Unit 4 HRM

Unit 4

Employee Appraisal

& Compensation

Introduction

Appraising employees on the basis of performance is a complex job,

which requires observing their job behavior & assessing their attitude

towards the job and organization.

This includes use of different methods of appraisal and rating system,

design of appraisal forms, appraisal interview etc.

Appraisals are also important to help staff members improve their

performance and as an avenue by which they can be rewarded or

recognized for a job well done.

Companies want to attract, retain and motivate brains to meet

objectives.

Today Humans are regarded as one of every company’s assets so they

need to be efficiently and effectively managed. One of the tools

companies use to attract, retain and motivate its people is compensation management.

4.1 Performance Appraisal

A) Meaning :

Performance appraisal is a process of evaluation and employees’ performance of a

job in the terms of requirements. Performance means the degree of accomplishment

of the task which is assigned to the individual. In other words, performance appraisal

gives us an idea about the completion of job. In every field, the technique of

performance appraisal is applied e.g. bankers evaluate the performance of their

creditors or loan holders, teachers evaluate the performance of students or parents

evaluate the behavior of their children

B) Definitions :

1) Spriegel W. R. :

―“It is defined as a process of evaluating an employee’s performance of a job in terms

of its requirements.”

2) Flippo Edwin :

“Performance Appraisal is a systematic, periodic and so far as humanly possible, an

impartial training of an employee’s excellence in matters pertaining to his present job

and to his potentialities for a better job.”


C) Objectives :

1) To Increase Motivation and Productivity:

Employee is motivated as there is clarity of what he is required to do in a given

period. This brings greater focus on job related activities.

2) To Enhance Transparency:

Setting of performance targets /objectives, agreement on measurement criteria and

organizations expectations of desired performance level brings to transparency to

the appraisal process.

3) To Retain Top Talent:

Performance appraisal helps organization in taking people related decisions such

as career planning, career development, promotions, training and development

opportunities, and succession planning.

4) To Increase Commitment:

Employee’s involvement in planning of work and identification of skills helps to

bring greater self-awareness and increases his commitment to the objectives of

performance appraisal activities.

5) To Develop Employees:

Performance appraisal accord an opportunity to develop an employee through the

identification of gaps in skills and competencies. This results in personal and

professional development of employees.


D) Characteristics of Performance Appraisal : 1) Bias Free :

It must be bias free the evaluator must be objective and the methods of appraisal

must be fair and equitable. The atmosphere must be that of confidence and trust.

2) Relevant ;

It must be relevant it should only measure behaviors that are relevant to the

successful job performance and not any other personal traits.

3) Acceptability :

It should be acceptable to all the performance standards as well as the appraisal

methods should be developed by joint participation and joint collaboration.


4) Reliability :

It should be reliable, dependable, stable and consistent. High reality is essential for

correct decision making and valid action studies: It should be sufficiently scientific

so that if an employee is evaluated by two different evaluators, then the result

should be significantly the same.

5) Sensitivity :

It must be able to objectively differentiate between a good employee and an

ineffective employee. Rating an employee "average" does not adequately the

degree of effectiveness. Hence the technique must be sufficiently sensitive to pick

up the differences between an effective and an ineffective employee.

6) Practical :

It must be practical, sound, clear and unambiguous, so that all parties 'concerned

understand its implications.


E) Uses of Performance Appraisal :

1) Help in Deciding Promotion :

It is in the best interest of the management to promote the employees to the

positions where they can most effectively use their abilities.

2) Help in Personnel Actions :

Personnel actions such as lay-offs, demotions, transfers and discharges etc.

may be justified only if they are based on performance appraisal.

3) Help in Wage and Salary Administration :

The wage increase given to some employees on the basis of their performance

may be justified by the performance appraisal results.



4) Help in Training and Development :

An appropriate system of performance appraisal helps the management in

devising training and development programmes and in identifying the areas

of skill or knowledge in which several employees are not at par with the job

requirements.

5) Aid to Personnel Research :

Performance appraisal helps in conducting research in the field of

personnel management.

6) Help in Self Evaluation :

Every employee is anxious to know his performance on the job and his

potentials for higher jobs so as to bring himself to the level of that position.

7) Help in Creating Healthy Competition :

Performance appraisal brings out the deficiencies and shortcomings of

the employees.

F) Essentials of an Effective Performance Appraisal System :

1) Mutual Trust :

The existence of an atmosphere of confidence and trust so that both supervisor and

employee may discuss matters frankly and offer suggestions which may be

beneficial for the organisation and for an improvement of the employee.

2) Clear Objectives :

The objectives and uses of performance appraisal should be made clear and

specific. The objectives should be relevant, timely and open.

3) Standardization :

Well-defined performance factors and criteria should be developed. These factors

as well as appraisal form, procedures and techniques should be standardized.


4) Training :

Evaluators should be given training in philosophy and techniques of appraisal.

5) Job Relatedness :

The evaluators should focus attention on job-related behaviour and performance of

employees. The results of performance rather than personality traits should be

given due weight.

6) Strength and Weaknesses :

The raters should be required to justify their ratings. The supervisor should try to

analyze the strength and weaknesses of an employee and advise him on correcting

die weakness.



7) Feedback and Participation :

Arrangements should be made to communicate the ratings to both the employees

and the raters.

8) Individual Differences :

While designing the appraisal system, individual differences in organisations

should be recognized.

9) Post Appraisal Interview :

A post-appraisal interview should be arranged so that employees may be

supplied with feedback and the organisation may know the difficulties under

which employees work, so that their training needs may be discovered.

10) Review and Appeal :

A mechanism for review of ratings should be provided. The results of the

appraisal, particularly when they are negative, should be immediately

communicated to the employees, so that they may try to improve their

performance.

G) Methods and Techniques of Performance Appraisal :

A) Traditional Methods :

1) Straight Ranking Method :

According to this method, the performance of one man is compared with all

other men and then he is placed in a simple rank.

2) Man to Man Comparison Method :

Under this method, certain factors are selected for the purpose of comparison

as base such as leadership, dependability, initiative, etc. A scale is developed for

each factor. Instead of comparing man to another, personnel employees are

compared to key man (one factor at a time.)

3) Grading Method :

As per this method, the worth of job is established in advance which

is carefully defined e.g. A = Outstanding, B = Very Good, C = Good, D = Poor / Bad,

etc.


4) Graphic Rating Scales :

In this method the degrees on a factor scale are presented by definitions rather

than by key man. There are two types : (1) Initiative and dependability. (2) Co-

ordination between quantity and quality of work.

5) Forced Choice Description Method :

Under this method, the rating elements are several sets of payer, phases or

adjectives relating to proficiency or personal qualifications.

6) Forced Distribution Method :

This method is used to get read from refers bias so that employees may not be

placed at the higher end or the lower end of the scale.

7) Check Lists :

In this method reports about performances are given and the final rating is done by

the personnel department.


4.1 Performance Appraisal 8) Free Form Essay Method :

A detailed report is prepared about the performance and general behaviour of

employees.

9) Critical Incident :

Under this method, worker’s performance is measured in terms of certain events or

episodes.

10) Group Appraisal :

As per this method employees are appraised by a particular group consisting of

some experts.

11) Field Review Method :

As per this method, the supervisor is required to give his opinion about the progress

of his subordinates, the level of performance of each subordinate, his weaknesses,

good points, outstanding ability, promotability, etc.

4.1 Performance Appraisal B ) Modern Methods :

1) Assessment Centre :

As per this method, various assessment centers are created to take feedback of

employees’ performance.

2) Behaviorally Anchored Rating Scales (BARS) :

These are the rating scales whose scale points are determined by statements of

effective and ineffective behavior.

3) Appraisal By Results or Management By Objectives (MBO) :

As per this method, more attention is given towards responsibility, accountability

and achievement of goals.

4) Human Asset Accounting Method :

This method gives more importance to the human capital in terms of money. It

considers key factors as loyalties, attitudes, motivations, communication skills and

decision-making power, etc.

4.1 Performance Appraisal C) 360 degree Method of Appraisal :

A) Organizations that Use this to Assess Employee Performance :

360 degree feedback is the most comprehensive appraisal where the feedback

about the employees’ performance comes from all the sources that come in contact

with the employee on his job.

B) The Stakeholders in doing 360-Degree Assessment :

360 degree respondents for an employee can be his/her peers, managers (i.e.

superior), subordinates, team members, customers, suppliers/ vendors - anyone

who comes into contact with the employee and can provide valuable insights and

information or feedback regarding the ―on-the-job‖ performance of the employee.

C) 360 Degree Appraisal has four Integral Components:

1) Self appraisal :

2) Superior’s appraisal :

3) Subordinate’s appraisal :


4) Peer appraisal :

Employee

Superiors Customers

Peers

Suppliers

Subordinates

Suppliers

Peers

Customers

Components of 360 degree Appraisal

4.1 Performance Appraisal H) Advantages of Performance Appraisal :

1) Important Tool of an Organisation :

On the basis of performance appraisal information, important decisions can be

taken regarding promotion, transfer, etc.

2) Scope for Improvement :

It gives proper scope to each and every employee for their self-development.

3) Healthy Employee and Employer Relationship :

It creates a good atmosphere in the organisation which leads to building in healthy

relationship among the employers and employees.

4) It Serves as a Guide of Employee Development :

Helps the employee to improve their performance.

5) Suitable Remuneration :

On the basis of performance appraisal reports, it becomes easy to fix up the

remuneration of every employee.

4.1 Performance Appraisal 6) Accessing the Training Requirement :

It enables to find out the exact requirement of staff.

7) Selection Validation:

Helps the supervisors to understand the validity and importance of the selection

procedure.

8) Communication:

Through performance appraisal, communication can be sought for

a) The employers can understand and accept skills of subordinates.

b) The subordinates can also understand and create a trust and confidence in superiors.

c) It also helps in maintaining cordial and congenial labour management relationship.

d) It develops the spirit of work and boosts the morale of employees.

4.1 Performance Appraisal 9) Motivation:

Through evaluating performance of employees, a person’s efficiency can be

determined if the targets are achieved.

H) Disadvantages of Performance Appraisal :

1) Limited Perspective :

Traditional performance review tools involve only the manager’s view of his

subordinate’s performance.

2) Erosion of Motivation :

Companies that use performance appraisals as the sole tool when doling out pay

increases run the risk of added conflict between supervisors and subordinates, and

eroding employee motivation to improve.

3) Time Consuming :

Many appraisal tools that offer the most objective view of an employee’s

performance are also the most time consuming.

4.2 Concept of Performance Management

Performance Management is one of the key processes that, when effectively

carried out, helps employees know that their contributions are recognized and

acknowledged.

Performance management is an ongoing process of communication between a

supervisor and an employee.

The communication process includes clarifying expectations, setting

objectives, identifying goals, providing feedback, and evaluating results.

also involves giving feedback to employees more than they get annually.

Performance management is the process of creating a work environment or

setting in which people are enabled to perform to the best of their abilities.

A performance management system includes the following actions

4.2 Concept of Performance

Management

1) Develop clear job descriptions.

2) Select appropriate people with an appropriate selection process.

3) Negotiate requirements and accomplishment-based performance standards,

outcomes, and measures.

4) Provide effective orientation, education, and training.

5) Provide on-going coaching and feedback.

6) Conduct quarterly performance development discussions.

7) Design effective compensation and recognition systems that reward people

for their contributions.

8) Provide promotional/career development opportunities for staff.

9) Assist with exit interviews to understand WHY valued employees leave the

organization.


Management

h

Significance of Performance Management :

1) Competitive Business Environment :

organizations are required to deal with performance-related issues more than

in the past due to increasing competition and the need to do more with fewer

resources.

2) Business-HR Partnership :

Its contribution to the bottom line of organizations in terms of profits, sales,

turnover and earnings per share. Secondly, the utility of human resource

function and its practices to the effective functioning of organizations in terms

of work culture.

3) Fulfillment of Human Resource Needs :

In the motivational hierarchy, most employees in business organizations are

placed at the level of self-esteem and self-actualization.


Management

h

4) Performance Management as Core of HR :

Performance driven practices such as reward, career, team building, culture,

performance Measurement, competency development and leadership, lie in

the heart of human resource management.

5) Integrated Motivational Tool :

Performance management consists of a set of motivational tools that are

capable of obtaining superior performance of employees.

6) Capable of Institutionalising High Performance Work Culture:

Performance management practices are centered on creating a distinct and

salutary work culture.

7) Long-Lasting Impact and Sustainable Results :

Long-lasting positive results for both employees and the organization can be achieved only through implementation of performance management initiatives.

4.3 Performance Measurement :

A) Meaning :

Performance measurement is the process by which businesses, governments

and other organizations establish criteria for determining the quality of their

activities, based on organizational goals.

B) Need of Performance Measurement :

1) To Met Organisational Goals :

To ensure that the company/organisation aims are met.

2) To Get Feedback :

employees can get a feedback on their performance and as a result find ways in

which they can improve the way they work.

3) To identify Talent :

By measuring employee performance, it is easy to recognize the key skills of an

employee.


4) To Diversify the Skills :

By diversifying the skills of employees throughout the organisation, there is an

increase in the chance for the company to meet its aims.

5) To Separate Employees :

The performance measurement will allow the top managers to separate the

employees by those who do well and those who do not match the company

criteria.

6) To take corrective Action :

Helps the managers to identify the employees that perform well from the employees that do not perform well.

7) To Deal with Competitors :

It is important for comparing a company to competitors in its industry.


C) Use of Performance Data :

1) Human Resource Planning :

A well-designed data provides an outline of the organisation’s human

resource strengths and weaknesses.

2) Training and Development :

The information gathered from a performance appraisal should show which

employees need training and development, as well as the specific skills

they need to work on.

3) Career Planning and Development:

How employees plan their careers and how they develop and grow in the

organisation may be viewed from either an individual or organizational

viewpoint.


4) Compensation Programmes :

The results of performance appraisal provide a basis for decisions

regarding pay adjustments, that is, increases or decreases in pay. Many

managers believe that outstanding and exceptional job performance should

be rewarded with pay increases.

5) Internal Employee Relations:

Performance Appraisal data is also frequently used for making decisions in

several areas of internal employee relations, including promotion, demotion,

termination layoff and transfers.

6) Assessment of Employee Potential :

Organizations attempt to assess employee potential as they appraise their

job performance.


H) Performance Measurement Process:

1) Establishing Performance Standards :

The first step in the process of performance measurement is the setting up of

the standards which will be used to as the base to compare the actual

performance of the employees.

2) Communicating the Standards :

The employees should be informed and the standards should be clearly

explained to them.


the Actual Performance:

cxzcxbxhabhdsg

Establishing Performance

Standards

Communicating standards and

expectations

Measuring the actual

performance

Comparing with standards

Discussing results (providing

feedback)

Decision making-taking

corrective action

3) Measuring the Actual Performance:

It is a continuous process which involves monitoring the

performance throughout the year.

4) Comparing the Actual with the Desired Performance

:

The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set.

5) Discussing Results:

The result of the appraisal is communicated and

discussed with the employees on one-to-one basis.

6) Decision Making:

The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers etc.

4.4 Performance Feedback


cxzcxbxhabhdsg

A) Meaning :

Feedback is an essential communication tool in business performance

management.

The performance feedback process is ongoing between managers and employees.

The exchange of information involves both performance expected and performance

exhibited.

Encourage the employees to talk to management and report problems to resolve

any issues.

B) Recommendations for Effective Performance Feedback :

1) Feedback Should Be Given Frequently, Not Once n Year :

Managers have a responsibility to correct performance deficiencies immediately on

becoming aware of them. a major determinant of the effectiveness of a feedback

session is the degree to which the subordinate is not surprised by the evaluation.



cxzcxbxhabhdsg

2) Create the Right Contest for the Discussion :

Managers should choose a neutral location for the feed-back session. should

describe the meeting as an opportunity to discuss the role of the employee.

3) Ask the Employee to Rate His or Her Performance before the Session :

Having employees complete a self-assessment before the feedback session can be

very productive. It requires employees to think about their performance over the

past rating period, and it encourages them to think about their weaknesses.

4) Encourage the Subordinate to Participate in the Session :

When employees participate in the feedback session, they are consistently satisfied

with the process. Participation includes allowing employees to voice their opinions

of the evaluation, as well as discuss performance goals.

5) Recognize Effective Performance through Praise :

Performance feedback sessions as focusing on the employee's performance

problems. The purpose of the session is to give accurate performance feedback,

which entails recognizing effective performance as well as poor performance.



cxzcxbxhabhdsg

6) Focus on Solving Problems :

To improve poor performance, a manager must attempt to solve the problems

causing it. This entails working with the employee to determine the actual cause

and then agreeing on how to solve it.

7) Focus Feedback on Behavior or Results, Not on the Person :

Focus the discussion on the employee’s behaviors or results, not on the employee.

Saying.

8) Minimize Criticism:

Manager should resist the temptation to reel off a litany of offenses. Having been

confronted with the performance problem, an employee often agrees that a change

is in order.

9) Agree to Specific Goals and Set a Date to Review Progress :

Goal setting increases satisfaction, motivation to improve, and performance

improvement.

4.5 Compensation


cxzcxbxhabhdsg

A) Concept :

The term compensation means the reward for labour and service.

It is the result of agreement between the employer and employee, whereby for a

specified work or service, rendered by the employee, the employer agrees to pay a

specified sum of money.

Compensation is not just about regular rewards for work done but also attempts

made by employers to retain employees.

Employee compensation is the essence of human resource management.

B) Elements of Compensation :

1) Non-Monetary Compensation:

Any benefit an employee receives from an employer or job that does not involve

tangible value.

4.5 Compensation


cxzcxbxhabhdsg

2) Direct Compensation:

It includes an employee’s base wage which can be an annual salary or hourly wage

and any performance-based pay that an employee receives.

3) Indirect Compensation:

Far more varied, including everything from legally required public protection

programs such as Social Security to health insurance, retirement programs, paid

leave, child care or moving expenses.

C) Definitions :

1) Terry Leap :

“Compensation is a board term pertaining to financial rewards received by persons

through their employment relationship with an organisation.”

4.5 Compensation


cxzcxbxhabhdsg

2) Gary Dessler :

“Compensation means all forms of pay or rewards going to employees and arising

from their employment.“

3) R. Wayne Mondy :

“Compensation is the total of all rewards provided to employees in return for their

services. The overall purposes of providing compensation are to attract, retain and

motive employees."

D) Objectives of Compensation :

1) Acquire Qualified Personnel :

Compensation needs to be high enough to attract applicants.

2) Retain Current Employees:

Employees may quit when compensation levels are not competitive, resulting in

higher turnover.

4.5 Compensation


cxzcxbxhabhdsg

3) Ensure Equity:

Compensation management strives for internal and external equity.

4) Reward Desired Behavior:

Pay should reinforce desired behaviors and act as an incentive for those behaviors

to occur in the future.

5) Control Costs:

A rational compensation system helps the organization obtain and retain workers at

a reasonable cost.

6) Comply with Legal Regulations:

A sound wage and salary system considers the legal challenges imposed by the

government and ensures the employer's compliance.

7) Facilitate Understanding:

The compensation management system should be easily understood by human

resource specialists, operating managers, and employees.

4.5 Compensation


cxzcxbxhabhdsg

8) Further Administrative Efficiency:

Wage and salary programs should be designed to be managed efficiently, making

optimal use of the HRIS.

E) Types of Compensation :

1) Direct compensation :

It refers to monetary benefits offered and provided to employees in return of the

services they provide to the organization.

2) Indirect compensation :

It refers to non-monetary benefits offered and provided to employees in lieu of the

services provided by them to the organization.

3) Incentives :

These are the additional payment to employees besides the payment of wages and

salaries.

4.5 Compensation


cxzcxbxhabhdsg

4) Fringe Benefits :

Fringe benefits include such benefits which are provided to the employees either

having long-term impact.

5) Perquisites :

These are normally provided to managerial personnel either to facilitate their job

performance or to retain them in the organization.

F) Principles of Compensation :

1) Law of Supply and Demand :

The law of supply and demand must be taken into account in determining wage

rates in an enterprise.

2) Prevailing Wages :

Prevailing wages for the same category of workers in the same labour market or

industry provides a basis to determine wage rates in the company.

4.5 Compensation


cxzcxbxhabhdsg

3) Ability to Pay :

Ability to pay forms a crucial determinant of the general wage level in an enterprise.

4) Governmental Factors :

There are numerous governmental factors in determining wage levels.

5) Standard and Cost of Living :

Wage levels are adjusted in accordance with changes in the consumer price index.

6) Productivity :

Productivity forms an effective consideration in the determination of wage level in a

company.

7) Bargaining Power :

Strong bargaining power of workers through their union ensures higher wages than

those who have weak bargaining power or have no unions

4.5 Compensation


cxzcxbxhabhdsg

8) Job Requirements :

Job requirements indicating measures of job difficulty provide a basis for

determining the relative value of one job to another in an enterprise.

G) Factors Affecting Compensation :

A) Internal Factors:

1) Ability to Pay :

A firm, which is prosperous and successful, has the ability to pay more than the

competitive rate. This way it can attract a superior caliber of personnel.

2) Employee :

Numerous employees related factors also influence his or her compensation. Like

a) Performance

b) Experience

4.5 Compensation


cxzcxbxhabhdsg

c) Seniority

d) Potential

3) Job Requirements:

Wages are also influenced by the requirements of a job such as physical and

mental requirement.

4) Job Evaluation:

Job evaluation establishes a consistent and systematic relationship among base

compensation rates for all jobs.

5) Organization's Strategy:

The organization's strategy regarding wages also influences employee

compensation.

4.5 Compensation


cxzcxbxhabhdsg

B) External Factors:

1) Laws and Regulations :

Laws and regulations impact the remuneration of employees in many areas, such

as:

a) Work hours and compulsory time-off (paid and unpaid)

b) Minimum wage

c) Overtime

d) Compulsory bonuses

d) Employment at will

2) Labor Market:

a) Official laws on wage and salary, labor contract, payment time, wage

payment delay, working insurance, and so on.

b) People’s standard of living in the areas where the offices of the company

are.

4.5 Compensation


cxzcxbxhabhdsg

c) People’s living and consuming customary.

d) The average wage rate in the labor market of similar work.

3) Economy:

The state of economy also influences the wage and salary-fixation.

4) Inflation:

Increase in the prices of commodities and decrease in value of the money is called

as inflation.

5) Technological Changes:

Technological changes also influence the fixation of wage levels.

6) Academic Institutions:

Having good academic qualifications from Reputed and standard educational

institution influence the compensation of the potential candidate in their recruitment

in companies.

4.5 Compensation


cxzcxbxhabhdsg

H) Concept of Compensation Management :

Compensation Management is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees.

Compensation includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and sales commission.

Compensation can also include non-monetary perks such as a company-paid car, company-paid housing and stock options.

Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

Compensation packages with good pay and benefits can help attract and retain the best employees.

A firm's compensation scheme also communicates a great deal about the firm's

values and cultures.

4.5 Compensation


cxzcxbxhabhdsg

I ) Importance of Compensation Management :

1) HR Strategy :

The compensation management is the extremely important piece of the overall HR

Strategy to keep the company competitive and successful.

2) Attract Top Talent :

The compensation management differentiates the organization on the job market

and builds the attractiveness of the company for the top talents.

3) Distinguish the Employers :

The compensation management is one of the most successful differentiators.

4) Brings the Differentiation into the Organization :

It brings the differentiation into the organization as well as the successful employees

and top talents feel the success in their pockets.

4.5 Compensation


cxzcxbxhabhdsg

5) Competitive Advantage :

The effective compensation management makes people feel the success and they

speak about their successes with their friends.

6) Manages the Personnel Expenses :

The effective compensation management manages the personnel expenses of the

organization.

7) Speed up Innovation Process :

The successful compensation management gains the competitive advantage and

can speed up the innovation processes and improve the performance management

practices in the organization.

8) Supports the other HR Processes :

It supports the other HR Processes and helps them to become highly efficient HR

Processes and being on the top in the industry (when measured and benchmarked).

4.5 Compensation


cxzcxbxhabhdsg

9) Influence HR :

The compensation management has a strong influence on the performance of the

whole Human Resources, which is a good vehicle to manage the performance of

Human Resources.

I) Traditional Approach :

Objective of traditional approaches to compensation is to achieve both internal &

external equity.

A) Internal Equity:

1) Job Evaluation :

The traditional form of job evaluation is now used as an alternative for slotting jobs

that cannot be directly matched to other companies.

4.5 Compensation


cxzcxbxhabhdsg

Job Analysis

Job Documentation

Prepare to Survey

Analyze Market Data

Job Rating

Create Job worth Hierarchy

Reconcile Internal and External

Considerations

Develop by Structure

4.5 Compensation

a) The Ranking System :

The oldest, fastest and simplest method of job evaluation, job ranking

involves placing jobs In order from most valuable (or most important or

most difficult) to least valuable.

b) The Classification (Rating) System:

Each job is measured against a preexisting set of job classes that have

been designed to cover the full range of work that would be performed by

federal government employees.

b) The Point System:

A point value-based job evaluation system that measures the relative worth

of jobs based on factors that include job knowledge skills, work complexity,

accountability and working condition hazards.

4.5 Compensation

d) Factor Comparison :

A set of compensable factors are identified as determining the worth of

jobs.

e) Combination Systems :

An organization chooses job evaluation approach that it believes will best

meet its needs and systematically evaluates each job within or against that

standard.

B) External Equity :

The process of pricing jobs involves identifying the compensation provided

by other organizations for jobs similar to yours.

1) Planning the Data Collection Activities :

Planning to survey involves choosing which jobs will be surveyed.

Typically, organizations survey benchmark positions.

4.5 Compensation

2) Collecting the Survey in- Formation :

The activities involved in actually collecting survey data depend on whether the

organization decides to purchase survey information or to sponsor its own

survey.

3) Analyzing the Information :

Organizations look at competitor pay data only very generally, using average

salaries or median starting salaries.

C) Developing a Pay Structure :

In structuring a program, several options are available. First, structure in which

all employees performing the same work receive the same pay rate, Second an

organization can use a tenure based approach that focuses on how long an

individual has been employed in a particular job and third some organizations

use a combination of a tenure-based plan and a merit-based plan.

4.5 Compensation

J) Current Trends in Compensation :

1) Group Mediclaim Insurance Scheme:

Group (term) Insurance Scheme is meant to provide life insurance protection

to groups of people.

2) Personal Accident Insurance Scheme:

The purpose of personal accident insurance is to pay fixed compensation for

death or disablement resulting from accidental bodily injury.

3) Company Leased Accommodation:

Organizations provide company-leased accommodation to their employees

as a part of their compensation package.

4) Recreation, ATM and Concierge Facilities:

The recreation facilities include pool tables, chess tables and coffee bars.

Companies also have well equipped gyms, personal trainers and showers at

facilities.

4.5 Compensation

5) Corporate Credit Card:

The main purpose of the corporate credit card is enable the timely and

efficient payment of official expenses which the employees undertake for

purposes such as travel related expenses like Hotel bills, Air tickets etc .

6) Cellular Phone / Laptop:

Cellular phone and / or Laptop are provided to the employees on the basis of

business need.

7) Personal Health Care (Regular medical check-ups):

Some of the companies provides the facility for extensive health check-up.

8) Loans:

Many companies provide loan facility on three different occasions.

Employees are provided with financial assistance in case of a medical

emergency.

4.5 Compensation

9) Educational Benefits :

Many companies have this policy to develop the personality and knowledge level

of their employees and hence reimburse the expenses incurred Education.

10) Performance Based Incentives :

In many companies they have plans for, performance based incentive scheme.

11) Flexi-time :

The main objective of the flextime policy is to provide opportunity to employees to

work with flexible work schedules and set out conditions for availing this

provision.

4.5 Compensation

12 ) Flexible Salary Benefits:

Its main objective is to provide flexibility to the employees to plan a tax-effective

compensation structure by balancing the monthly net income, yearly benefits and

income tax payable.

13) Regular Get Together and Other Cultural Programs:

The companies organizes cultural program as and when possible but most of the

times, once in a quarter, in which all the employees are given an opportunity to

display their talents in dramatics, singing, acting, dancing etc.

14) Wedding Day Gift:

Employee is given a gift voucher of Rs. 2000/- to Rs. 7000/- based on their level

in the organization.

4.5 Compensation

15) Employee Referral Scheme:

In several companies employee referral scheme is implemented to encourage

employees to refer friends and relatives for employment in the organization.

K) Linking Compensation with Performance :

A) Reasons for Linking Compensation with Performance :

1) Motivators :

Financial rewards are powerful motivators for most people.

2) Improving communication:

Participation on the part of employees in a communication process often leads to

improved productivity even before mention of financial rewards.

4.5 Compensation

3) Facilitating Team Process.

If rewards are equal, team members create peer pressure to perform.

4) To Perform to Improve Results:

To Perform to Improve Results of the organization by improving employees

initiative and performance this will possibly reduce overall employee cost.

5) To Attract and Retain Top Performers.

The technique is to germinate the need for success and results in the minds of

the employees so that they take charge of their roles and responsibilities with

zeal.

B) Types of Performance Pay :

4.5 Compensation

B) Types of Performance Pay :

1) Merit pay :

The first step to performance pay, merit pay means setting some basic salary

according to the position and the rank of the employee.

2) Profit Sharing :

This means sharing the profits of the enterprise with the employees as bonus.

3) Incentives and Performance Bonus :

Rewards for special accomplishments or fulfillment of the targets set such as

sales commission.

4.5 Compensation

4) Gain sharing :

This means sharing of gains as a result of the increased performance of the

employees with them.

C) Guidelines for Designing a Performance-Based Compensation Scheme :

The following tentative guidelines are suggested for implementing a performance-

based compensation scheme:

1) The performance based compensation system should be designed to promote

the kind of performance an organization needs.

2) Employees should be consulted in the formulation of the plan

4.5 Compensation

3) The criteria for the determination of performance—based compensation scheme

should be objective, measurable and measure only what is important.

4) The intrinsic reward system should be strengthened if need be.

5) How the performance-based compensation is shared is as important as the

quantum, because the manner of sharing affects employees’ perceptions as to

whether the scheme is equitable.

6) The impact of the scheme also depends on the frequency of the payment.

Therefore, the reward should follow the performance as soon as possible.

7) The scheme should be given wide publicity within the enterprise.

8) The performance level should be achievable or else the scheme will have no motivational impact.

4.5 Compensation

9) The quantum of compensation on account of performance which is placed at risk

(i.e. the amount that can be lost due to poor performance) should be carefully

determined.

L) Advantages of Linking Compensation with Performance :

1) Considerations :

Organizations conduct annual performance appraisals. These appraisals – when

properly administered – are based on performance standards.

2) Consistency :

With a pay-for-performance system, employees receive wage increases, bonuses

and even special perks for achieving performance goals.

4.5 Compensation

3) Incentive :

Employers and employees alike benefit from a P4P that provides incentives for

job performance.

4) Attract and Retain Talent:

A critical business objective for every company, well-designed pay-for-

performance plans help companies compete for the talent.

5) Give employees a stake in the company’s success:

A pay-for- performance plan can bring the interests of the employee closer to the

interest of the company.

4.5 Compensation

M) Problems of Linking Compensation with Performance :

1) Inadequate :

Inadequate criteria to measure performance or criteria which are not easily

understood communicated and accepted.

2) Objectives do not Match :

The main problem is inappropriate performance appraisal systems in that the

objectives of the appraisal system.

3) Irregular Feedback :

Another problem of performance based compensation is the absence of regular

feedback on performance.

4.5 Compensation

4) Reward System :

The reward system is not designed to meet the objectives sought to be achieved.

5) Lack of Compensation :

Problem of Performance based Compensation is the lack of an appropriate

quantum of compensation which should be subject to performance criteria.

6) Evaluation :

Another problem is the absence of periodic evaluation of the scheme.

7) Depend on Uncontrolled Factors :

Non-recognition of the fact that performance, especially profit, is sometimes (even

often) dependent on factors outside the control of employees.

4.5 Compensation

N) Team Based Incentives :

A) Advantages of Team Based Incentives Plan :

1) Motivation :

One advantage of team-based incentive pay plans is that employees are

motivated to work together in a collective fashion toward a common goal.

2) Team-Building :

When employees work in tandem with one another, relying on each other’s

contributions for their compensation, a spirit of teamwork can emerge.

3) Competition :

Healthy competition can spur greater levels of achievement when employees are

working on team-based incentive pay projects.

4.5 Compensation

4) Positive Peer Pressure :

When a group of employees is working toward a collective goal then chances

increase of those ambitious workers will encourage greater levels of participation

from their less ambitious colleagues.

5) Increased Earnings :

Any time a business owner bases pay on the performance levels of employees, it

creates a dynamic in which the more employees produce, the more they earn.

B) Disadvantages of Team Based Incentives Plan :

1) Produce Competition among Group :

It may produce unintended side effects, such as competition among groups.

4.5 Compensation

2) Time Consuming :

It can take time for teams to become well-defined and work together effectively

and know their roles and have well-defined tasks.

3) Resist the Change :

Successful groups can resist change. If a new member is added, the group might

perceive him as a weight rather than as help.

4) Lower Self-worth:

Individuals may feel their personal self-worth is diminished.

5) Peer Pressure :

Peer pressure can squander group creativity. It could be oppressive and lead to

conformity rather than creativity.

4.5 Compensation

6) Ineffective Work :

The main disadvantage is that a worker’s pay may not be proportionate to his or

her personal efforts.

7) Not Flexible :

Team based incentives plan may reduced flexibility because individuals in high

performing teams are often reluctant to move to other teams.

Unit 4 HRM

Documents

Transcript of Unit 4 HRM