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MBA Performance Appraisal &Compensation Management

Attendance!

Class room: https://meet.google.com/gyf-tjeo-krd 

Mahmudul Kabir

Assistant Professor, UODA

E-mail: sandhi4mk@yahoo.com

UMBA 552: Performance Appraisal &Compensation Management.

This course covers understanding the nature of performance appraisal, its objectives, commonly used appraisal method and criteria for assessing performance, biases in performance appraisal, explain how the results of performance appraisal affect Human Resource Management. This course also covers performance measurement methods and integration of performance into compensation system. Effect of laws and regulations on pay, performance measurement evalution. Managerial and executive compensation and practices from comparative perspective.
Textbook: Principles of Personnel Mangement.Edwin B. Flippo.
Reference: Human Resource and Personnel Management.Lioyd L. Byars.Leslie W. Ruds.


Video: (Watch the following video and send me comments through email: sandhi4mk@yahoo.com) 




Performance Appraisal is the systematic evaluation of the performance of employees and to understand the abilities of a person for further growth and development. Performance appraisal is generally done in systematic ways which are as follows:

  1. The supervisors measure the pay of employees and compare it with targets and plans.

  2. The supervisor analyses the factors behind work performances of employees.

  3. The employers are in position to guide the employees for a better performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind:

  1. To maintain records in order to determine compensation packages, wage structure, salaries raises, etc.

  2. To identify the strengths and weaknesses of employees to place right men on right job.

  3. To maintain and assess the potential present in a person for further growth and development.

  4. To provide a feedback to employees regarding their performance and related status.

  5. To provide a feedback to employees regarding their performance and related status.

  6. It serves as a basis for influencing working habits of the employees.

  7. To review and retain the promotional and other training programmes.

Advantages of Performance Appraisal

It is said that performance appraisal is an investment for the company which can be justified by following advantages:

  1. Promotion: Performance Appraisal helps the supervisors to chalk out the promotion programmes for efficient employees. In this regards, inefficient workers can be dismissed or demoted in case.

  2. Compensation: Performance Appraisal helps in chalking out compensation packages for employees. Merit rating is possible through performance appraisal. Performance Appraisal tries to give worth to a performance. Compensation packages which includes bonus, high salary rates, extra benefits, allowances and pre-requisites are dependent on performance appraisal. The criteria should be merit rather than seniority.

  3. Employees Development: The systematic procedure of performance appraisal helps the supervisors to frame training policies and programmes. It helps to analyse strengths and weaknesses of employees so that new jobs can be designed for efficient employees. It also helps in framing future development programmes.

  4. Selection Validation: Performance Appraisal helps the supervisors to understand the validity and importance of the selection procedure. The supervisors come to know the validity and thereby the strengths and weaknesses of selection procedure. Future changes in selection methods can be made in this regard.

  5. Communication: For an organization, effective communication between employees and employers is very important. Through performance appraisal, communication can be sought for in the following ways:

    1. Through performance appraisal, the employers can understand and accept skills of subordinates.
    2. The subordinates can also understand and create a trust and confidence in superiors.
    3. It also helps in maintaining cordial and congenial labour management relationship.
    4. It develops the spirit of work and boosts the morale of employees.

    All the above factors ensure effective communication.

  6. Motivation: Performance appraisal serves as a motivation tool. Through evaluating performance of employees, a person’s efficiency can be determined if the targets are achieved. This very well motivates a person for better job and helps him to improve his performance in the future.

Following are the tools used by the organizations for Performance Appraisals of their employees.

  1. Ranking
  2. Paired Comparison
  3. Forced Distribution
  4. Confidential Report
  5. Essay Evaluation
  6. Critical Incident
  7. Checklists
  8. Graphic Rating Scale
  9. BARS
  10. Forced Choice Method
  11. MBO
  12. Field Review Technique
  13. Performance Test

We will be discussing the important performance appraisal tools and techniques in detail.

  1. Ranking Method

    The ranking system requires the rater to rank his subordinates on overall performance. This consists in simply putting a man in a rank order. Under this method, the ranking of an employee in a work group is done against that of another employee. The relative position of each employee is tested in terms of his numerical rank. It may also be done by ranking a person on his job performance against another member of the competitive group.

    Advantages of Ranking Method

    1. Employees are ranked according to their performance levels.
    2. It is easier to rank the best and the worst employee.

    Limitations of Ranking Method

    1. The “whole man” is compared with another “whole man” in this method. In practice, it is very difficult to compare individuals possessing various individual traits.
    2. This method speaks only of the position where an employee stands in his group. It does not test anything about how much better or how much worse an employee is when compared to another employee.
    3. When a large number of employees are working, ranking of individuals become a difficult issue.
    4. There is no systematic procedure for ranking individuals in the organization. The ranking system does not eliminate the possibility of snap judgements.

  2. Forced Distribution method

    This is a ranking technique where raters are required to allocate a certain percentage of rates to certain categories (eg: superior, above average, average) or percentiles (eg: top 10 percent, bottom 20 percent etc). Both the number of categories and percentage of employees to be allotted to each category are a function of performance appraisal design and format. The workers of outstanding merit may be placed at top 10 percent of the scale, the rest may be placed as 20 % good, 40 % outstanding, 20 % fair and 10 % fair.

    Advantages of Forced Distribution

    1. This method tends to eliminate raters bias
    2. By forcing the distribution according to pre-determined percentages, the problem of making use of different raters with different scales is avoided.

    Limitations of Forced Distribution

    1. The limitation of using this method in salary administration, however, is that it may lead low morale, low productivity and high absenteeism.

      Employees who feel that they are productive, but find themselves in lower grade(than expected) feel frustrated and exhibit over a period of time reluctance to work.

  3. Critical Incident techniques

    Under this method, the manager prepares lists of statements of very effective and ineffective behaviour of an employee. These critical incidents or events represent the outstanding or poor behaviour of employees or the job. The manager maintains logs of each employee, whereby he periodically records critical incidents of the workers behaviour. At the end of the rating period, these recorded critical incidents are used in the evaluation of the worker’s performance. Example of a good critical incident of a Customer Relations Officer is : March 12 - The Officer patiently attended to a customers complaint. He was very polite and prompt in attending the customers problem.

    Advantages of Critical Incident techniques

    1. This method provides an objective basis for conducting a thorough discussion of an employees performance.
    2. This method avoids recency bias (most recent incidents are too much emphasized)

    Limitations of Critical Incident techniques

    1. Negative incidents may be more noticeable than positive incidents.
    2. The supervisors have a tendency to unload a series of complaints about the incidents during an annual performance review sessions.
    3. It results in very close supervision which may not be liked by an employee.
    4. The recording of incidents may be a chore for the manager concerned, who may be too busy or may forget to do it.

  4. Checklists and Weighted Checklists

    In this system, a large number of statements that describe a specific job are given. Each statement has a weight or scale value attached to it. While rating an employee the supervisor checks all those statements that most closely describe the behaviour of the individual under assessment. The rating sheet is then scored by averaging the weights of all the statements checked by the rater. A checklist is constructed for each job by having persons who are quite familiar with the jobs. These statements are then categorized by the judges and weights are assigned to the statements in accordance with the value attached by the judges.

    Advantages of Checklists and Weighted Checklists

    1. Most frequently used method in evaluation of the employees performance.

    Limitations of Checklists and Weighted Checklists

    1. This method is very expensive and time consuming
    2. Rater may be biased in distinguishing the positive and negative questions.
    3. It becomes difficult for the manager to assemble, analyze and weigh a number of statements about the employees characteristics, contributions and behaviours.

Managers commit mistakes while evaluating employees and their performance. Biases and judgment errors of various kinds may spoil the performance appraisal process. Bias here refers to inaccurate distortion of a measurement. These are:

  1. First Impression (primacy effect): Raters form an overall impression about the ratee on the basis of some particluar characteristics of the ratee identified by them. The identified qualities and features may not provide adequate base for appraisal.

  2. Halo Effect: The individual’s performance is completely appraised on the basis of a perceived positive quality, feature or trait. In other words this is the tendency to rate a man uniformly high or low in other traits if he is extra-ordinarily high or low in one particular trait. If a worker has few absences, his supervisor might give him a high rating in all other areas of work.

  3. Horn Effect: The individual’s performance is completely appraised on the basis of a negative quality or feature perceived. This results in an overall lower rating than may be warranted. “He is not formally dressed up in the office. He may be casual at work too!”.

  4. Excessive Stiffness or Lenience: Depending upon the raters own standards, values and physical and mental makeup at the time of appraisal, ratees may be rated very strictly or leniently. Some of the managers are likely to take the line of least resistance and rate people high, whereas others, by nature, believe in the tyranny of exact assessment, considering more particularly the drawbacks of the individual and thus making the assessment excessively severe. The leniency error can render a system ineffective. If everyone is to be rated high, the system has not done anything to differentiate among the employees.

  5. Central Tendency: Appraisers rate all employees as average performers. That is, it is an attitude to rate people as neither high nor low and follow the middle path. For example, a professor, with a view to play it safe, might give a class grade near the equal to B, regardless of the differences in individual performances.

  6. Personal Biases: The way a supervisor feels about each of the individuals working under him - whether he likes or dislikes them - as a tremendous effect on the rating of their performances. Personal Bias can stem from various sources as a result of information obtained from colleagues, considerations of faith and thinking, social and family background and so on.

  7. Spillover Effect: The present performance is evaluated much on the basis of past performance. “The person who was a good performer in distant past is assured to be okay at present also”.

  8. Recency Effect: Rating is influenced by the most recent behaviour ignoring the commonly demonstrated behaviours during the entire appraisal period.

Therefore while appraising performances, all the above biases should be avoidd.

Communicating Performance Appraisals

Performance appraisals enable superiors to know what their team members are upto, evaluate their performances and also give them correct feedbacks so that they know where they are lacking and work on their shortcomings.

The term “Performance Appraisal” generally causes anxiety among employees, which definitely should not be the case. You really do not have to worry about your appraisal if you have worked hard throughout the year.

There is definitely a certain way appraisals need to be communicated among employees. There are organizations where management tends to create unnecessary hype about performance appraisal. In such a scenario, trust me, employees think only about their appraisals and find it extremely difficult to concentrate on their routine affairs. The appraisal process certainly should not disturb your daily schedule.

Let us understand how performance appraisal needs to be communicated among employees.

The rating procedure, appraisal form or any other related information ought to be sent to each and every individual separately. Do not mark a common mail to everyone. If you do not want to take the pain of sending separate mails to everyone, create a common login id where each and every individual can register using their passwords and pull out the appraisal form. The appraisal form generally has information about employee’s designation, grade, level in the hierarchy, responsibilities and thus must be kept confidential.

Counselling needs to be done on a one on one basis. Address their queries, confusions in private. Remember, appraisal is a very sensitive subject and should be handled gracefully. Call the employees one by one either in your cabin or conference room and try to find out if they need any help or guidance. Trust me, if you call them in a group, they would never open up. It is unethical to discuss one’s performance or salary in public.

Once the appraisals are done, communicating the same to the employees is another big challenge. The increment letters or appraisal letters should be handed over to the employees either by the functional head or human resource team personally.Do not ask your office peon to distribute the letters. Trust me, it is very insulting. You are not doing any charity. It is their right.

Employee attrition is one of the major problems faced by organizations after performance appraisal. Employees who work only for money quit after a salary hike to negotiate further with any other organization. Individuals who do not get satisfactory appraisal in any case get demotivated and look for a change. Any employee who does not agree to his/her appraisal or feel has not got what he/she deserves needs to be addressed at the earliest. Sit with the individual concerned and try to make him/her understand as to why he/she has got a certain rating. Employees cannot always be wrong. If you feel, an employee deserves slightly more than what he has got, kindly reconsider your decision. Remember, it is always better to give a decent salary hike to talented employees than losing them. After all, if they leave, you in any case have to spend time and energy searching for a replacement.

Employees need to be motivated after their appraisals. Congratulate each and every one irrespective of their salary hike or promotion. Appreciate everyone for being consistent and most importantly loyal towards the organization. Make sure no one feels left out. Sit with them, give them new realistic targets and guide them as to how can they work together, come out with more innovative ideas and show better performances in the years to come.

Performance appraisal should not be the only method to evaluate or acknowledge employee’s performance. Do not be rude to employees who did not perform well. It is absolutely okay to handhold them and give a second chance.

Handling Employees After Performance Appraisal

Performance appraisal refers to the elaborate process of reviewing one’s performance and output over a certain period of time and not only give correct feedbacks but also acknowledge and appreciate the hard work. Appraisal letters cause a lot of anxiety and sometimes disappointment among employees. Individuals never create problems when they get a good salary hike but trust me, handling employees after a bad appraisal is a big challenge.

Let us go through few tips on how to handle employees after performance appraisals:

Never forget to congratulate employees who have got a decent appraisal or a promotion and a positive review from the management. It will further motivate them and also instil a sense of pride and most importantly responsibility in them. Make them feel important. If someone has worked really hard all through the year, he/she definitely deserves to be praised for his/her efforts and encouraged to perform better in the years to come. Celebrate his/her success.

Employees who had an unsatisfactory year and eventually a bad appraisal are the ones who need most of your attention and care. One of the most common problems with such employees is that they suddenly become negative about everything, find reviewing authorities as their biggest enemies and also start hating their organization. Yes, logically such a behaviour is not expected out of a mature professional but we can’t completely blame the poor individual also who after slogging for a year did not get appraisal as per his/her expectations.

As they say “with a little love, we can even change the world”. Such employees need to be handled with utmost patience. Sit with such employees and first of all try to find out as to why they failed this time. Try to understand their mood and also what they feel about their appraisal? It is obvious that they would not be in a great mood but as a superior it is your duty to cheer them up so that they do not lose their confidence and eventually interest in work and finally quit. Employees also need to understand that there is always a next time and there is no point reacting and fighting with people around. After all it would not solve your problem, instead earn you a bad name in the organization.

Understand where the individual went wrong. All negativities and confusions would disappear if you make the individual understand where all he/she lacked and why his counterpart has got a decent appraisal while he/she has not? Yes, employees at this point of time are really not in a mood to listen to their superiors but you have to assure them that as a Boss, you are always there with them and would certainly help in future as well. Understand if at all the individual is facing any problem or not and most importantly try to provide a solution. Yes, after a bad appraisal, employees tend to become negative but as a Boss it is your responsibility to change their perception.

Let them speak and come out with their frustrations. Employees should also be careful with their words. Never cross your limits. Handhold such employees and provide necessary guidance whenever required. Send them a motivational email. Such small initiatives go a long way in motivating employees so that they become a little more serious and come back with a bang. Make them understand that this is just a temporary phase and should not act as a demotivating factor for them. Encourage them to work in unison with their fellow workers, read a lot and most importantly believe in the organization and its process.

 Importance of Performance Appraisals and How to Conduct them Effectively

 The Importance of Performance Appraisals

People work in organizations for monetary and nonmonetary reasons. While monetarily, employees look forward to increasing pay and perks, they also look for job satisfaction and fulfillment in their jobs. Thus, the motivators that determine whether a particular employee would stick to the job or leave the organization are based on the monetary and nonmonetary incentives.

For instance, monetarily, they might be expecting a pay rise every year in addition to healthy bonuses. In the same manner, they expect recognition for their work as well as job satisfaction through challenging assignments. As all these aspects are determined during the appraisal process where not only the pay and perks but also the chances for promotion and being given more fulfilling work are decided.

Thus, it is clear that performance appraisals must be taken seriously in addition to being accorded the importance they deserve. Indeed, performance appraisals can be thought of the most important time in an employee’s stint with the organization and hence, they must also be conducted with care and caution.

In addition, given the fact that managers also share feedback, performance appraisals can be occasions for letting the employee know where they are doing well and which aspects they need to improve their performance.

Why Performance Appraisals Must be Conducted with Care and Caution

Given these reasons and factors that deem how important performance appraisals are, most organizations have well-defined processes in place to conduct and review employee performance. While some organizations conduct performance appraisals every six months, the others do an annual review of performance.

Apart from this, the performance appraisals also involve multiple levels of employees wherein the immediate manager and the manager’s manager usually take part in the reviews along with the concerned employee.

Further, some organizations also require the Human Resources Manager to take part in the reviews in addition to the designated people manager for that particular project. Indeed, while this is not the norm in all organizations, the presence of the HR manager is required when the employees have to be told about placing them on performance improvement plans and other enhancing initiatives so that such programs can be reviewed and their work monitored for compliance or noncompliance.

Apart from this, performance appraisals usually entail multiple rounds of discussion wherein the concerned employee first uploads his or her perceptions about how well he or she did on the HR portal and then, the manager and the manager’s manager share their feedback which is followed by face to face discussions and the final closure is given after all parties agree to the contents of the review.

Indeed, most multinational organizations have a policy of requiring the consent of the employee with regards to the rating and the feedback, and this is the reason, the presence of the HR manager helps in cases where the employee refuses to give his or her consent.

Moreover, performance appraisals are usually tied to the financial or the operational year so that pay and bonuses, as well as promotions, can be linked to these timelines. Indeed, many multinational organizations conduct performance appraisals in the calendar year-end whereas Indian firms usually conduct such reviews in the financial year-end.

Apart from this, the other reason why performance appraisals are so important is that the recognition of employee performance and the subsequent rewards and incentives system follows the review wherein the top performers usually are given awards during the organizational In-House and Town Hall gatherings.

In other words, the review and the ratings are followed by such rewards for the top performers in addition to placing them on the premium or fast-track career paths that are usually confidential between the HR manager and the line manager.

Suggestions for Midterm Examination

Time: 3 Hours Total Marks: 30 


Part A: 2 × 5 = 10

1. Write short notes on the following: (any five)

  1. Ranking Method

  2. Forced Distribution method

  3. Critical Incident techniques

  4. Checklists and Weighted Checklists

  5. First Impression (primacy effect): 

  6. Halo Effect:.

  7. Horn Effect: 

  8. Excessive Stiffness or Lenience:.

  9. Central Tendency:.

  10. Personal Biases: 

  11. Spillover Effect: 

  12. Recency Effect: 

Part B: Answer any Two of the following questions:  5 × 2 = 10

  1. What is performance appraisal? 

  2. Write down the Objectives of Performance Appraisal

  3.  Discuss The Importance of Performance Appraisals

  4. What are the Advantages of Performance Appraisal

Part C: Answer any One of the following questions:  10 × 1 = 10

  1. Explain the issues about Communicating Performance Appraisals 

  2. How to Handle Employees After Performance Appraisal 

  3. Why Performance Appraisals Must be Conducted with Care and Caution 


 

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How to Conduct Performance Appraisals Professionally

Given these aspects, performance appraisals must be conducted with care and caution. While good reviews and top performers usually have a pleasant discussion with their managers, it is the middle ranked employees who often lead to the most intense and difficult discussions. Indeed, while those at the bottom would have been expecting such reviews or have resigned themselves to their fates (literally as well as figuratively), it is the employees who expect their reviews to reflect their performance in the top bracket but, instead are rated near the top or in the middle who often pose challenges for the managers and the HR managers.

This is the reason why managers often budget quite some time for such reviews where they need to convince the employees ranked near the top or in the middle that their ratings are warranted and justified.

Indeed, such reviews often stretch into multiple rounds because the concerned employees need much persuasion and convincing to make them agree and consent to the final rating. Also, sometimes, such reviews often turn bitter and personal, and this is the reason why some HR managers often make it a point to be present during such reviews to avoid unpleasant situations from developing.

Above all, our advice to both the employees and their managers is to ensure that such discussions do not become bitter or personal and it is better to keep such meetings professional and pleasant irrespective of whether the employees and the managers are “on the same page” in terms of the contents of the reviews as well as the ratings.

To conclude, performance appraisals form a crucial and critical part of the employee experience and hence, it is better to conduct them as professionally and as diligently as possible.

Job Evaluation

Job evaluation is a process of determining the relative worth of a job. It is a process which is helpful even for framing compensation plans by the personnel manager. Job evaluation as a process is advantageous to a company in many ways:

  1. Reduction in inequalities in salary structure - It is found that people and their motivation is dependent upon how well they are being paid. Therefore the main objective of job evaluation is to have external and internal consistency in salary structure so that inequalities in salaries are reduced.

  2. Specialization - Because of division of labour and thereby specialization, a large number of enterprises have got hundred jobs and many employees to perform them. Therefore, an attempt should be made to define a job and thereby fix salaries for it. This is possible only through job evaluation.

  3. Helps in selection of employees - The job evaluation information can be helpful at the time of selection of candidates. The factors that are determined for job evaluation can be taken into account while selecting the employees.

  4. Harmonious relationship between employees and manager - Through job evaluation, harmonious and congenial relations can be maintained between employees and management, so that all kinds of salaries controversies can be minimized.

  5. Standardization - The process of determining the salary differentials for different jobs become standardized through job evaluation. This helps in bringing uniformity into salary structure.

  6. Relevance of new jobs - Through job evaluation, one can understand the relative value of new jobs in a concern.

According to Kimball and Kimball,“ Job evaluation represents an effort to determine the relative value of every job in a plant and to determine what the fair basic wage for such a job should be.”

Thus, job evaluation is different from performance appraisal. In job evaluation, worth of a job is calculated while in performance appraisal, the worth of employee is rated.

Personnel Records

Personnel Records are records pertaining to employees of an organization. These records are accumulated, factual and comprehensive information related to concern records and detained. All information with effect to human resources in the organization are kept in a systematic order. Such records are helpful to a manager in various decision -making areas.

Personnel records are maintained for formulating and reviewing personnel policies and procedures. Complete details about all employees are maintained in personnel records, such as, name, date of birth, marital status, academic qualifications, professional qualifications, previous employment details, etc.

Types of Personnel Records

  1. Records of employment contain applicants past records, list sources, employees progress, medical reports, etc.
  2. Wages and salaries records contains pay roll records, methods of wages and salaries, leave records, turnover records and other benefit records.
  3. Training and development contains appraisal reports, transfer cases, training schedule, training methods.
  4. Health and safety records include sickness reports, safety provisions, medical history, insurance reports, etc.
  5. Service Records are the essential records containing bio-data, residential and family information, academic qualifications, marital status, past address and employment records.

Purposes of Personnel Records

According to the critics of personnel records, this system is called as a wastage of time and money. According to personnel records, followers of this : Dale Yoder, an economist of Michigan University, USA has justified the significance of personnel records after making an in-depth study.

  1. It helps to supply crucial information to managers regarding the employees.
  2. To keep an update record of leaves, lockouts, transfers, turnover, etc. of the employees.
  3. It helps the managers in framing various training and development programmes on the basis of present scenario.
  4. It helps the government organizations to gather data in respect to rate of turnover, rate of absenteeism and other personnel matters.
  5. It helps the managers to make salary revisions, allowances and other benefits related to salaries.
  6. It also helps the researchers to carry in- depth study with respect to industrial relations and goodwill of the firm in the market.

Therefore, personnel records are really vital for an organization and are not a wasteful exercise.

Employee Relations - Importance and Ways of Improving Employee Relations

Maintaining healthy employee relations in an organization is a pre-requisite for organizational success. Strong employee relations are required for high productivity and human satisfaction. Employee relations generally deal with avoiding and resolving issues concerning individuals which might arise out of or influence the work scenario. Strong employee relation depends upon healthy and safe work environment, cent percent involvement and commitment of all employees, incentives for employee motivation, and effective communication system in the organization. Healthy employee relations lead to more efficient, motivated and productive employees which further lead to increase in sales level.

Good employee relation signifies that employees should feel positive about their identity, their job as well as about being a part of such a great organization. Despite the importance of strong and healthy employee relations, there are circumstances in the life of every organization when employee and management relations are hampered. Instances of such circumstances are as follows-

  1. When the employees do not behave as per accepted norms of behaviour, it is known as employee indiscipline. Absenteeism, change in employee’s behaviour, slow performance and grievances are all forms of employee indiscipline. Thus, when the employees fail to meet management expectations in terms of standard performance and behaviour, it is referred to as indiscipline. In such cases, it must be ensured by the management that steps should be taken so that employee’s behaviour is in conformity with the managerial expectations.

  2. Similarly, the employees also expect from the management to provide them a safe working environment, fair treatment, proper incentives, participation in decisions, and needs satisfaction. The failure on part of management to meet these expectations is termed as employee grievance.

  3. When the employees fail to meet their own expectations whether in terms of personal goals, career goals, performance, self-respect, etc it is referred to as employee stress. Excessive workload, insufficient workload, peer pressure, excessive/unreasonable use of authority by the management, lack of promotional opportunities, nature of job, etc all again lead to employee stress.

All the above mentioned organizational factors influencing employees relation must be carefully tackled. An optimistic approach to strengthen disciplinary culture rooted on shared norms of employees should be adopted. An effective grievance redressal system should be there. Stress management strategies should be followed in the organization.

Improving Employee Relations

Employee relations must be strengthened in an organization. To do so, following points must be taken care of:-

  1. Employee has expectation of fair and just treatment by the management. Thus, management must treat all employees as individuals and must treat them in a fair manner. Employee favoritism should be avoided.
  2. Do not make the employees’ job monotonous. Keep it interesting. Make it more challenging. This can be done by assigning employees greater responsibilities or indulging them in training programmes.
  3. Maintain a continuous interaction with the employees. Keep them updated about company’s policies, procedures and decisions. Keep the employees well-informed. Informed employees will make sound decisions and will remain motivated and productive. Also, they will feel as a member of organizational family in this manner.
  4. Employees must be rewarded and appreciated for a well-done job or for achieving/over-meeting their targets. This will boost them and they will work together as a team.
  5. Encourage employee feedback. This feedback will make the employers aware of the concerns of employees, and their views about “you” as an employer.
  6. Give the employees competitive salary. They should be fairly paid for their talents, skills and competencies.
  7. Be friendly but not over-friendly with the employees. Build a good rapport with the employee. The employee should feel comfortable with the manager/supervisor rather than feeling scared.

Employee Stress - Strategies for managing stress at workplace

What is Employee Stress ?

Employees stress is a growing concern for organizations today. Stress can be defined as a lively circumstance in which people face constraints, opportunities, or loss of something they desire and for which the consequence is both unpredictable as well as crucial. Stress is the response of people to the unreasonable/excessive pressure or demands placed on them.

Stress is not always negative. It may also bring out the best in individuals at times. It may induce an individual to discover innovative and smarter way of doing things. This positive dimension of stress is called as enstress. But usually, the term stress has a negative implication and this negative aspect of stress is termed as distress. For instance - When a subordinate is harassed or warned by his superior, unhappiness of unsuitable job, etc. We can say that “Stress causes some people to break, and other to break records.”

Symptoms of Stress

Some of the symptoms of stress at workplace are as follows-

  • Absenteeism, escaping from work responsibilities, arriving late, leaving early, etc.
  • Deterioration in work performance, more of error prone work, memory loss, etc.
  • Cribbing, over-reacting, arguing, getting irritated, anxiety, etc.
  • Deteriorating health, more of accidents, etc.
  • Improper eating habits (over-eating or under-eating), excessive smoking and drinking, sleeplessness, etc.

It is thus very essential to have effective stress management strategies in an organization so that the detrimental repercussions of stress on the employees as well as their performance can be reduced and controlled.

Sources/Causes of Stress

The factors leading to stress among individual are called as stressors. Some of the factors/stressors acting on employees are-

  1. Organizational factors- With the growth in organizational stress and complexity, there is increase in organizational factors also which cause stress among employees. Some of such factors are-
    1. Discrimination in pay/salary structure
    2. Strict rules and regulations
    3. Ineffective communication
    4. Peer pressure
    5. Goals conflicts/goals ambiguity
    6. More of centralized and formal organization structure
    7. Less promotional opportunities
    8. Lack of employees participation in decision-making
    9. Excessive control over the employees by the managers

  2. Individual factors- There are various expectations which the family members, peer, superior and subordinates have from the employee. Failure to understand such expectations or to convey such expectations lead to role ambiguity/role conflict which in turn causes employee stress. Other individual factors causing stress among employees are inherent personality traits such as being impatient, aggressive, rigid, feeling time pressure always, etc. Similarly, the family issues, personal financial problems, sudden career changes all lead to stress.

  3. Job concerning factors- Certain factors related to job which cause stress among employees are as follows-
    1. Monotonous nature of job
    2. Unsafe and unhealthy working conditions
    3. Lack of confidentiality
    4. Crowding

  4. Extra-organizational factors- There are certain issues outside the organization which lead to stress among employees. In today’s modern and technology savvy world, stress has increased. Inflation, technological change, social responsibilities and rapid social changes are other extra-organizational factors causing stress.

Strategies for Managing Stress

Stress experienced by the employees in their job has negative impact on their health, performance and their behaviour in the organization. Thus, stress needs to be managed effectively so as to set off these harmful consequences. Strategies for managing stress are as follows-

Organizational strategies for managing stress

  1. Encouraging more of organizational communication with the employees so that there is no role ambiguity/conflict. Effective communication can also change employee views. Managers can use better signs and symbols which are not misinterpreted by the employees.
  2. Encourage employees’ participation in decision-making. This will reduce role stress.
  3. Grant the employees greater independence, meaningful and timely feedback, and greater responsibility.
  4. The organizational goals should be realistic, stimulating and particular. The employees must be given feedback on how well they are heading towards these goals.
  5. Encourage decentralization.
  6. Have a fair and just distribution of incentives and salary structure.
  7. Promote job rotation and job enrichment.
  8. Create a just and safe working environment.
  9. Have effective hiring and orientation procedure.
  10. Appreciate the employees on accomplishing and over-exceeding their targets.

Individual strategies for managing stress

  1. The employees should make a “to-do” list daily, prioritize the acts in the list and plan the acts accordingly. Take regular breaks during work to relax you. By effective time management, the employees can achieve their targets timely and can meet work pressures and, thus, avoid stress.
  2. Do hard work. Strive to achieve your goals but do not do it to the harm of family, health, or peer.
  3. Indulge in physical exercises. It helps in effective blood circulation, keeps you fit, diverts mind from work pressures.
  4. Encourage a healthy lifestyle. Take a regular sleep, have plenty of water, have healthy eating habits. Promote relaxation techniques such as yoga, listening music and meditation.
  5. The employees should have optimistic approach about their work. They should avoid connections with negative approach employees.
  6. The employees should have emotional intelligence at workplace. They should have self-awareness, self-confidence and self-control at workplace.
  7. The employees should build social support. They should have close connections with trustworthy peer who can listen to their problems and boost their confidence level. This social network will help the employees to overcome stress.
  8. Employee counselling is a very good strategy to overcome employee stress. Through counselling, employees can become aware of their strengths and how to develop those strengths; their weaknesses and how to eliminate them; and they can develop strategies for changing their behaviour. Employees are also given career counselling which helps in reducing their ambiguities with regard to career.
  9. Find a fun way to release stress, such as, cracking jokes, playing tennis, golf, etc.
  10. Do not remain pre-occupied with yourself. Turn your focus outwards. Help others. This will release some stress.

Employee Stress and Performance

Employee Stress is negatively correlated to their work performance. In short, more the level of stress, lower is the performance. It was conventionally perceived that reasonable levels of stress would boost the employees and improve their work performance. But this perception no longer holds true. Today it is believed that even a little bit of stress will inhibit employees’ work performance.This is due to:

Even relatively slight stress distracts an employee. People facing stress concentrate more on the repulsive feelings and emotions rather than on the work/job at hand and consequently their work performance suffers. Stress affects people’s intellectual, emotional, and interpersonal functioning.

Extended or repeated exposure even to minor levels of stress may have detrimental effects on health and this might lower employee’s work performance.

It has been researched that as stimulation increases, work performance initially increases, but after a point of time begins declining. The exact location of this variation point (at which the function’s direction or trend reverses) appear to depend on the complication of the work/task/job being performed. The more the work complication, the less the stimulation levels at which a decline in performance occurs.
Employees under stress loose their creativity and innovativeness. Their thinking ability is narrowed.


But there are certain exceptions to the rule that stress interferes with work performance. For instance, some people are at their best in times of calamity / crises. They meet the expectations and show remarkable performance at times of great stress. This may stem out from the fact that they have great expertise in the tasks being performed, making their variation/inflection as very high. People who have exceptional skills and competencies at a task may cognitively evaluate a possibly stressful scenario as a challenge and not as a threat.

Thus, while concluding we can say that whether stress can spoil or increase performance is dependent on factors such as work complication, the skills and expertise of the employee in performing a task, personal traits of individuals/employees involved, etc. Organizations which encourage an open and honest communication develop an environment in which employees are less likely to be stressed out, enabling the employees to best utilize their abilities and skills and, thus, stimulating the employees work performance.

How to Combat Stress, Burnout, Loneliness, and Low Productivity at the Workplace

The Problems of Demanding Workplaces

Contemporary workplaces are very demanding in terms of the physical and mental toll they extract from the employees. With ever-increasing competition among businesses and scarce resources, organizations demand more from the employees who perceive it as asking too much for too less.

Also, longer working hours, the need to be reachable at all times of the day, and the insistent checking of Emails and messages on one’s Smartphone, both for personal and professional reasons leaves employees distracted, unfocused, tired, and burnout.

The combination of stress, technology-mediated working, and loneliness due to lack of emotional empathy among coworkers leads to low productivity.

This creates a vicious loop where low productivity becomes the norm which makes employers demand that employees perform better and in turn, push the same factors that have created the situation in the first place.

Thus, the challenging work environment leads to physical health issues such as RSI or Repetitive Strain Injury, caused by sitting longer hours at the desk and using computers and Smartphones in a repetitive manner as well as mental health issues such as depression, and lack of focus that leads to repeated absence from work and hence, monetary and non-monetary losses for both employers and employees.

Some Measures that Employers can implement to address these problems

However, these problems are not insurmountable meaning that employers and employees need not put up with these disorders at work that leads to financial and emotional losses. Instead, some practical steps can be taken to combat these problems.

For instance, research has shown that multitasking at work where employees constantly switching from working on deliverables and checking Emails and Social Media updates or talking on the phone between work tasks can be addressed by having them take breaks from work that are designed to let them release stress by chatting with other coworkers or logging into the internet.

In this way, Human Resource Managers can monitor the employees better by walling of personal and professional work. Further, employees can be asked to desist from checking social media at their work desks and instead, providing them with access to dedicated computers that they can use during their breaks. Apart from this, HR managers can also encourage employees to talk about their personal problems with assigned mentors in confidence so that they can be motivated to work better by actualizing a caring and sharing the workplace.

Some Recent Steps taken by Governments

Indeed, some of the measures that corporates and governments around the world are taking are pointers to the ways and means as well as the solutions that can be used to address these problems.

For instance, France passed a law recently where employers are prohibited from requiring their employees to be available past the working hours thereby ensuring that they can spend quality time with their families.

In addition, Britain recently passed the Thriving at Work Act that encourages employers to support employees with personal problems as well as psychological issues to take time off with full benefits so that they can recuperate and rejuvenate themselves. In addition, the act specifies that employers select designated mentors to talk to the employees and guide them through their challenges and problems.

Apart from this, another practical measure that can be taken includes setting up hotlines where employees can call them and talk to them about their problems in confidence.

Above all, what these measures address are the problems of loneliness and stress caused by overworking as well as lack of emotional empathy between coworkers due to technology and the ever-accelerating pace of life. Indeed, measures such as working from home and having peer groups to promote bonding can also help.

Employees too need to take responsibility

Having said that, it is not only the employers but also the employees who have to take responsibility for their work-related problems. It is not enough to ban social media at the work desks when employees can login on their Smartphones.

Since it is practically not possible to ban personal phones, the employees have to voluntarily not check them during work and attend only to personal calls that are urgent in nature. In addition, if possible, not smoking at work can be a good way to address personal health issue and low productivity.

Apart from this, employees must also focus on work during the work hours so as to not leave work for the evenings or at home that would help them refresh the next day’s work.

Further, employees should make an effort to reach out to their co-workers and engage with them so that lasting bonds are formed between them that can lead to further improvements in the quality of life at the workplace.

Thus, it is indeed the case that to combat these modern day problems at the workplace, all stakeholders must act together to ensure that such problems are addressed.

Conclusion

Lastly, the key point to note here is that contemporary organizations have reached a stage where they either address these issues or risk falling into the low productivity trap.

Indeed, the fact that worldwide there has been a decrease in employee productivity at work as reported by recent research shows that there is an urgent need to address these problems before they go out of hand.

To conclude, personal responsibility and employer-supported measures would go a long way in addressing the present crisis in organizations that would not only lead to a happier and healthier workplace but would also improve organizational outcomes.

Employee Discipline and Features of a Sound Disciplinary System

Discipline means systematically conducting the business by the organizational members who strictly adhere to the essential rules and regulations. These employees/organizational members work together as a team so as to achieve organizational mission as well as vision and they truly understand that the individual and group aims and desires must be matched so as to ensure organizational success.

A disciplined employee will be organized and an organized employee will be disciplined always. Employee behaviour is the base of discipline in an organization. Discipline implies confirming with the code of conduct established by the organization. Discipline in an organization ensures productivity and efficiency. It encourages harmony and co-operation among employees as well as acts as a morale booster for the employees. In absence of discipline, there will be chaos, confusion, corruption and disobedience in an organization.

In short, discipline implies obedience, orderliness and maintenance of proper subordination among employees. Work recognition, fair and equitable treatment of employees, appropriate salary structure, effective grievance handling and job-security all contribute to organizational discipline.

Discipline is viewed from two angles/dimensions:

  1. Positive Discipline: Positive Discipline implies discipline without punishment. The main aim is to ensure and encourage self-discipline among the employees. The employees in this case identify the group objectives as their own objectives and strive hard to achieve them. The employees follow and adhere to the rules and regulations not due to the fear of punishment but due to the inherent desire to harmonize in achieving organizational goals. Employees exercise self-control to meet these goals.

  2. Negative Discipline: Employees adhere to rules and regulations in fear of punishment which may be in form of fines, penalties, demotions or transfers. In this case, the employees do not perceive organizational goals as their own goals. The action taken by the management to ensure desired standard of behaviour/code of conduct from the employees in an organization is called negative discipline. The fear of punishment prevents the employees from going off-track.

Characteristics of a Sound Disciplinary System (Red Hot Stove Rule)

Discipline should be imposed without generating resentment. Mc Gregor propounded the “red hot stove rule” which says that a sound and effective disciplinary system in an organization should have the following characteristics-

  1. Immediate- Just as when you touch a red hot stove, the burn is immediate, similarly the penalty for violation should be immediate/ immediate disciplinary action must be taken for violation of rules.
  2. Consistent- Just as a red hot stove burns everyone in same manner; likewise, there should be high consistency in a sound disciplinary system.
  3. Impersonal- Just as a person is burned because he touches the red hot stove and not because of any personal feelings, likewise, impersonality should be maintained by refraining from personal or subjective feelings.
  4. Prior warning and notice- Just as an individual has a warning when he moves closer to the stove that he would be burned on touching it, likewise, a sound disciplinary system should give advance warning to the employees as to the implications of not conforming to the standards of behaviour/code of conduct in an organization.

In short, a sound disciplinary system presupposes-

  1. Acquaintance/Knowledge of rules- The employees should be well aware of the desired code of conduct/ standards of behaviour in the organization. This code of discipline should be published in employee handbook.
  2. Timely action- Timely enquiry should be conducted for breaking the code of conduct in an organization. The more later the enquiry is made, the more forgetful one becomes and the more he feels that punishment is not deserved.
  3. Fair and just action- There should be same punishment for same offence/ misconduct. There should be no favouritism. Discipline should be uniformly enforced always.
  4. Positive approach- The disciplinary system should be preventive and not punitive. Concentrate on preventing misconduct and not on imposing penalties. The employees should not only be explained the reason for actions taken against them but also how such fines and penalties can be avoided in future.

Types of Penalties for Misconduct/Indiscipline

For not following the standards of behaviour/code of conduct in an organization, there are two kinds of penalties categorized as-

  1. Major penalties- This includes demotion, dismissal, transfer, discharge, withholding increments, etc.
  2. Minor penalties- This includes oral warning, written warning, fines, loss of privileges, etc.

Employee Grievance - Effective Ways of Handling Grievance

Grievance may be any genuine or imaginary feeling of dissatisfaction or injustice which an employee experiences about his job and it’s nature, about the management policies and procedures. It must be expressed by the employee and brought to the notice of the management and the organization.

Grievances take the form of collective disputes when they are not resolved. Also they will then lower the morale and efficiency of the employees. Unattended grievances result in frustration, dissatisfaction, low productivity, lack of interest in work, absenteeism, etc. In short, grievance arises when employees’ expectations are not fulfilled from the organization as a result of which a feeling of discontentment and dissatisfaction arises. This dissatisfaction must crop up from employment issues and not from personal issues.

Grievance may result from the following factors-

  1. Improper working conditions such as strict production standards, unsafe workplace, bad relation with managers, etc.
  2. Irrational management policies such as overtime, transfers, demotions, inappropriate salary structure, etc.
  3. Violation of organizational rules and practices

The manager should immediately identify all grievances and must take appropriate steps to eliminate the causes of such grievances so that the employees remain loyal and committed to their work. Effective grievance management is an essential part of personnel management. The managers should adopt the following approach to manage grievance effectively-

  1. Quick action- As soon as the grievance arises, it should be identified and resolved. Training must be given to the managers to effectively and timely manage a grievance. This will lower the detrimental effects of grievance on the employees and their performance.

  2. Acknowledging grievance- The manager must acknowledge the grievance put forward by the employee as manifestation of true and real feelings of the employees. Acknowledgement by the manager implies that the manager is eager to look into the complaint impartially and without any bias. This will create a conducive work environment with instances of grievance reduced.

  3. Gathering facts- The managers should gather appropriate and sufficient facts explaining the grievance’s nature. A record of such facts must be maintained so that these can be used in later stage of grievance redressal.

  4. Examining the causes of grievance- The actual cause of grievance should be identified. Accordingly remedial actions should be taken to prevent repetition of the grievance.

  5. Decisioning- After identifying the causes of grievance, alternative course of actions should be thought of to manage the grievance. The effect of each course of action on the existing and future management policies and procedure should be analyzed and accordingly decision should be taken by the manager.

  6. Execution and review- The manager should execute the decision quickly, ignoring the fact, that it may or may not hurt the employees concerned. After implementing the decision, a follow-up must be there to ensure that the grievance has been resolved completely and adequately.

An effective grievance procedure ensures an amiable work environment because it redresses the grievance to mutual satisfaction of both the employees and the managers. It also helps the management to frame policies and procedures acceptable to the employees. It becomes an effective medium for the employees to express t feelings, discontent and dissatisfaction openly and formally.

Employee Training - Benefits and Steps in Employee Training Programme


Training implies enhancing the skills and knowledge of the employees for performing a specific job. Training tries to improve employees’ performance in current job and prepares them for future job. The crucial consequence of training is learning.

Objectives of Employee Training Programmes

  1. To prepare employees to meet the varying and challenging needs of the job and organization.

  2. To provide knowledge and skills to new entrants and to help them to perform their role and job well.

  3. To coach employees for more complex and higher level jobs.

  4. To educate employees new and innovative ways and techniques of performing job.

Benefits of Trained Employees

Training is a significant tool for employee development. Training has assumed great importance because of exceptional rate of change in the internal and external organizational environment. The importance/benefits of trained personnel towards organizational development are as follows-

  1. Trained employees do not require tight control and supervision as they are well aware of how to perform a job.

  2. Trained employees can show higher performance by making optimum and best utilization of the materials, tools, equipments and other resources provided to them.

  3. Trained employees minimize wastages of resources in the organization and work both efficiently and effectively.

  4. Training makes employees more committed to an organization as the employees are provided with growth, advancement and learning opportunities.

  5. Training develops a line of proficient and skilled managers as it prepares employees for complex and higher level tasks.

  6. Trained employees adjust to the job better and there are fewer rates of absenteeism and turnover.

  7. Trained employees produce quality and quantity output.

  8. Trained employees enable the organization to face competition from rival firms.

  9. Trained employees can respond and adapt to the changing technology well.

  10. Trained employees become more proficient and, thus, their earning potential increase.

Steps in Employee Training Programme

Training programme involves the following steps:

  1. Identifying the training needs- The training needs of each employee should be identified. Programmes should be developed that are best suited to their needs.

  2. Prepare the trainer- The trainer must do his home work well. He should know both what to teach and how to teach. Time management is required by the trainer. Training should be delivered in such a manner that the trainee should not loose the interest in the job.

  3. Prepare the trainee- The trainee should remain active during training. He should know that why is he being trained. He should put across the trainer questions and doubts. The trainee should be put at ease during the training programme.

  4. Explain and demonstrate the operations- The trainer should explain the logical sequence of the job. The trainee should perform the job systematically and explain the complete job he is performing. His mistakes should be rectified and the complex step should be done for him once. When the trainee demonstrates that he can do the job in right manner, he is left to himself. Through repetitive practices, the trainee acquires more skill.

  5. Follow up and feedback- The trainee should be given feedback on how well he performed the job. He should be asked to give a feedback on the effectiveness of training programme.

Methods of Training Employees at Workplace

Trainings help employees enhance their capabilities and acquire new learnings, skills and knowledge. Trainings help employees come up with unique and innovative ideas, meet targets within the desired time frame and make them efficient resources for the organization.

One needs to understand that lot of time, money and energy go in designing training programs for employees. Managers need to understand where all their team members are lacking and need improvement. One needs to be very clear how training programs would benefit the employees. Managers need to sit with human resource professionals and design specific training programs keeping in mind the needs and requirements of employees. Training programs conducted just for the sake of it yield no results.

Training programs should not only be designed for existing employees but also for new candidates.

Let us go through various training methods at the workplace:

Induction Training - Induction training is often given to new employees to make them feel a part of the organization. How do you think an individual can perform if he/she is not familiar with the policies and rules and regulations of the organization? You can’t expect an individual to deliver results on the first day itself. You need to welcome your employees well for them to feel motivated and comfortable. Induction programs need to be designed sensibly. Too much of information on the day of joining will frighten the new employee and believe me, he/she will not come from the next day onwards. Induction programs help new employees to get acquainted with the work culture and fellow workers. Induction programs need to be short, crisp but informative.

Refresher Training - Refresher trainings are designed for existing employees to refresh them and also help them acquire new skills and technologies to keep pace with the changing times. Such training programs prepare employees for more responsible positions.

On the Job Trainings - On the job trainings are given to employees at the workplace itself by their superiors and Bosses. Managers ought to sit with their team members on a regular basis, train them on new technologies, skill sets to help them cope with the changes. On the job trainings are given to employees along with their jobs itself and make them capable to handle bigger responsibilities.

On the Job trainings are imparted by any of the following methods:

  1. Coaching - Coaching is also defined as learning by doing and handling various ongoing projects. In this method of training, team manager assigns certain job responsibilities to team members, monitors their performance, points out their mistakes, provides them feedbacks and also suggestions for improvement.

  2. Job Rotation - In this type of training, employees move from one position to another, thus acquiring new skills and learnings. Job rotation acquaints individuals with newer roles and challenges and makes them capable of performing any type of task.

Employees need to be encouraged to go through various online learning sites which would help them in their current job responsibilities. One needs to be aware of the latest developments in his/her domain. Reading helps a lot.

Off the job Training - Off the job trainings are given outside the workplace.

Off the job trainings can be provided by any of the following methods:

  1. Seminars/Conferences - Seminars and conferences are effective when training needs to be given to a larger audience. Relevant information, latest developments, new technologies and case studies are discussed on a common platform to acquaint employees with new skill sets.

  2. Simulation Exercise - Simulation exercises train the employees in an artificial environment which closely resembles the employee’s actual working conditions.

  3. Vestibule Trainings - In vestibule trainings, employees practice work on the instrument/equipment which they would be using in future when they would be actually working.

Management Games and Role Plays train employees to deal with critical problems and teach them to find innovative solutions.

360 Degree Feedback

360 degree feedback is also known as multi-rater feedback or multi-dimensional feedback or multi-source feedback. It is a very good means of improving an individual’s effectiveness (as a leader and as a manager). It is a system by which an individual gets a comprehensive/collective feedback from his superiors, subordinates, peers/co-workers, customers and various other members with whom he interacts.

The feedback form is in a questionnaire format, which contains questions that are significant to both individual as well as organization from performance aspect. It is filled by anonymous people. The number of people from whom feedback is taken can range from 6 - 20. The individual’s own feedback is also taken, i.e., he self-rates himself and then his rating is compared with other individuals ratings. Self ratings compel the individual to sit down and think about his own strengths and weaknesses.

The primary aim of a 360 degree feedback is to assist an individual to identify his strengths and build upon them, to recognize priority fields of improvement, to encourage communication and people’s participation at all levels in an organization, to examine the acceptance of any change by the employees in an organization and to promote self-development in an individual. It must be noted that the assessment of individual by other people is subjective.

A 360-degree feedback is challenging, promoting and analytical. It should not be regarded as ultimate and concluding. It is a beginning point. Self-assessment is an ongoing process.

360 degree feedback provides a comprehensive view of the skills and competencies of the individual as a manager or as a leader. The individual gets a feedback on how other people perceive and assess him as an employee. 360 degree feedback is beneficial to both an individual as well as organization. It leads to pooling of information between individual and other organizational members. It encourages teamwork as there is full involvement of all the top managers and other individuals in the organization. It stresses upon internal customer satisfaction. It develops an environment of continuous learning in an organization. Based on a 360 degree feedback, the individual goals and the group goals can be correlated to the organizational strategy, i.e., the individual and the group can synchronize their goals with the organizational goals.

The feedback must be confidential so as to ensure it’s reliability and legitimacy. The feedback must be accepted with positivity and an open-mind. The effectiveness of the feedback must be evaluated and analyzed on a regular basis.

360 Degree Feedback - Advantages & Pre-requisites

Advantages of 360 Degree Feedback

  • It encourages participation of all and thus makes HR decisions more qualitative.

  • It pinpoints the favoritism and biases of the supervisors present in conventional appraisal systems.

  • The employees find 360 degree feedback more acceptable than the traditional feedback approaches.

  • 360 degree feedback is more impartial and objective than a one-to-one assessment of employee traits.

  • It concentrates and stresses upon internal customer satisfaction.

  • It broadens the scope for employees to get various says for enhancing their job role, performance, and views.

  • It can act as a supplement and not replacement to the conventional appraisal system.

  • It can be motivating for the employees who undervalue themselves.

  • It encourages teamwork.

  • It is more credible as various people give almost same feedback from various sources.

  • It brings into limelight the areas of employee development as it confirms the employee strengths and identifies his weaknesses on which he can work upon.

  • It creates an environment of trust and loyalty in an organization.

Basics and Pre-requisites of 360 Degree Approach

It is essential that an organization should be prepared for 360 Degree feedback. Not only the organization, but also the candidate (the employee) should be prepared for accepting it. Following are the essentials of an organization’s preparedness for the 360 degree approach-

The top level management must be keen to spend their time and efforts in giving feedback to their subordinates.
Status and ego issues shouldn’t overwhelm in the organization.
The subordinates and the peer both should assess and analyze the top-level managers and the top- level management should be open to accept their feedback.
Everyone in the organization should take the feedback considerately and constructively and utilize it for their development.
Ethics and moral values should be predominant in the organization.
The organization should encourage teamwork.
There should be self- learning in the organization, especially for the managers.
The personnel department of the organization should be highly credible.
There should be no politics in the organization.
Everyone in the organization should take the feedback seriously and should make an attempt to benefit from the same.
It must be ensured that the feedback is confidential.

Following are the essentials of analyzing the candidate’s (employee’s) preparedness for the 360 degree approach-

The employee should have an intention to be better.
The employee should be open to accept the feedback and should respect the views of others.
The employee should have a competitive feeling.
The employee should be keen in knowing the viewpoints of others towards him.
The employee should always learn on the job.

The Relevance of 360 Degree Feedback

While Jack Welsh may deserve his fair share of credit for implementing the 360 Degree Feedback mechanism for the first time in his pioneering initiative at GE, the history of this feedback mechanism dates back all the way to the first world war and to the American Army. While the Americans did not think the subordinates deserved a place in the feedback process, the Germans tweaked it to include supervisors, peers and also subordinates during the second world war.

The conditions in which this feedback mechanism was born was rather dark, and the first time Mr. Welsh used it in GE, was to justify the firing the bottom ten percent of the workers from his company. As a capability development tool, one may be compelled to cast aspersions on its overall effectiveness. However, the corporate world of the 80s and the 90s lapped this new development in Human Resources with a rather positive outlook. It actually sounds pretty awesome on paper, develop the strengths of the people rather than punishing them for any weaknesses, perceived or otherwise. But, has the mechanism coped well with the drastically changing times?

The intrusion of technology in our way of working and the recent pandemic which has changed the rules of the game completely; pose potent challenges to this mode of evaluating an employee’s performance.

The broad idea behind a three sixty-degree feedback mechanism is to arrive at an overall picture regarding the employee performance taking inputs from key stakeholders. Now the catch lies that this system works well to identify the developmental needs of an employee, but it may be not an accurate indicator of achievement of performance objectives.

Let us discuss the process in a little detail to argue better regarding the merits and de merits.

The multi rater performance system is known as several different names like full circle appraisal, multi-source feedback, group performance review, 360 Degree performance appraisal, all round or 540-degree feedback, using different data collection methods across the organization. It is still a matter of debate whether there is any significant correlation between performance evaluation and 360 Degree Feedback. It has been observed that appraisees who scored high on feedback may not be high rated performers and vice versa.

The counter arguments and proponents of the system claim that there is a significant correlation between the two.

It all depends on how the process is used and to what means?

There are several methods in which data/information is collected for the 360 Degree. Most organizations have developed their own mix of methods over the years, but some most common ones are:

Questionnaires: Often paper based, they consist a list of questions regarding pertinent skills required to perform the role effectively and either have a point based rating or written answers provision. With the use of technology, this process has been simplified greatly and is the go-to method for a large number of organizations. Questionnaires can be emailed, and all stakeholders can respond in their time without having to be geographically located in the office.

Interviews: Interviews are structured around the established performance measures required for the job and the extent of those skill displayed and mastered by the appraisee. A structured interview like BEI or Behavioral Events Interview can provide valuable qualitative data otherwise missed in a questionnaire method. There are several manners in which these interviews can be conducted, over telephonic calls, group interviews or one on one. This method may prove significantly conducive to the new remote working setting. With video calls, interviews can be conducted conveniently and confidentially. Amongst all these methods, the group interviews are considered the least reliable because of the lack of objectivity. Another requisite is that the facilitator conducting the interview needs to be trained to be able to structure and guide the interview in a manner that objective analysis can be done.

Informal methods: Some other methods may include asking for feedback over emails, which may sacrifice quality at the altar of convenience.

To be able to draw any benefit out of 360 Degree feedback method, the appraiser or the assessor needs to be adequately trained and tools of assessment like questionnaires need to be designed carefully with performance parameters and competencies clearly explained and defined across scales.

While the subscribers of the 360 Degree feedback extol its virtues because of multiple stakeholders evaluating the appraisee, it may also prove the kryptonite of this method.

It is difficult to ascertain that increasing the sources of feedback may also increase objectivity and fairness in the quality of feedback. More participants can also mean greater discrepancies. The reliability and validity of feedback weighs heavily on the kind of participants invited to participate in the process. It also determines whether the feedback will be accepted by the appraisee or not, which at the end of the day is integral to proceed with the development objectives and identifying required capability building initiatives.

The reception of 360 Degree Feedback depends on several factors like age, gender, educational and socio-cultural backgrounds. If the appraisee rejects the feedback or is not convinced entirely it may result in halfhearted attempts to work towards bridging the identified developmental gaps. The effectiveness may also depend on the personality types of the appraisee, people with external locus of control may be more receptive of the feedback than the others. An alpha personality type may not accept any bit of the feedback and question the validity.

What challenges will the remote working pose to this mechanism?

In the current pandemic way of life where teams are working and collaborating remotely, this feedback mechanism and its acceptability will be shrouded in doubt if not done in a detailed and objective manner. The new way of working and its limitations and disadvantages should be kept in mind while developing the questionnaires and assessment tools. The appraisers need to be sensitized to accommodate the change in working condition (even domestic and technology related challenges the appraisee must have faced during the course of work) while providing feedback. The human aspect will have to take dominance over the technical performance aspect of the job. A teammate filling in for another member needs to weigh more than it would in ordinary circumstances. A balanced and fair approach will ensure that this mechanism delivers the same effective results as it would otherwise. However, it is only fair to add that this applies to even other feedback systems and appraisal methods.

The sheer magnitude of this process can be daunting for the managers, not to mention the time involved to collate the information and create individual reports.

There are strengths of this system which should not be overlooked either like the ability to evaluate one’s boss is empowering. Peer evaluation provides a certain sense of reliability in the whole process which makes accepting the feedback easier. A 360 Degree feedback system not just identifies strengths and weaknesses but also helps in identifying the blind spots previously unknown. Along with this it provides a legal protection to both organizations and employees in case of breach of contracts and litigations.

To conclude, the multi-point feedback system when implemented for developmental program may yield desirable results. As a performance evaluation tool, it may have its limitations.

Compensation Management - Meaning and Important Concepts

“If you pick the right people and give them the opportunity to spread their wings - and put compensation and rewards as a carrier behind it - you almost don’t have to manage them.”

— Jack Welch

Most of us would have heard the term “compensation” in the context of getting paid for the work that we do. The work can be as part of full time engagement or part time in nature. What is common to them is that the “reward” that we get for expending our energy not to mention the time is that we are compensated for it.

From the perspective of the employers, the money that they pay to the employees in return for the work that they do is something that they need to plan for in an elaborate and systematic manner. Unless the employer and the employee are in broad agreement (We use the term broad agreement as in many cases, significant differences in perception about the employee’s worth exist between the two sides), the net result is dissatisfaction from the employee’s perspective and friction in the relationship.

It can be said that compensation is the “glue” that binds the employee and the employer together and in the organized sector, this is further codified in the form of a contract or a mutually binding legal document that spells out exactly how much should be paid to the employee and the components of the compensation package. Since, this article is intended to be an introduction to compensation management, the art and science of arriving at the right compensation makes all the difference between a satisfied employee and a disgruntled employee.

Though Maslow’s Need Hierarchy Theory talks about compensation being at the middle to lower rung of the pyramid and the other factors like job satisfaction and fulfilment being at the top, for a majority of employees, getting the right compensation is by itself a motivating factor. Hence, employers need to quantify the employee’s contribution in a proper manner if they are to get the best out of the employee. The provision of monetary value in exchange for work performed forms the basis of compensation and how this is managed using processes, procedures and systems form the basis of compensation management.

As the module progresses, readers would be introduced to other aspects of compensation management like the components of compensation management, types of compensation, inclusion of variable pay, the use of Employee Stock Options etc. The aspect of how skewed compensation management leads to higher attrition is discussed as well. This aspect is important as studies have shown that a majority of the employees who quit companies give inadequate or skewed compensation as the reason for their exit. Hence, compensation management is something that companies must take seriously if they are to achieve a competitive advantage in the market for talent.

Considering that the current trend in many sectors (particularly the knowledge intensive sectors like IT and Services) is to treat the employees as “creators and drivers of value” rather than one more factor of production, companies around the world are paying close attention to how much they pay, the kind of components that this pay includes and whether they are offering competitive compensation to attract the best talent. In concluding this article, it is pertinent to take a look at what Jack Welch had to say in this regard: As the quote (mentioned at the beginning of this article) says, if the right compensation along with the right kind of opportunities are made available to people by the firms in which they work, then work becomes a pleasure and the manager’s task made simpler leading to all round benefits for the employee as well as the employer.

Components of Compensation - Part I

The previous article introduced the topic of compensation management and how the “right” kind of compensation goes a long way in making employees motivated and happier.

Hertzberg’s Hygiene theory refers to how certain factors are necessary to maintain “Hygiene” or ensure that the employees are not dissatisfied.

  • These factors alone do not contribute to “quantum” jumps in employee satisfaction. Rather, the absence of these factors makes employees dissatisfied.

  • The point here is that if a fair and just compensation is provided, the employee has the “baseline” requirements met which ensures that he or she is now in a position to go for higher things like job satisfaction and fulfilment.

  • However, if compensation is found to be lacking, the employee might very well be unhappy and dissatisfied with the company leading to attrition and other such negative outcomes.

  • Hence, having the right compensation is the first step in getting the best of employees.

If we take a look at the components of a compensation system, we find that employers decide on what is the right compensation after taking into account the following points.

  1. The Job Description of the employee that specifies how much should be paid and the parts of the compensation package.

    1. The Job Description is further made up of responsibilities, functions, duties, location of the job and the other factors like environment etc.

    2. These elements of the job description are taken individually to arrive at the basic compensation along with the other components like benefits, variable pay and bonus.

      • It needs to be remembered that the HRA or the House Rental Allowance is determined by a mix of factors that includes the location of the employee and governmental policies along with the grade of the employee.

      • Hence, it is common to find a minimum level of HRA that is common to all the employees and which increases in proportion to the factors mentioned above.

  2. The Job Evaluation that is a system for arriving at the net worth of employees based on comparison with appropriate compensation levels for comparable jobs across the industry as well as within the company.

    1. Factors like Experience, Qualifications, Expertise and Need of the company determine how much the employer is willing to pay for the employee.

  3. It is often the case that employers compare the jobs across the industry and arrive at a particular compensation after taking into account the specific needs of their firm and in this respect salary surveys and research results done by market research firms as to how much different companies in the same industry are paying for similar roles.

The components of compensation that have been discussed above are the base requirements for any HR Manager who is in charge of fixing the compensation for potential employees.

There are other variables as well that would be discussed in subsequent articles. This article has introduced several concepts around the topic of components of compensation and these concepts are crucial for HR professionals as well as those aspiring management professionals who want to make a career in the corporate world.

Before concluding this article, it needs to be remembered that exit interviews have shown that over 70% of employees who quit their jobs do so because they are dissatisfied with the compensation that they are getting. Hence, all HR professionals and managers must take this aspect into account when they determine the compensation to be paid to employees.

Components of Compensation - Part II

In the previous article (Part I) we looked at some of the components of compensation that are paid out to employees and the way in which these components are fixed by HR managers and companies. In this article (Part II), we shall look at some components of compensation like Basic and Variable Pay (including the sub-components of variable pay) and discuss how these are fixed by the firms when they sign off on the compensation packages to their employees.

To take the first component that is common to all packages at all levels (hence the term basic - however, it is not the same for all levels).

  • Basic pay is the base on which the compensation package rests. This is the equivalent of the base of the pyramid and the other components are usually fixed as a percentage of the basic pay. It is common to find components like HRA (House Rental Allowance) and Additional Pay as a certain percentage (say 20% or 30%) of the Basic.

  • There are many companies that have introduced the concept of Variable Pay where this particular component of the compensation is not fixed, but is a percentage of the Basic that is paid out according to the performance of the company, group and the individual. Hence, the term performance linked pay is also used for variable pay.

    If we take the three sub-components of the Variable Pay -

    1. The company performance linked pay is as the term implies paid out as a percentage of the Basic that is tied to the performance of the company as a whole. So, if a company performs exceedingly well in the given quarter, then the employee might get a large percentage (say 100% or 150%) of the base of the component. If a company does do not well or does only moderately better, then the employee might get a lower percentage of the base (say 50% or 75%).

    2. The group performance linked pay is paid out in a similar manner but the point of reference in this case is the performance of the group or the division in which the employee works.

    3. Finally, the most important sub-component is the Individual Performance Linked Pay that is paid out according to the performance of the employee and hence is entirely tied to the way in which the employee performs as determined by the rating that he or she gets at the end of the performance cycle.

The rationale for these components is that an employee would be better motivated to perform individually, contribute to the group to which he or she belongs and finally, perform well keeping in view the overall growth of the company. Hence, these sub components of compensation have been designed to spur the employee to excel not only in an individual capacity but as a team member and finally, a responsible employee of the company. The idea here is to discourage silo based performance and instead concentrate on all round performance.

In the articles to follow, we shall look at how employees can negotiate their compensation by following some tips that we shall provide.

Factors Affecting Compensation - Part I

In the previous sections, we looked at the components of the compensation and how each is used to assess the relative importance of an employee as far as remuneration is concerned. In this article, we look at some of the factors that determine how much compensation is to be paid out to the employee by looking at the issue from the perspective of the employer. The subsequent article would take a look at how the employee can influence the compensation setting process with negotiation and bargaining.

From the perspective of the employer, the factors that affect compensation are:

  • The Overall Macroeconomic situation where in the state of the economy of the country in which the firm is situated plays a major role in determining the compensation to be paid. For instance, if an economy is booming or is in a high growth trajectory, chances are that the employers would pay the employees more and conversely, if the economy is in a downward trajectory, chances are that the employers would pay the employees less. We often hear about how because of the recession, salary hikes have been deferred or cut down. This is a direct result of the linkage between firm performance and the performance of the economy.

  • The Demand for a particular skill weighs heavily on the way in which the employer fixes the compensation for the employee. For instance, premium skills like Consulting and Accountancy are paid more as are the Technology Professionals who might be experts in their chosen field. As discussed in earlier articles, it is the expertise and the relative scarcity of such experts that determines how much the employer is willing to pay.

  • The Position of the company in the Business Cycle often determines how much the company is willing to offer to the employee. For instance, if a company is a start-up, chances are that the company would pay more because of the need to get the best possible talent into the company. Further, many start-ups give their employees ESOP’s or Employee Stock Option Plans wherein the employees can redeem their stocks after the lock-in period.

  • Finally, the urgency of the firm in filling up the position plays an important role in determining how much the employer is willing to pay the employee and in many cases, if the time to get on board the employee is less, staffing managers along with the line manager in charge of hiring the employee might decide to pay more because they want the employee to come on board as quickly as possible.

These are some of the factors that determine the compensation to be paid to the employee from the perspective of the employer. This is not an exhaustive list but an indicative one and as the module progresses, we shall be revisiting some of these factors along with adding additional information. The next article would talk about how employees can negotiate with the employer for better compensation and perks.

Factors Affecting Compensation - Part II

In the previous article, we looked at some of the factors that help the employers determine the level of compensation to be given to employees. In this article, we look at the factors that affect compensation from the perspective of the employee. What this means is that the employee should not be constrained by the amount of compensation that the employer provides him or her and can and should negotiate with the prospective employer until he or she is satisfied with the outcome.

Of course, there are several kinds of negotiation with the employer. For instance, the employee can negotiate at the time of the hiring process or can negotiate at the time of the appraisal cycle. In this article, we consider the strategies available to the employee at the time of the hiring process.

There are several parts to the employee’s strategy to negotiate with the employer. Some of them are:

  • Plan and Communicate: The most important part of the employee’s strategy must be to research the compensation trends in the market and then negotiate with the employer based on how much the other companies are willing to pay for a similar role combined with the fact that the company hiring him or her pays for the same role. Hence, it is advisable for the employee to keep in touch with compensation trends in the marketplace and also talk to other employees before he or she decides to communicate his or her expectations to the prospective employer.

  • Timing makes the difference: In any negotiation process, time is the key element and hence timing the negotiation process is important. The best possible option for the employee would be to wait for the company to make an offer and then pitch in his or her expectations about the compensation. There is something called overkill which must be avoided and the employee must avoid going overboard. At the same time, the employee must also ensure that he or she does not start the negotiation process early on in order not to lose out on the offer. Hence the timing of the pitch makes all the difference.

  • Consider the Alternatives: When you are deciding about prospective offers, ensure that you make the pitch for your expected compensation level after taking into account all the alternatives and not simply rush into something that does not value your experience and expertise adequately. At the same time, do not harangue the prospective employers though you might have several alternatives available to you. The point to be noted is that different companies react to compensation negotiations in different ways and hence you must play the field according to these points.

Many a time, prospective employees lost out on compensation either because they asked too high or asked too late. At the same time, they should also remember not to coerce the employers. The best possible strategy is where you are confident about yourself and your worth as measured by the employer must reflect your own sense of self worth. When there is a meeting point between these, then you can rest assured that you have arrived at the ideal compensation for yourself.

Negotiation in Compensation Management

It is impossible to talk about compensation management without referring to the process of negotiation and bargaining that is an integral part of compensation management. As anybody who has worked in the formal or even the informal sector knows, the process of negotiating one’s salary and perks is fundamental to the process of hiring and selection. In this article, we look at some of the strategies employed by professionals’ world over when they negotiate with their prospective employers regarding their compensation.

Have a Plan in Place

The first element of negotiation is to plan for the process by deciding on how much more you want and how much you think the employer is willing to give. The fine art of knowing how much you should ask for and at what point should you strike the deal is something that experienced professionals know and rookies should learn. Without having a clear idea of the target level of compensation that you are aiming for, the negotiation process would turn out to be an exercise in futility.

Communicate Your Needs

Once you have arrived at a figure that you think you deserve, the next step is to communicate the same to the prospective employer without delay. The important point to note here is that the way in which you articulate your needs is as important as the need to drive a bargain. For instance, without expressing yourself clearly to the HR manager of the prospective employer, there is little chance that he or she would understand your needs and respond appropriately. Hence, once you have sorted out the target compensation that you want, you should also have a strategy to communicate it to the employer.

Timing is Everything

You need to remember that there is something called being too early when you negotiate and too late as well. Hence, the timing of your articulation forms the basis for a successful negotiation. For instance, if you start your demands early on in the hiring process, the prospective employer might stall the process or even put a stop to your hiring. On the other hand, if you put forward your demands as you are about to join the firm, there is precious little anyone can do about your demands. Hence, you should have a keen eye for when you should communicate your demands.

The three aspects of having a plan, communicating the need and then timing it in such a way as to derive maximum advantage are essential to the negotiation process. Of course, there are many firms that do not entertain any sort of negotiation and there are firms that put up pretence of negotiation when in reality, they do not budge at all. In these cases, it is better to adopt a wait and watch policy and make your move once they get into the details of your compensation.

In conclusion, a successful negotiation hinges on the willingness of both the parties to hear each other and an ability to arrive at a common denominator in a spirit of accommodation. Hence, do not be overtly rigid and at the same time do not give in to the employer totally.

Compensation and the IT Sector

The IT (Information Technology) sector comprising of software and hardware sectors is a sunrise sector in many countries. Despite the fact that the sector has been around since the late 1980’s, the sector is considered relatively young and a place for innovation, entrepreneurship and growth. No wonder many fresh graduates flock to the IT sector after graduation to take up roles that are challenging and stimulating.

To attract the best talent available, the IT sector designs the compensation packages in ways that can be termed innovative and path breaking as they bundle the basic compensation components and perks and benefits in novel and unique ways.

This article looks at some of the ways in which the IT sector provides compensation for its employees.

Innovative Compensation Packages

A hallmark of the compensation packages in the IT sector is their reliance on non standard components that are the characteristic of the old economy or the traditional sectors. In comparison, the so-called “new economy” companies make it a point to include additional components like variable pay, performance linked incentives over and above the base pay that they give out to their employees. With the aura surrounding the IT sector, many employees have come to take for granted the high pay along with the attractive perks and benefits that these companies give.

ESOP’s

The IT sector pioneered the introduction of ESOP’s or Employee Stock Options plans for the employees as a means of ensuring that employees take more ownership and responsibility for their work by making them partners in the growth of the company. The rationale for giving stock options to employees is that once they feel a sense of ownership with the company in which they are working, their performance levels go up due to increased motivation and satisfaction that such a practice tends to inculcate in the employees. Given the fact that most IT stocks zoom ahead in value after the IPO or the Initial Public Offering is announced and retains their valuations well into the company’s existence, IT companies that offer ESOP’s are much sought after by many employees.

Other Perks and Benefits

The IT sector provides additional benefits like transportation, medical allowance and allowances for furnishing one’s house. With an emphasis on all round welfare as opposed to paying the employees what is the minimum, IT companies ensure that their employees are taken care of well. Many companies in the IT sector are quite liberal in insuring their employees and their families under group medical insurance which provides adequate cover to the employees and their families in case of illness and surgeries as well as accidents and other unanticipated contingencies. Further, some IT companies go a step further and provide for recreational allowances that ensure their employees’ vacation expenses are also taken care of.

Given the innovative ways in which IT companies provide for their employees, it is not surprising that this sector ranks among the most preferred employers and the companies that make up this sector is the destination of choice for many a grad fresh out of college.

Attrition and Compensation Management

Many studies have found that there is a direct causal linkage between the levels of compensation that a firm pays and the rate of attrition that it has. Attrition can be voluntary and involuntary, where the former is the employee quitting the company out of his or her own volition and the latter is the company asking the employee to quit for a number of reasons ranging from non-performance to violation of rules and regulations. In this article, we consider the voluntary attrition and the linkage between inadequate compensation and attrition.

Low compensation and Attrition

The exit interviews conducted by the HR professionals to ascertain the reasons behind an employee’s exit usually reveal that low compensation is a major factor behind the employee’s decision to quit the company. Research into the phenomenon of attrition has found that many employees (particularly at the entry and the middle management levels) leave companies because they have been offered better compensation at another company. On the other hand, the senior management personnel quit to take up challenging roles that pay well as well as provide self actualizing drives to them.

Hence, it can be construed that compensation is a major factor behind an employee’s desire to quit a particular company and join another company.

Compensation as a Hygiene Factor

Hertzberg’s theory of motivation lists hygiene factors as those conditions when absent cause an employee to be dissatisfied. The point about this theory is that factors like adequate compensation, a congenial working environment and additional benefits are necessary to motivate the employee and they ought to be present to keep the employee happy. The absence of such factors makes the employee lose focus and drive and hence the lack of “hygiene” makes it difficult for the employee to continue.

How to Manage Compensation Expectations

The appraisal time or the time of the year when employees are graded on their performance is usually the time when employees put forth their aspirations and expectations regarding the compensation and other aspects of their job. Hence, the line managers and the HR managers must make it a point to “manage” the expectations of the employees during this period. The attrition is usually the highest when employees are handed their raise letters that specify how much their compensation is increased. This is because the employees might expect more than what they have been awarded which leads to dissatisfaction.

Though compensation in recent years has ceased to be the “be all” of employee satisfaction with the nature of work and the responsibilities that an employee has becoming more important in determining job satisfaction, it still is one of the most important factors behind an employee’s decision to quit a company. Hence, it is incumbent upon HR professionals and the senior management that they devise compensation plans keeping in mind the various factors that drive an employee’s psyche. Only when an employee is satisfied with his or her condition in a company can they perform at the desired levels.

Executive Compensation

When one writes about executive compensation, the thought of jet setting CEO’s who enjoy luxurious lifestyles and live in gardened villas at the company’s expense comes to mind.

While the stereotypical image of a CEO enjoying such extravagance is indeed true to a certain extent, there is more to the topic of executive compensation. For instance, the practice in recent years has been to offer generous packages to executives that include stock options, benefits and variable pay over and above the basic components.

The point to note is that executive compensation is as removed from the compensation packages offered to middle and lower tier employees as they are in the hierarchy of companies. The reason for this has been the trend of CEO’s and executives being vested with more responsibilities as well as an emphasis on holding them responsible for top line and bottom line growth.

Gap between CEO and Worker Pay

Among the many causes attributed to the ongoing global financial crisis was the one about flawed incentives and high compensation packages to the executives which resulted in skewed priorities for the executives who were bent on registering profits at any expense and in the process throwing caution to the winds. It was also pointed out that the gap between the compensation of the CEO’s and the lower most employee was in the ratio of 300: 1 for companies like GE (General Electric) and GM (General Motors) where the CEO’s of these companies raked in Millions of Dollars of compensation when compared to the workers who were barely making five digit salaries. This has spurred a debate over the efficacy of paying executives so much when the end result is not commensurate with the pay.

Perks and Benefits

While salary is one part of executive pay, the associated perquisites and benefits that executives are granted by the board of directors is another important aspect. Things like paid vacations, children’s education, preferred neighborhood housing and access to the best clubs and other benefits make the job of executives an aspirational one for many business graduates. Further, the humungous bonuses offered to the executives (in the range of 100% to 300%) makes one wonder whether the stratospheric levels of executive pay is something that needs a rethink by the collective conscience of the corporate world.

The point that this article is making is that while executive compensation needs to be commensurate with the level of experience, the ability to articulate vision and imbue the organization with a sense of mission and at the same time the capability to take risks, there needs to be a line drawn somewhere which caps the compensation and packages offered to executives at levels that are more earthly. While the intention is certainly not to begrudge the compensation being offered to executives, the incentive system must be more tied in to current market realities as is the case with compensation at other levels. Hence, the lessons learned from the recent financial crisis about asymmetric risk and reward systems must not be forgotten in a hurry.

Compensation Management and Globalization

This module has covered topics related to compensation management and discussed the topic from a variety of perspectives. To close the compensation management module, here are some thoughts on where the corporate world is headed worldwide in the context of the ongoing global economic crisis and how the corporates are addressing the needs of their employees.

Further, globalization has created a “global village” where people in different parts of the world are able to not only participate in global supply chains but also partake of the wonders of cultural exchange and assimilation. This has created aspirational values among large sections of people in the developing countries who now demand better compensation at par with their counterparts in the advanced economies of the West.

Hence, corporates need to be aware of the complexities of the issue of how much compensation and in what form that is to be paid to the employees taking into account all the factors.

Given the fact that most companies in the West outsource to countries like China and India because of the cost advantage where lower wages in these countries provide cost savings, the reckoning of higher wage demands and wage parity that occurs because of economic factors might obviate the advantage enjoyed by these countries as far as the outsourcing phenomenon is concerned.

In this context, it is worth noting that corporates world over are feeling the pinch of the ongoing global economic crisis and this has led to depressed wages as well as lower hikes for the employees in the last two years. Hence, the added challenge of keeping the workforce happy in these gloomy times is something that HR managers must take into account as well.

The globalized workforce that participates in the global supply chain creates its own set of challenges with many expatriates being paid “hardship allowances” to entice them to work abroad in developing countries. Further, the native workforce in these transnational corporations earn higher wages than those of the average workers in their countries leading to ethnic tensions and demand for inclusion of the less qualified workers. All these factors need to be addressed by the managers of corporations when they decide on the compensation.

Finally, the very real phenomenon of attrition because of poor compensation continues to haunt the corporates and the challenge of retaining quality workers while retrenching poor performers remains a key imperative for companies. Hence, compensation management has aspects other than those that were discussed so far in this module and this article is meant to highlight some of them. It is hoped that the world economy recovers quickly and the boom years where workers and corporates were happy working together come back to the advantage of everybody.

Corporate Strategies to beat the Downturn: Cutting Slack and Layoffs

The Difference between Top Line Growth and Bottom Line Profitability

Corporates need growth to sustain their activities and increase their profits. What is known in financial jargon as Top Line Growth is the increase in revenues that happens because of growth that the corporate actualizes during a given year. In contrast, what is known as Bottom Line Growth is the net result of revenues minus costs of doing business and taxes paid apart from other items in the income statement that result from an outflow of funds. In other words, a corporate is profitable when its bottom line is positive meaning that the difference between revenues or the inflows and the expenditure or the outflows is positive. This is the cardinal rule under which any corporate functions and usually, most corporates increase their bottom line through increased revenues and cutting costs that result in more top line growth (increased revenues) and better bottom line growth(as a result of increased top line and decreased expenditure).

During recessionary times (like the one that is now underway in the world, corporates find it difficult to grow their top lines because of sluggish demand, consumer purchases and spending decreasing because of lesser disposable incomes, and an overall bearish sentiment that results in lesser revenues. In this scenario, corporates usually focus on cutting costs as a means to sustain their bottom line growth. Remember that the bottom line can grow even in the absence of more profits by cutting costs and rationalizing expenditures which reflect in the income statement as decreased expenses and hence, additions to the bottom line.

Strategies to beat the Downturn

This brings us to the strategies that corporates pursue during recessionary times to increase their bottom lines. These strategies usually entail cutting costs wherever and however possible. As salaries and benefits given to employees are a major source of expenditure to corporates, layoffs are the typical reactions to recessions. Apart from layoffs, the other strategy that the corporates pursue is through rationalizing the costs, which means that no salary hikes, no bonuses, and a trimming of employee benefits. These are typical reactions to a no growth or a slow growth external environment. Further, many corporates cut down on costs by focusing their energies on critical and performing operations and activities. This usually results in shuttering of loss making business units and phasing out of activities where the costs are high and the revenues are less. Moreover, corporates also resort to increasing profitability that can actualize by increased profitability, greater returns on existing processes through efficiency, and a focus on getting more bang for the buck, which means that corporates employ strategies that are intended to extract more revenues from the operations and reduce costs from the same.

Innovation, Automation, and Increased Productivity

Increased productivity is usually actualized through innovation, automation, and increased demands on employees to spend their time productively. Among the three methods listed previously, the performing corporates usually resort to innovation as a strategy to beat the downturn. Next are those who automate their processes to a greater degree and layoff the redundant employees. Third are those who make more demands on their employees by asking them to work more hours, spend lesser time in breaks from work, and generally asking them to be more productive. It needs to be mentioned that among these strategies, the best companies usually combine elements from all the three to actualize more profitability.

Cutting Slack and Trimming Flab is the Answer to fitness for individuals and Corporates Alike

We have discussed how corporates react to decreased revenues by cutting costs. The key aspect about these strategies is that they all focus on cutting slack or trimming the costs. An example would be an overweight person who has to be fit if he or she has to remain in contention for work and healthy living. This means that this individual has to cut the extra fat and generally lead a healthier life by cutting down on excess consumption. Similarly, the bottom line for corporates to better their bottom lines is through trimming the flab and increasing the fitness of the organization.

Development of Compensation System

Compensation system involves the total rewards that are given to the employees for the labour and services they provide to the organization. Compensation includes direct monetary benefits as well as indirect monetary benefits.

Wages and salaries form the direct financial benefits that an employee receives from his or her company. Besides, wages and salaries, bonuses and commissions also form a part of the direct monetary benefits. The indirect monetary benefits include paid absences and other leave benefits, retirement plans, employee insurance schemes, health plans, education benefits and other such benefits.

A well-defined and balanced compensation system gives the organization an advantage of maintaining internal as well as external equity. It is a powerful tool for attracting employees, motivating them to work in achieving the strategic organizational goals, and retaining them in the long run. An HR Consulting Firm can provide an in depth analysis and detailed report on the setting up of a balanced compensation system for the company.

An organization need to have a clear compensation philosophy which is in line with the strategic goals, objectives and culture of the organization. Based on the compensation philosophy of the company, the various components of compensation are designed and chalked down in detail.

The development of compensation philosophy includes the study of various aspects viz:

  • Impact of compensation strategy in promoting organizational success

  • Organization’s stand in considering the compensation provided as a tool in attracting and/or retaining employees

  • Does the organization intend to lead/lag/match the compensation market for the given geographic area and in the concerned industrial sector?

  • How does the organization aims at maintaining internal and/or external equity?

  • How is the employee’s performance linked in relation to wage or salary increases?

  • Following the legal formalities, rules and regulations of the land

Compensation detailing comprises of identifying positions and setting up of wage or salary specifications against each of the position. Also, incentive packages and bonuses, if any, are clearly defined for each of the position while describing the compensation related details.

Compensation detailing may involve execution of following activities depending upon the requirements of the organization:

  • Designing pay scale

  • Defining bonus and incentive plans

  • Performing salary surveys

  • Examining the requirement for wage/salary changes or increase

  • Defining guidelines for change/increase in wage/salary

  • Elaborate preparation of compensation policy and compensation strategy

A compensation study carried out in an organization generally involves following important elements:

  • Analyzing the current situation and requirements of the organization

  • Conducting salary/wage surveys and interviews within the organization

  • Studying the various positions or jobs as existing in the organization

  • Restructuring and redefining the positions, according to needs

  • Defining the internal worth of the different positions in the organization

  • Ranking the various positions and jobs in the company

  • Evaluating the existing base compensation plan of the organization

  • Identifying and evaluating the market pay structures

  • Revising the base compensation plan in the organization

  • Matching the changed compensation package with the current fiscal resources of the organization

  • Comprehending the impact of pay revisions

  • Laying down the guidelines for revised pay administration

  • Preparing an elaborate report on the compensation studies to be submitted to the top management

Depending upon the requirements of the company, the HR Consulting Firm may take up the necessary aspects required to be considered for development and/or improvement of the compensation system in the organization, thereby, strengthening the compensation system of the company by making it more equitable and attractive.

Format of a Payslip: All You Need to Know

Introduction

All of us work for monetary and non-monetary benefits and there is no denying the fact that the former is more important for many (if not all) than the latter. Therefore, employees in organizations need to understand the components of the Payslip as this determines how much they are earning (gross and net) as well as a peep into the various sub-headings in which their salary and other benefits/perks are divided. For those starting their careers and those aspiring to a career in the corporate world (and even the government and public sector), it is very important that they know how much each component adds up to and how much tax they have to pay. This article is intended to walk you through the format of a Payslip and the format that is explained here is a generic one and can vary from organization to organization. However, care has been taken to ensure that a proper representation of the components is provided and it can be said that the format listed here is followed by many reputed organizations like IBM, Fidelity, and Microsoft.

Basic

As the name implies, this is the base component or the basic that employees are entitled to and this component is used to calculate the other benefits as a percentage of the basic. For instance, it is common to calculate the PF (Provident Fund) deduction based on the basic in Asian countries and this component of the Payslip in the West is similar except that the social security component is known as 401(k) in the United States.

Variable Pay/Bonuses

In recent years, many Asian companies have introduced the component of variable pay, which indicates the extent to which individual; team, group, and organizational performance are reflected in the amount of money paid to the employees. For instance, if you have achieved the highest rating possible, then your individual variable pay would reflect your superlative performance. Similarly, if your team/group/division has done well, then you are entitled to monetary benefits that are a percentage of the total amount at the disposal of these entities. Next, if your organization has done well, then there are chances that you might be rewarded for your contribution to its success in the same way in which you have been rewarded for your team/group/divisions’ performance.

HRA

HRA or House Rental Allowance is calculated on the basis of the category of the city in which your organization is located. For instance, Metropolises have a higher payout for HRA when compared to Tier II and Tier III cities and towns. It is important to note that HRA is both a statutory requirement meaning that it is mandatory according to the labor laws and it is dependent on your role and rank in the hierarchy of the organization. To explain this further, a basic amount of HRA is mandated by the government, this is compulsory, and organizations can “top it up” according to how they perceive your value to the organization.

Conveyance

This component reflects the amount of money that your company pays out for your conveyance. Though there are some governmental undertakings, which pay more if you have a car and compensate the others who do not have a car by providing for a car loan if possible, the private sector in general pays the conveyance allowance according to the employees’ place in the hierarchy and his or her role in the organization.

Medical Reimbursement

In recent years, many organizations have converted this component from reimbursement based on actual money spent on receipt of bills to a fixed component, which is again dependent on the parameters laid down and explained previously. Further, there are many organizations that have done away with this component and instead, they have insured their employees under group medical insurance for them and their families (immediate dependants) subject to certain limits, which are again based on the seniority and value of the employee.

EPF/VPF Contribution

As mentioned in the section related to Basic, the EPF (Employee Provident Fund) contribution is a two-tiered component wherein the employee’s contribution is calculated as a certain percentage of the basic, which is mandated by the government. The amount thus deducted would be matched by the organization, which means that the employee can expect the double of what is deducted from his or her salary to be put away in social security. However, many multinationals also deduct a few percentage points more than the mandated figure and also contribute a matching amount. As for VPF (Voluntary Provident Fund) component, as the name implies, it is purely voluntary on part of the employee to set aside a portion of their monthly salary and which the organization also contributes though not the exact amount like EPF and subject to governmental regulations.

Income Tax / Professional Taxes

For many employees, this is the component that does not sound like music as compared to the other components as this salary head indicates the amount that the employee has to pay to the government as Income and other taxes. After TDS or Tax Deduction at Source was introduced, organizations have been calculating the gross Income tax based on the salary of the employee and then apportioning it over the twelve months so that there is a monthly component, which the employee has to pay.

Arrears and other Deductions

This head usually encompasses some arrears that the organization owes to the employee carried over from previous months and similarly, any deductions that have been not done earlier. This component is usually not part of the Payslip each month unless there are arrears and deductions pending.

Miscellaneous

This is an umbrella component, which indicates any other deductions/payouts that the employee pays or receives, and usually this head indicates reimbursement for official lunches and other perks.

The Challenges of Designing Effective Compensation Plans

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