employee motivation. Improving employee retention. Facilitating a greater role for employees in pay determination. Increasing performance and productivity. Reducing labour cost. Reducing the time and cost of supervision.

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Wage incentive planning process

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Prerequisites for a good incentive scheme Transparency ObjectivityMeasurabilityAttainability, flexibilityComprehensivenessCost-effectivenessInstantaneous feedback

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Types of incentive schemesStraight piece rateDifferential piece ratesTask and time bonusesMerit rating

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Straight piece rate

Under this method, the same rate of incentive is paid to the employees for each unit of goods produced by them. Incentives are computed and paid to the employees in direct proportion to their performance in the job. The formula for computing the earnings is Wage earnings = number of units produced x piece rate per unit.

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Differential piece rates In differential piece rate system, more than one piece rate is offered to the employees. As part of this system, the organization sets several standards of performance and also different wage rates for each standard.

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An employee reaching a particular standard of output gets his or her wages computed on the basis of the wage rate applicable for that category. In this method, the wage rate increases as the output increases and the employees are strongly motivated to reach higher levels of productivity.

Task and time bonuses As per this incentive scheme, once the employee reaches the standard output, his or her wage incentive will begin to decline afterwards. The purpose behind this move is to discourage haste in the production by the employees, which was understandably the major defect in the differential piece rates system.

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Merit rating Merit rating aims at evaluating the relative worth of the employees in the organization before awarding them appropriately. In this method, the organization links a part of the employees wages to their actual performance in comparison with the standards set in terms of factors like competency, initiative, attitude, regularity, health, etc.

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Depending upon the importance of these factors to the job, the organization may assign points to each of these factors. The employees overall performance in the job is then evaluated to determine their aggregate score, which in turn, decides the incentives payable to them.

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Individual Incentive Programmes

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Taylors differential piece rate plan Under this piece rate plan, two wage rates are available to the employees. These are Low piece rate for those employees whose performance is less than the standard. High piece rate for any performance which is equal to or more than the standard. The purpose of Taylor's differential piece rate is to encourage efficiency and discourage inefficiency among the employees.

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Taylors differential piece rate plan (contd.) The formula for computation of earnings is Earnings = actual output x piece rate Efficiency level = actual output/normal output) x 100 80% of normal piece rate when actual output is less than standard output120% of normal piece rate when actual output is equal to standard output

Merrick multiple piece rate plan Merrick plan contains three piece rates as against Taylors double piece rates. It provides for gradually rising piece rates for the additional range of output produced by the employees.

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Merrick multiple piece rate plan (contd.) The formula for the various categories of output Less than 83% = actual output x normal piece rate Between 83% and 100% = actual output x normal piece rate x 110 Above 100% = actual output x normal piece rate x 120%

Emerson efficiency plan In Emerson efficiency plan, a standard time is set for each job and then the hourly rate is determined. Finally, incentives are decided in the form of bonus for different degrees of efficiency. As per this incentive plan, each employee is eligible for an hourly rate based on the actual working hours and also for the bonus calculated on the basis of his or her efficiency.

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The main feature of this incentive plan is the availability of guaranteed minimum wages for the employees irrespective of their output in a day. Classification Only hourly rate is paid: below 67% efficiencyHourly rate and step bonus rate(20% of basic wage) are paid: 67 to 100% efficiencyHourly rate and step bonus rate(20% of basic wage) are paid along with additional bonus of 1 % of hourly rate for every 1% increase in efficiency above 100%: above 100% efficiency

The main feature of this incentive plan is the availability of guaranteed minimum wages for the employees irrespective of their output in a day. Classification Only hourly rate is paid: below 67% efficiencyHourly rate and step bonus rate(20% of basic wage) are paid: 67 to 100% efficiencyHourly rate and step bonus rate(20% of basic wage) are paid along with additional bonus of 1 % of hourly rate for every 1% increase in efficiency above 100%: above 100% efficiency

Bedeaux system The first step in the Bedeaux system is the determination of the standard time for various jobs. The standard time is fixed in Bedeaux system and is usually expressed in terms of minutes, popularly called Bedeaux points (B points). Each B point is equal to one minute and each job has a standard number of B points.

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Bedeaux system (contd.)Earnings as per the following formula Earnings = actual time taken x time rate + (75/100 ) x (B points saved/60) x hourly rate

Barth variable incentive plan As per the Barth scheme, the rise in employee earnings need not be proportionate to the output. The distinguishing feature of the Barth plan is the absence of any guaranteed time rate for the employees.

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Barth variable incentive plan (contd.)In this method, employee earnings are calculated by multiplying the rate per hour with the square root of the product of standard hour and actual hour. Earnings = rate per hour x (standard hour x actual hour) 1/2.

Halsey premium plan In the Halsey premium plan, the employee is entitled to get the incentive for the time saved by him or her in a certain proportion. Thus, the employees are induced to complete the work well ahead of the standard time. Minimum wages are assured for the employees even if they fail to complete the jobs within the standard time.

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Halsey premium plan (contd.)The formula for this method is Earnings = actual time taken x time rate + 50% of (time saved x time rate). Time saved = difference between actual time and standard time.

Rowan incentive plan In this method, an employee gets the time rate for the actual hours worked and also a bonus for the time saved if he or she completes the job within the standard time. The employee who is unable to complete the job within the standard time gets the time rate for the actual time worked.

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Rowan incentive plan (contd.)Earnings = actual hours worked x time rate + (actual time worked/standard time) x time saved x time rate

Haynes incentive plan In the Haynes system, the standard time is expressed in terms of man-minutes called MANT.As per this system, an employee gets the time rate for the actual time worked and also a bonus for the time saved, which is computed in man-minutes.

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Haynes incentive plan (contd.)Depending upon the nature of work, the employees and the foreman divide the earnings from the time saved in the ratio of 5:1 in Haynes incentive plan.

Group Incentive Schemes

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Cost efficiency bonus plan Under this plan, the organisation first determines the standard cost for the various elements of cost. Next, it measures the actual cost incurred by the group in accomplishing the production goals or targets.

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Cost efficiency bonus plan (contd.)Finally, the actual cost incurred by the group and the standard cost are compared to determine the savings in the cost achieved by the group.As per the cost efficiency plan, a predetermined percentage of the savings is distributed in the form of bonus to the employees.

Priestman bonus plan In this plan, a group of experts set the standard performance in terms of the number of units for the whole work to be carried out by a group within a specific period. Then, the actual performance of the group is measured and is compared with the standard performance.

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Priestman bonus plan (contd.)When the actual performance exceeds the standard performance, the group members are entitled to a bonus computed. However, when the groups performance is less than below the standard performance, then they are paid on the basis of time rate without any bonus.

Rucker incentive plan The Rucker plan aims at achieving cost saving not only on labour cost but also on overheads. The reward for the group is determined on the basis of the difference between the labour cost and the sales value of production.

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Rucker incentive plan (contd.)The total reward available to a group depends upon the savings achieved in terms of the value of production as a result of efficient utilization of machinery, materials and other equipments. As per this system, any savings achieved by the group in the value of production is used as the basis for determining the group incentive.

Townes incentive plan This method considers the savings in labour cost alone for determining the rewards payable to the groups. In the first step, the standard labour cost for the entire work is determined in advance.

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Townes incentive plan (contd.)Then the actual labour cost for that work is measured and compared with the standard labour cost. Finally, the saving in the labour cost is computed and a proportion of the saving in monetary terms is distributed to the group members.

Scanlon incentive plan The Scanlon incentive plan focuses on achieving savings in the labour cost alone. In this method, the bonus is decided on the basis of the difference between the total labour cost and the sales value, including the closing stock of goods.

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Scanlon incentive plan (contd.)A portion of the savings in labour cost is retained for payment during lean seasons when the group is unable to achieve any cost reduction.

Improshare In this method, an organization seeks to achieve savings by producing predetermined quantity of goods within the standard time. This method considers the relationship between the targeted output and the standard time (one of the inputs) for deciding the group bonus. A proportion of time saved as a result of efficient and fast production is used to fix the incentives payable to groups.

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Organisation-wide Incentive Plans

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Profit-sharing plan The crux of the profit-sharing plan is to give out a portion of the organizational profit to the employees. In this method, the organization first determines the target profit i.e., the standard profit for the entire organization. At the end of a specific period (may be a year), it ascertains the actual profit of the organization.

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Profit-sharing plan (contd.)Then it compares the actual profit with the standard profit in order to determine the excess profit. Understandably, the employees get a share in the excess profit of the organization.

Employee stock option (ESOP) scheme This is another style of profit sharing in which organizations distribute the profit in an indirect form. An ESOP scheme develops a sense of ownership among the employees and thus enhances their involvement in the decision-making process.

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Employee stock option (ESOP) scheme (contd.)Generally, the organization buys the shares from the capital market, keeps them in a pool called employee stock ownership trust (ESOT) and issues the shares to the employees on some predetermined basis.

Stock option plan In stock option, the employees are given the right to buy the stocks of their company in specific numbers during a specific period at predetermined rates. The employees can treat stock option as another investment alternative available to them. They normally dispose of their stocks when the market conditions are favourable for selling.

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Evaluation of wage incentive schemes Direct link with performance. No permanent financial commitment. Self-responsibility. Optimum utilization of production capacity. Low employee attrition. Better labour-management relations.

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Limitations of the incentive schemes Quality concerns Employee attitude Exploitation by management Internal dissensions Burnout problems Unethical practices

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Fringe Benefits

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Fringe benefit- meaning Fringe benefits are benefits payable to the employees over and above the direct compensation and usually without any reference to their performance.

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Objectives of fringe benefits Attracting the best talents. Improving employee morale. Achieving the desired unity. Improving industrial relations. Concern for employee well-being

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Forms of fringe benefits Payment without work.Health and safety care. Retirement benefits. Housing facilities.Other facilities like educational facilities, canteen facilities, transport facilities, child care facilities and relocation benefits.

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Employee Well-being

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After reading this chapter, you should be able to:List the statutory provisions concerning employee safety and health. Enumerate the causes and types of industrial accident. Explain the role of accident prevention and management.Explain the measures that reduce industrial accidents.

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Meaning of employee safety Employee safety is a process of controlling or removing hazards present in the occupational environment so that the employees are protected from work-related accidents.

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Objectives for providing employee safety Accident avoidance. Cost prevention.Improved employee satisfaction and commitment. Legal compliance. Better industrial relations.Formalizing the safety process and programme.

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Steps in an employee safety programme Assessment of dangers Review of existing safety measures Safety devices installationSafety training Safety compliance and verification Periodic review of safety standards

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Steps in an employee safety programme (contd.)

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Need for employee safety To avoid loss of human lives. To prevent financial cost of disability and death of employees. To fulfil Corporate Social Responsibility (CSR). To reduce the cost of Insurance Premium. To avoid fine or imprisonment for safety lapses.

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Essentials of an effective safety programme Clarity in safety goals. Proper safety strategies. Well-defined responsibilities and accountability.Safety awareness campaigns and training.Safety revisions and upgradation.

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Industrial accidents The Factories Act 1948 describes an industrial accident as an occurrence in an industrial establishment causing bodily injury to a person which makes him unfit to resume his duties in the next forty-eight hours.

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Causes of industrial accidentsUnsafe actionsUnsafe conditions

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Unsafe actionsAn unsafe action refers to any act performed by the employee during the course of his job without observing the necessary safety provisions which ultimately results in an accident.Unsafe action may be caused by machinery failure, wrong operations, non-compliance with safety procedure, improper handling of safety devices due to lack of safety training and a wilful neglect of the superiors instruction.

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Unsafe conditionsUnsafe conditions may mean security lapses in the environment which may be beyond the employees control. Unsafe conditions leading to accident may be caused by factors like faulty machines, inadequate workspace ventilation and lighting, too much noise, uneven or unstable flooring, excessive room temperature, lack of adequate protection, hazardous machinery, uneven and unbalanced structures and electrical failure.

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Accident prevention and management Methods for determining the accident-prone areas of the factory are Spot map method Accident frequency method Accident rate method

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Spot map method In this method, a map prepared by the organization shows the places which have reported the highest number of accidents.

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Accident frequency method In this method, a ranking of the locations is done on the basis of the number of accidents reported from each spot in the organization. The spot which has recorded the highest number of accidents is ranked first followed by the next location which has recorded the second highest number of accidents and so on.

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Accident rate method In this method, the number of accidents in a specific location is compared with the employee exposure hours in that location. The employee exposure hours refers to the number of hours spent by all the employees in a specific location as part of the job performance process.

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Severity rate method Severity rate method calculates accidents in terms of severity. Severity of the injury is measured through the productive time lost due to the accident.

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Measures to reduce industrial accidents Ensuring support of the top managementSafety policy, philosophy and plan Safety committee Safety education and training Safety campaigns Safety engineering Legal compliance

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Employee health When the employee is free from any form of physical or emotional illness, it is referred to as employee health. Two forms of health are Physical health Mental health

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THE FACTORIES ACT, 1948.Definition of a Factory:-Factory is defined in Section 2(m) of the Act. It means any premises including the precincts thereof-Whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on; orWhereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on;But does not include a mine subject to the operation of the Mines Act,1952 or a mobile unit belonging to the Armed forces of the Union, a railway running shed or a hotel, restaurant or eating place.

Provision regarding HealthCleanlinessDisposal of wastes and effluentsVentilation and temperatureDust and fumesArtificial humidificationOver crowdingLightingArrangement for drinking waterSpittoons

Provisions regarding Safety Fencing of machinery Work on or near machinery in motionEmployment of young persons on dangerous machinesSelf acting machinesCasing of new machineryProhibition of employment of women or children near cotton openersFloors stairs and means of accessProtection of eyesPRECAUTION IN CASE OF FIRE

Provisions regarding WelfareWashing facilitiesFacilities for storing and drying clothesFacility for sittingFirst aid applianceCanteens Rest RoomCrechesWelfare officers

Stress and stress management Stress is an adoptive response to an external situation which reveals itself in physical, psychological and/or behavioural deviations for organizational participants. -Fred Luthans

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Stress and stress management

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Based on emotionsTime stress refers to the stress created by time pressures like working against deadlines. Anticipatory stress refers to the anticipation of some negative developments in the future.

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Based on emotions (contd.)Situational stress refers to a situation which remains unclear and uncertain and the individual fears the outcome of the situation. Encounter stress means the fear created in individuals about the likely outcome of their interaction with other individuals.

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Based on its intensity High stress levels- When the stress levels are too high, the employee may not be able to cope with such stress, and this impairs the performance and productivity levels of the employees. Low stress levels will be too little to motivate the employee and improve his or her performance. A moderate level of stress stirs up the employees to improve the performance to the required levels.

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Based on causes Short-term response- In the case of short-term response stress, the effect of the stress remains till the person involved passes through the stressful situation.Long-term response- In this, factors causing stress to the employees remain for a comparatively longer period of time.

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Sources of stress Internal stressors (individual level) The internal sources of stress arise from the perception of an individual about the environment. The internal problems of an individual like role conflict, role ambiguity and non-specific fears like the fear of future and that of inadequacy can cause stress to an individual.

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Sources of stress (contd.)The internal sources of stress depend primarily on the personality characteristics of an individual.

Sources of stress (contd.)External stressors It is classified into Group-level stressors Organizational stressors Extra-organizational stressors

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Burnout

Burnout is the exhaustion suffered by an individual due to a continuous exposure to a stress-causing situation. The major symptoms of employee burnout are declining productivity, increased labour turnover and absenteeism and a general despondency in the behaviour of the individual.

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Burnout (contd.)Employees can avoid burnout by changing their work and personal lifestyles.

Stress management

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Individual strategies Meditation Deep muscle relaxationTime management Role-playing

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Organizational strategies Time-outJob redesigningCounselling and mentoringEmployee empowerment Recreation Training and orientation Team-building exercise Employee assistance programme

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Industrial Relations

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ObjectivesCharacteristics and objectives of industrial relations. You will be able to list the major players in industrial relations. Enumerate the essentials of effective industrial relations.

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Industrial relations: meaning Industrial relations is a process through which an organization controls the employer-employee relations in the organization and this process may involve continuous communication and consultation between them.

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Objectives of industrial relations Building cordiality in the relationship with the employees Connectedness Safeguarding mutual interests Preventing industrial conflicts Fostering industrial democracy Avoiding exploitation Dynamic role for the government

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Major players in industrial relations Employers and their associations Employees and their unionsGovernment

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Approaches to the study of industrial relations

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Unitary approachIn case of the unitary approach to industrial relations, the authority rests solely with the management with no right to anyone to challenge its decisions. The basic assumption of this approach is that the common values and objectives unite and bind both the management and the workers.

The use of power in this approach is for the common good and interest only.

In essence, this approach is not appreciative of the role of trade unions in the organization and certainly, they are not welcome.

Pluralist approach The pluralist approach believes in basic ground rules, negotiated settlements and mutual compromises for solving the industrial conflicts. The basic assumption of this approach is that the disagreements between the parties to the industrial relations on important issues are not unbridgeable by compromises and the collaborations can continue at all stages. The pluralist approach puts emphasis on industrial democracy and collective bargaining.

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System approach According to this approach, individuals are part of an ongoing but independent social system.The behaviour, action and role of the individuals are shaped by the culture of the society. The basis of this theory is that group cohesiveness is provided by the common ideology shaped by societal factors. In system approach, society plays a dominant role while the actors such as employers, employees and their representatives keep a low profile and play a passive role in the process.

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Social action approach Social action approach assigns an active role to the actors of the industrial relations. The actors are employers, employees and their representatives. The actors understanding of the work situation becomes more important than the social factors and their independent views gain a greater weight in determining their behaviour towards industrial relations. Social action theory primarily considers bargaining as an important tool for the resolution of a conflict.

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Marxist approach According to this approach, the industrial conflicts are the central reality of industrial relations, but open conflicts are uncommon. The basic assumption of this approach is that industrial relations under capitalism are an everlasting and unavoidable source of conflict.

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Marxist approach (contd.)As far as theory is concerned, the compensation payable to the employees is an outcome of the power struggle. As per this approach, the employers seek to maximize their profits by paying less compensation to the employees, while the latter resist such attempts and this results in industrial conflicts.

Gandhian approach The core of the Gandhian approach in industrial relations is the utility of non-violence as a means of conflict resolution in organizations. The basic elements of this approach are truth, non-violence, the voluntary arbitration of disputes and wantlessness.

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Gandhian approach (contd.)According to Gandhi, the growth of civilization does not mean a multiplication of wants; rather, it means a deliberate and self-imposed attempt to reduce such wants. He insisted on treating workers as human beings and advocated the concept of trusteeship. In essence, this approach puts emphasis on creating equality in society through a non-violent approach.

Human relations approach According to this approach, an organization is nothing but a set of human relations and these human relations are central to how an organization functions. As per this approach, the organizations are made up of people and the success of the management lies in its dealings with these people and their relationships to one another.

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Human relations approach (contd.)The goals of human relations approach are Getting people to work.Cooperating through mutuality of interests.Deriving satisfaction from the relationship achieved.

Giri approach The Giri approach in industrial relations focuses on the relevance and importance of voluntary negotiations between the employers and the employees as a means of settling disputes.

This approach insists on the establishment of bipartite forums at different levels of the industry to wipe out the dispute between the employers and the employees represented by their unions.

This approach also provides for the active involvement and intervention of the state in dispute prevention and settlement.

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Industrial sociology approach The aim of this approach is to investigate the underlying trends and patterns in the cause and effect of industrial disputes both intended and unintended. This approach focuses on the prevention of industrial conflict by tracing the cause of the disputes and then avoiding it.

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Industrial sociology approach (contd.)This approach provides a conceptual framework for investigating, analysing and specifying the structure and process within the organization that often produce conflicts. The removal of the causes of the disputes, according to this approach, facilitates a more effective maintenance of industrial relations.

Oxford school approach According to this approach, the conflict between the interests of employer and employee is inherent, but this interest can be adjusted in order that a common way, which can satisfy both the parties, can be found out.As per this approach, it is highly essential for the parties (management and union) to industrial relations to get the facts right and avoid institutional and other biases. The underlying assumption of this approach is that you cant do much without income and therefore mutually beneficial ways must be found out for achieving a convergence of interests.

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Factors influencing industrial relations Trade union density Frequency of strike activity Politico-economic institutions Cultural diversity Demographic structure Pattern of behaviour

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Essentials of effective industrial relations Industrial relationsLeadership commitmentAppropriate vision, mission and business strategy Creative HR policies Open communicationInstitutionalizing the relationshipBenchmarking

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Effective Industrial Relations Open communicationInstitutionalizing the relationship Benchmarking industrial relations Leadership commitment Appropriate Vision, Mission Creative HR policies

Essentials of effective industrial relations

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Discipline and Disciplinary Action

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After reading this chapter, you should be able to: Understand the objectives and types of discipline.List the symptoms and causes of indiscipline.Enumerate the steps needed for a disciplinary action procedure.

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Discipline: meaning Discipline is a system designed to ensure that the employees performance and behaviour are consistent with the relevant organizational rules and regulations in force.

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Characteristics of employee discipline Standard behaviour Driving force Positive or negative in nature Voluntary or imposed Right of the management Element of control process

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Objectives of discipline Goal accomplishment Developing a responsive workforce Changing employee behaviour Improving morale and motivation Exercising better control over employees Ensuring consistency in actionPromoting industrial relations Substituting personal supervision

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Types of discipline Positive discipline Negative discipline Progressive discipline

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Positive disciplinePositive discipline aims at seeking the willing cooperation of employees in observing the discipline code of the organization. In this method, the responsibility of the organization is to create a positive environment that gently prompts the employees to comply with the organizational code of conduct.

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Positive discipline (contd.)The two inherent aspects of positive discipline are Personal responsibility of employees for maintaining discipline. Independent decision making by them to eliminate their unsuitable and undesirable behaviour.

Negative discipline In this method, fear is the key to the maintenance of discipline. The fear of punishment for acts of indiscipline will be the driving force for the employees to avoid misconduct. It also forces them to obey the rules and regulations of the organization.

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Progressive discipline: meaning Progressive discipline may be defined as any employee discipline system that provides a graduated range of responses to employee performance or conduct problems.

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Progressive discipline (contd.)Progressive discipline requires an organization to adopt a step-by-step approach in dealing with the indiscipline problems of an employee. In this method, the disciplinary action process begins with a modest disciplinary action, then increases the degree of severity gradually and finally ends up with the most severe punishment if the successive stages of punishment do not yield the desired change.

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Progressive discipline (contd.)A progressive disciplining of an employee may begin with the hiring of an employee and can continue throughout his work life in the organization.

Steps in a progressive discipline process Stage1: counselling the employee. Stage 2: first disciplinary proceeding (reminding). Stage 3: second disciplinary proceeding (warning). Stage 4: final disciplinary proceeding (getting an undertaking).Stage 5: initiating disciplinary action (dismissal, demotion, etc.).

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Symptoms of indiscipline AbsenteeismUnauthorized departure from workInefficiencyImmoral conductInsubordinationNegligenceTheftTardiness

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Symptoms of indiscipline (contd.)Causing unsafe working conditionsMisuse of the organizational propertyRule violationsAbusing the supervisor or co-workersRefusal to accept a job assignment

Causes of indiscipline Conventional management practices Unfair treatment Absence of an effective code of conduct Absence of a proper grievance-handling mechanism Ineffective HR policies and practices Absence of an efficient communication system Negative attitude of the employees and their unions Organizational culture

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Types of disciplinary action

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Types of disciplinary action (contd.)Oral reprimandWritten warningDenial of increments, promotions and pay hikePay reductions and disciplinary demotionsSuspensionDischarge or dismissal

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Steps in establishing a disciplinary action procedure

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Elements of a good disciplinary system Clarity in discipline goals Fairness of the procedure Transparency Prior warning Adequate privacy Immediate response Consistency Progressive discipline Documentation Appeal procedure Review and feedback

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Douglas McGregors Hot Stove Rule of discipline Douglas McGregor (1967) identified a few essential characteristics of the disciplinary system of an organization. These are Forewarning Immediacy ConsistencyImpartiality

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Industrial Disputes and Collective Bargaining

Industrial dispute A dispute is basically a difference of opinion between the employer and the employees over one or more issues.

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Characteristics of industrial dispute Industrial dispute is a collective dispute between employer and employees. The relationship existing between the parties to the industrial dispute must be that of employer and employee or co-workers. The dispute may arise out of disagreements between employers and employees over the terms of employment.

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Causes of industrial disputes Demand for pay and benefits hike. Demand for hygienic and safer working conditions. Demand for better labour welfare and social security measures. Demand for recognition and appreciation. Demand for justice to an individual or a group of employees. External interference. Numerous labour legislations.

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Types of industrial disputes Interest disputes- These refer to the disputes relating to the economic interest of the employees. Rights disputes- These involve disputes over the understanding, interpretation, and application of the rules and regulations which protect the rights of the employees.

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Outcomes of disputes The outcomes of disputes are StrikePicketing GheraoLock-out

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Strike A cessation of work by a body of persons employed in any industry acting in combination or a concerted refusal, or a refusal under a common understanding, of any number of persons who are or have been so employed to continue to work or to accept employment .-Industrial disputes act, 1947

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Types of strike General strikePen-downTools-down and sit-in strikesWild-cat strikeGo-slow and work-to-rule strikesSick leave and mass casual leave strikesHunger strike Sympathy strike

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General strike It normally refers to a large-scale strike organized by the employees belonging to an industry, a region or an entire country. Since these strikes are organized on a mass basis, they create a huge impact and often put a lot of pressure on the employers. General strikes are normally not intended against any individual employer.

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Pen-down, tools-down and sit-in strikes In pen-down, tools-down and sit-in strikes, employees report for duty but do no work. In these forms of protest, the employees just refuse to leave their place after entering the work premises and remain idle.

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Wild-cat strike When employees resort to an unauthorized strike in violation of the labour contract or agreements, it is called a wild-cat strike. Wild-cat strikes are illegal and the striking employees are not protected legally against the consequences of these strikes.

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Go-slow (slow down) and work-to-rule strikes Go-slow and work-to-rule strikes are forms of strike in which employees work but not up to their usual levels or capacity. Striking employees reduce their output deliberately to show their protest to the employers. Here, the employees strictly follow the rules and just refuse to deviate from them.

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Sick leave and mass casual leave strikes The purpose of mass casual or sick leave is to bring the work to a halt in order to achieve their demands. The employees may opt for this method even to forewarn the employers of the consequences of a strike planned in the future. In this form of strike, the striking employees are legally right and safe as they exercise their right to avail leave.

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Hunger strike In a hunger strike, the employees undertake fasting by abstaining from both food and work as a means of protest. The purpose of such a strike is to embarrass the employers and get the attention of the government and the general public to the cause of the strike.

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Sympathy strike The purpose of a sympathy strike is to express sympathy and solidarity with another group of striking employees belonging to a different category of employment in the same organization. Incidentally, the sympathy strike may also be conducted for the striking employees in other organizations in the same or a different industry.

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Picketing It is a form of protest by employees in which the primary intention is to prevent or dissuade the non-striking employees from attending to their work during the strike period. Picketing may be held at the workplace or even at some other prominent places to attract the attention of the public and the government.

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Gherao It is a form of protest in which employees encircle their employers or top managers at the workplace with a view to restricting their movements. The purpose of a gherao is to force the employer or managers to concede the demands of the workers.The wrongful confinement of any person is not legally tenable.

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Lock-out The temporary closing of a place of employment or the suspension of work, or the refusal by an employer to continue to employ any number of persons employed by him. -Industrial disputes act, 1947 A lock-out is the employers response to the employees continued protest in the form of strike. In a lock-out, the employer closes the workplace with the aim of preventing the employees from entering the factory premises and performing their job.

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Investigation and settlement of disputes (contd.)

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Negotiation Negotiation is a first attempt to resolve an industrial dispute.Disputes arising out of inter-personal, inter-group problems can be solved through direct negotiation between the employer and the union. As part of a negotiation-based dispute settlement, organizations can refer disputes involving individuals to grievance procedures established in organizations in compliance with the Industrial disputes act, 1947.

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Collective bargaining It is a forum for reaching an agreement between the employer and the union after negotiations and bargaining. Collective bargaining provides for resolution of disputes through compromises or concessions made by both the parties.

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Conciliation and mediation Conciliation can be defined as a procedure to achieve amicable settlement with the assistance of an independent third party.Conciliation means different forms of mediation through which disputes can be settled without arbitration.

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Conciliation and mediation (contd.)The purpose of the conciliation process is to remove the animosity and mutual distrust in the relationship between employer and employees. Conciliation normally involves a third party who acts as a mediator and plays a key role in persuading the employer and the employees to reach a voluntary settlement and execution.

Arbitration Arbitration is a mechanism for settlement of a dispute by a third party. Arbitration can be classified as compulsory and voluntary. In case of compulsory arbitration, the dispute is referred for arbitration even without the consent of the parties to the dispute. In case of voluntary arbitration, the parties to the dispute voluntarily submit their dispute for arbitration on the basis of their common understanding.

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Adjudication Adjudication is a court-based decision-making process that involves a third party and the judgements are binding on the parties. Adjudication is usually a highly formal and time-consuming process. It is normally an involuntary and adversarial process.

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Adjudication (contd.)In an adversarial process, judgment is decided in favour of the party which is proved right and, by the same extension, the other party is proved wrong. Adjudication includes courts of enquiry, labour courts, industrial tribunals and national tribunals.

Collective bargaining

Collective bargaining: meaning Collective bargaining is defined as a free and voluntary forum that facilitates negotiation between employers and employees unions on issues affecting the interest and rights of both parties so that an amicable settlement is reached in good faith.

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Features of collective bargaining The features of collective bargaining are Joint processInteractive mode Continuous process Adversarial strategyUnion-based initiative

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Types of bargaining The types of bargaining are Distributive bargaining Integrative bargaining Centralized bargainingDecentralized bargaining

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Distributive bargaining It is used when the parties to the bargaining process have conflicting needs, interests and goals. In this, the employers and employees normally adopt opposing positions.In it, one partys gain is another partys loss as their needs are mutually exclusive. Economic issues like wages revisions, benefits, bonuses, leaves and workloads become the major agenda of distributive bargaining.

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Integrative bargaining When there is a convergence of interests, needs and goals among the parties to the bargaining.In it, the employers and the employees have the same attitude towards the issues discussed in the bargaining and are equally concerned about its outcome. Agreements regarding employee health and safety at the end of the bargaining process usually benefit both the parties.

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Centralized bargaining When collective bargaining is conducted at higher levels like the national level or industry levels in a centralized manner, it is called centralized bargaining. This may be sectoral or central wage bargaining.

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Decentralized bargaining In this case the bargaining is conducted at the enterprise level or even at the individual level. In this, an organization can develop a tailor-made wage package which best suits the interests of both the employer and the employees. Decentralized bargaining provides an opportunity to the employees to participate in the decision-making process.

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The Collective Bargaining Process

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Essentials of an effective collective bargaining An effective collective bargaining requires Strong unions and an effective leadership The organizations recognition of unions Top management support Positive external environment Openness and flexibility Fair labour practices

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Employee Grievances

Grievance: meaning A grievance is a written complaint lodged by an unsatisfied employee about unfair treatment.

Characteristics of grievance Grievances arise out of the perceived injustice or unfair treatment felt by the aggrieved employee.It is the state or feeling of discontent or dissatisfaction. The cause of a grievance may be real or imaginary. A grievance may be voiced or unvoiced. It must arise only out of the job of the employee in the company.

Sources of grievance Grievances concerning management policies and practices Grievances concerning working conditions Grievances concerning supervision Grievances concerning collective bargaining agreements Grievances concerning work adjustment difficulties

Techniques of grievance identification

Exit interview When employees quit an organization for any reason, an exit interview may be conducted to obtain information about job-related matters. This can provide the employer with an invaluable insight into the simmering problems and anxieties concerning the employees. It will be natural for those quitting their jobs to speak freely and frankly about their experience and observations in the job.

Gripe-box system Under this system, employees can drop their written complaints in the boxes kept by the organization. The purpose of this system is to provide an outlet to the employees to secretly express their complaints and apprehensions without the fear of being victimized.This method is more effective if the complaints are serious and sensitive in nature.

Opinion survey Opinion survey is the means of gathering information from the employees about their existing grievances. Surveys can be conducted through group meetings, periodical interviews, snap meetings and collective bargaining sessions.

Open-door policy In this system, the workers are encouraged to call on the relevant manager at any time, to freely share their opinions, feelings and complaints with him or her.This method will be effective only when there is mutual trust in the relationship between the managers, the supervisors and the employees.

Observation In this method, grievances are not heard from the aggrieved employee directly. Rather, the manager or the immediate supervisor constantly tracks the behaviour of the employees working under him or her. When the manager or supervisor notices unusual behaviour among the employees, he or she should report this to the higher authorities promptly.

Observation

Essentials of a good grievance procedure A good grievance procedure should be Legally sustainable Mutually acceptableEasily understandableHighly flexible Sufficiently knowledgeable

Benefits of the grievance redressal procedure A sound grievance procedure Enables the management to know the pulse of its employees. Provides a channel to the aggrieved employees to express their grievances. Provides clues about the behaviour and attitude of the managers and supervisors. Keeps the morale of the employees high.

Statutory provisions concerning the grievance redressal procedure in India The Industrial Employment (Standing Order) Act, 1946 The Industrial Disputes Act, 1947 The Factories Act, 1948

Trade Unions

Trade union: meaning Trade union is a formal association of workers for the purpose of protecting and promoting their rights and interests through collective bargaining and actions.

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Features of a trade union The features of a trade union are Voluntary associationCommon goalsAuthority flows from the membersIntermediaryCollective action

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Objectives of trade unions Income security Job security Physical securitySocial security Emotional security Procuring political prowess Fostering industrial democracy and equity

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Types of trade unions Occupational unions Industrial unions General unions White-collar unions

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Occupational unions In this kind of trade union, the union members mostly belong to a specific occupational category. The primary purpose of such unions is to protect the skill status of their members. This kind of unions may exist exclusively for technicians, pilots, marine engineers, hairdressers, welders, journalists, freelance photographers, and so on. The earliest kind of occupational union was the craft union.

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Industrial unions In an industrial union members usually belong to a specific industry. When the workers belonging to textile or steel industry form a trade union, it is commonly called an industrial union. The primary purpose of the industrial unions is to promote sectoral collective bargaining. When a single industrial union represents all the workers of a specific industry, it is a monopolistic union.

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General unions When the unions represent workers from different industries and organizations, they are known as general unions. It may be a single union for the entire working class or an amalgamation of several unions representing workers of different industries. Such unions are capable of organizing general strikes at the national level by converting the entire working class into one body or federation with maximum consequences.

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White-collar unions (contd.)The uniting factor for the workers of white-collar unions is the nature of their job and not their skills. The employees who perform non-manual job and belong to salaried class often form white-collar unions. The emergence of the services sector as an important segment of economy and globalization have provided impetus to the growth of white-collar unions in India.

Strategies and actions of unions for goal accomplishment

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Why do workers join trade unions?The reasons for joining unions are Defencelessness against exploitationTrade union cloutFulfilment of social and esteem needsCompulsory membership Peer group influence

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Trade Union Act, 1926 The Trade Union Act, 1926 deals with the registration and regulation of trade unions.It also specifies the rights, privileges, duties and liabilities of the registered trade unions.This act is applicable to the whole of India. Minimum number: Seven or more members of a trade union can apply for the registration of their trade union under this act.

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The important sections of the Trade Union Act are Application (sections 4 & 5) Certificate of registration (sections 8 & 9) Powers of registered unions (section 13)Broad objectives on which general funds may be spent (section 15)Fostering civil and political interests of the members (section 16) Legal protection to office-bearers in certain criminal conspiracy charges (section 17)

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The important sections of the Trade Union Act are (contd.)Immunity from trade disputerelated civil suits (section 18) Validity of agreements (section 19) Inspection of books maintained by the trade union (section 20) Admission of minors as members of trade union (section 21)

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The important sections of the Trade Union Act are (contd.)Disqualifications concerning holding of office (section 21A) Requirements regarding industry-wise representation in office (section 22) Conditions relating to dissolution (section 27) Filing of returns (section 28)

Challenges facing the trade union movement The challenges before the trade union movement are Declining membershipsChanging profile of Indian workersMulti-unionism and inter-union rivalry External leadershipInternational workers

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Situations fostering the growth of trade unions in organisationsThe absence of an adequate two-way communication between the employers and the employees.Unilateral decision and actions by the management. The presence among the employees of a general distrust in the management.A feeling of stress and anxiety in the job environment.The absence of recognition and respect for the employees and their actions.

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Strategies for developing a union-free organization (contd.)Effective information sharingEnsuring employee participationSensitivity to employee complaints and concernsFairness in HR policies and proceduresLeadership trainingVulnerability test

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Strategic Human Resource Management

Strategic human resource management: meaning Strategic human resource management is a process of aligning HR strategies with the business strategy to accomplish the performance goals through the employees competency and commitment.

Steps in strategic management process

Models of strategic human resource management

Business-oriented model This model aims at value creation by developing a HR system that creates and sustains the competitive advantage through human resources.

Strategic fit modelThis model focuses on matching the HR capabilities and resources with the external opportunities. It also focuses on developing HR practices in such a way that they complement one another.

Strategic fit model (contd.)Two types of strategic fits are: Vertical fit (deals with the extent of alignment between the HR strategies and business strategy). Horizontal fit (deals with the extent of alignment among the components of the HR strategy).

SLAP model This method focuses on the interdependences among HR strategies, business strategies and organizational changes. This model acknowledges HRM as a continuous process of balancing the demand for and the supply of labour.

Levels of strategy

Corporate level strategy Corporate level strategy -Topmost level of strategy-making: it focuses on the value creation for the entire organization. Its three components are: Growth strategy focuses on the development and accomplishment of growth objectives.

Corporate level strategy (contd.)Portfolio strategy focuses on the determination of the portfolio of business units for the organization. Parenting strategy focuses on the allocation of resources and development of organizational capabilities across the business units.

Business level strategy Business level strategy focuses mostly on creating and sustaining competitive advantage for products through one or more of distinguishing factors like price/cost leadership and product differentiation.

Functional level strategyAt the functional level, specific strategies are made for the functional activities of the organization. This strategy may encompass production, marketing, purchase, finance, HR, research and development, and other similar activities of the firm.

Models of strategic formulation High involvement management modelHigh commitment management model High performance management model

High involvement management model This model aims at creating an environment that facilitates the continuous exchange of information between the superiors and the subordinates.

High commitment management model This model aims at obtaining voluntary commitment from employees by adopting mutually beneficial HR practices.

High performance management model This model aims at constantly improving the performance of individuals and the organization. A high-performance management is achieved by continuously educating the employees and improving their skills.

Benefits of strategic HRM Achieves cost-effective engagement of labour. Meets the changing needs and expectations of the customers effectively.Necessities the development of clear-cut goals, direction and future focus to the entire organization.

Benefits of strategic HRM (contd.)Facilitates the planning and execution of organizational changes in a timely and effective manner.Ensure the optimum utilization of organizational resources. Helps in developing, managing and sustaining the skills and knowledge of its human resources.

Benefits of strategic HRM (contd.)Enhances the coordination among the various functional centres and the top management. Facilitates the continuous scanning of external environment.

Barriers to an effective SHRMAbsence of long-term orientation. Lack of strategic reasoning. Lack of adequate support from top management. Resistance from labour unions.Fear of failure. Rigidity of HR practices. Fear of attrition. Absence of measurement techniques.

International Human Resource Management

International human resource management: meaning International human resource management is a process of procuring, developing, compensating and retaining people in organizations operating beyond national boundaries at the global level.

Features of IHRMIt involves employment of the right people at the right positions, irrespective of geographic locations. It requires the development of a diversified range of skills for employees. It requires the development of a well-organized evaluation system to assess the performance of employees across different locations and nations.

Factors distinguishing IHRM from domestic HRM Besides the usual domestic HRM activities, IHRM requires Additional HR activities like international relocation for employees, administrative services for expatriates, international taxation and language translation services.Greater attention to expatriate employees personal needs. Greater risk exposure.

Challenges facing IHRM The challenges facing IHRM areManagement of cultural diversity Management of the complexity of the workforceManagement of communication channelsManagement of divergent economic systemsManagement of legal and industrial relations issues

International recruitment International HR managers must identify the global competitiveness of the potential applicants at the time of the recruiting process. International HR managers must keep international knowledge and experience as criteria in the recruitment and selection process. International HR department must have a fairly good idea about the skills and availability of human resources in different labour markets in the world.

Approaches to recruitment in IHRM Ethnocentric approach Polycentric approach Geocentric approach

Ethnocentric approachWhen an international company follows the strategy of choosing only from the nationals of the parent country, it is called an ethnocentric approach. The general rationale behind the ethnocentric approach is that the staff from the parent country would represent the interests of the headquarters effectively and link well with the parent country.

Polycentric approach When a company adopts the strategy of limiting recruitment to the nationals of the host country, it is called a polycentric approach. The purpose of adopting this approach is to reduce the cost of foreign operations gradually. The companies that adopt this method normally have a localized HR department, which manages the human resources of the company in that country.

Geocentric approach When a company adopts the strategy of recruiting the most suitable persons for the positions available in it, irrespective of their nationality, it is called a geocentric approach.

International selection The selection criteria for international jobs usually revolves around the five core areas of behaviour, attitudes, skills, motivation and personality. The focus of selection for international operations normally includes cultural adaptability, strong communication skills, technical competence, professional expertise, global experience, interpersonal skills, language skills and family flexibility.

International training and development International companies usually aim at standardizing business and HR practices across the world through necessary employee training and development programmes. IHRM can provide training to expatriate employees in three stages Pre-move training- This refers to training the employees who are selected for foreign assignments.Continual training- Continuous training to the expatriates even after they have joined duty in the foreign country. Repatriation training- Refers to a brief training provided to expatriates when they are ready to return to their home country.

International compensationdefinition International compensation is the provision of monetary and non-monetary rewards including base salary, benefits, and perquisites, long- and short-term incentives, valued by employees in accordance with their relative contribution to MNC performance -Anne-Wil Harzing and J. van Ruysseveldt

International compensation approaches Balance sheet approach Going rate approach

Balance sheet approachThe basis of this approach is that the expatriates pay must equalize the purchasing power across countries and they continue to enjoy the same standard of living they would have enjoyed in their parent nation.In this approach, the company compares four groups of expenses (income taxes, housing, goods and services and discretionary expenses) between the home country and the host country and compensates the expatriates if they are adversely affected by the differences in these expenses.

Going rate approachWhen the compensation packages of the expatriates are determined on the basis of the salary structure prevailing in the host nation, it is called the going rate approach. Typically, the salary in this method is decided on the basis of the survey undertaken in the host country where the business is located.

International employee benefits Many international companies usually adopt the best-of-both-worlds benefits model. Under this model, an expatriate employee is given home-country benefits coverage. However, if any benefit is not available in the home-country plan, he or she may join the host-country plan.

International performance evaluation International performance evaluation primarily aims at evaluating the expatriates and foreign employees of third countries and the host country.

International industrial relations The HR policies and practices of international companies must be well attuned to global differences in trade union practices and collective bargaining system.The unions usually find it difficult to deal with international companies and hard to penetrate in terms of union representation.

International employee safety and health Employee safety and healthcare facilities in plants often differ from one country to another in their state of condition and modernisation, depending upon local laws and regulations. The multinational companies may either follow local laws in providing health and safety facilities or adopt consistent health and safety policies across all locations without violating the prevailing laws.

Strategic international human resource management (SIHRM) SIHRM is defined as human resource management issues, functions and policies and practices that result from the strategic activities of multinational enterprises and have an impact on the international concerns and goals of those enterprises.