ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

MODULE
FOR

HUMAN RESOURCE MANAGEMENT

(MBA Program)

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Contents

UNIT 1: OVERVIEW OF HUMAN RESOURCE MANAGEMENT........................................... 6

1.1. Introduction .......................................................................................................................... 6
1.2. Unit Objectives .................................................................................................................... 6
1.3. Human Resource Management Defined .............................................................................. 7
1.4. Human Resource Management System ............................................................................... 7
1.5. Models of HRM ................................................................................................................... 7
1.6. Aims of HRM .................................................................................................................... 11
1.7. Characteristics of HRM ..................................................................................................... 13
1.8. Review Questions .............................................................................................................. 13
UNIT 2: JOB ANALYSIS ............................................................................................................ 14
2.1. Introduction ........................................................................................................................ 14
2.2. Unit Objectives .................................................................................................................. 14
2.3. Job Analysis Defined ......................................................................................................... 15
2.4. Relationship to other aspects of Human Resource management ....................................... 15
2.5. Job Analysis Components .................................................................................................. 15
2.6. Information Required for Job Analysis.............................................................................. 17
2.7. Uses of Job Analysis .......................................................................................................... 17
2.8. Steps in Job Analysis ......................................................................................................... 19
2.9. Methods of Collecting Job Analysis Information .............................................................. 20
2.10. Review Questions ........................................................................................................... 24
3.1. Introduction ........................................................................................................................ 26
3.2. Unit Objectives .................................................................................................................. 26
3.3. Definition of Human Resource Planning (HRP) ............................................................... 27
3.4. Importance of Human Resource Planning ......................................................................... 27
3.5. Human Resource Planning Process ................................................................................... 27
3.6. Succession Planning........................................................................................................... 32
3.7. Review Questions .............................................................................................................. 34
UNIT 4: HUMAN RESOURCE RECRUITMENT ..................................................................... 35
4.1. Introduction ........................................................................................................................ 35
4.2. Unit Objectives .................................................................................................................. 35
4.3. Recruitment Defined .......................................................................................................... 36
4.4. Recruitment Process........................................................................................................... 36

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4.5. E-Recruitment and Outsourcing ........................................................................................ 41
4.6. Review Questions .............................................................................................................. 42
UNIT 5: HUMAN RESOURCE SELECTION AND INDUCTION ........................................... 43
5.1. Introduction ........................................................................................................................ 43
5.2. Unit Objectives .................................................................................................................. 43
5.3. Selection Defined ............................................................................................................... 44
5.4. Importance of Selection ..................................................................................................... 44
5.5. Selection Criteria ............................................................................................................... 45
5.6. The Selection Process ........................................................................................................ 47
5.7. Induction and Placement .................................................................................................... 54
5.8. Steps in Induction Program ................................................................................................ 55
5.9. Contents of Induction Program .......................................................................................... 55
Table 5.1. Areas of Employees’ Induction .................................................................................. 56
5.10. Placement ....................................................................................................................... 56
5.11. Review Questions ........................................................................................................... 57
UNIT 6: TRAINING AND DEVELOPMENT ............................................................................ 58
6.1. Introduction ........................................................................................................................ 58
6.2. Unit Objectives .................................................................................................................. 58
6.3. Training versus Development ............................................................................................ 59
6.4. Purpose of Training and Development .............................................................................. 59
6.5. The Increased Need to Training ......................................................................................... 60
6.6. Managing the Training Process ......................................................................................... 61
6.7. Cost Benefit analysis for Training ..................................................................................... 67
6.8. Strategic Human Resource Development (SHRD) ............................................................ 68
6.9. Career Development .......................................................................................................... 69
6.10. Review Questions ........................................................................................................... 73
UNIT 7: REWARD STRATEGY ................................................................................................. 74
7.1. Introduction ........................................................................................................................ 74
7.2. Unit Objectives .................................................................................................................. 74
7.3. Reward Strategy Defined ................................................................................................... 75
7.4. The Need for Reward Strategy ......................................................................................... 75
7.5. The Aims of Reward Management .................................................................................... 76
7.6. The Element of Reward Management ............................................................................... 77

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7.7. Characteristics of Reward Strategy.................................................................................... 80
7.8. The Structure of Reward Systems...................................................................................... 80
7.9. The Content of Reward Systems/Strategy ......................................................................... 81
7.10. Guiding principles of Reward system ............................................................................ 84
7.11. Developing the Reward Strategy.................................................................................... 85
7.12. Effective Reward Systems/strategy................................................................................ 87
7.13. Review Questions ........................................................................................................... 88
UNIT 8: EMPLOYEE WELFARE, PENSION AND BENEFITS .............................................. 89
8.1. Introduction ........................................................................................................................ 89
8.2. Unit objectives ................................................................................................................... 89
8.3. Managing Stress and Emotional Welfare .......................................................................... 90
8.4. Managing Physical Welfare ............................................................................................... 94
8.5. Occupational Health Departments ..................................................................................... 97
8.6. Pension and Benefits .......................................................................................................... 97
8.7. Occupational Pension Schemes ....................................................................................... 106
8.8. Flexible Benefits .............................................................................................................. 113
8.9. Review Questions ............................................................................................................ 115
UNIT 9: EMPLOYEE HEALTH AND SAFETY ...................................................................... 116
9.1. Introduction ...................................................................................................................... 116
9.2. Unit objectives ................................................................................................................. 117
9.3. Managing Health and Safety at Work .............................................................................. 118
9.4. The Importance of Health and safety in The Work Place ................................................ 118
9.5. Benefits of Workplace Health and Safety ........................................................................ 119
9.6. Health and Safety Policies ............................................................................................... 120
9.7. Conducting Risk Assessments ......................................................................................... 121
9.8. Health and Safety Audit ................................................................................................... 124
9.9. Safety Inspections ............................................................................................................ 126
9.10. Occupational Health Programs..................................................................................... 127
9.11. Managing Stress ........................................................................................................... 128
9.12. Accident Prevention ..................................................................................................... 129
9.13. Measuring Health and Safety performance .................................................................. 130
9.14. Communicating the Need for Better Health and Safety Practices ............................... 130
9.15. Health and Safety Training .......................................................................................... 131

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9.16. Organizing Health and Safety ...................................................................................... 132
9.17. Review Questions ......................................................................................................... 133
UNIT 10: INDUSTRIAL RELATIONS .................................................................................... 134
10.1. Introduction .................................................................................................................. 134
10.2. Unit Objectives ............................................................................................................. 135
10.3. The Concept and Meaning of Industrial Relations....................................................... 136
10.4. Key Dimensions of Traditional Industrial Rrelations(IR) and Employee Relations ... 137
10.5. Relevance of Labour Relations ................................................................................... 138
10.6. Objectives and importance of industrial relations ........................................................ 139
10.7. Approaches to Industrial Relations .............................................................................. 142
10.8. Impact of The Legal Environment .............................................................................. 144
10.9. The Collective Bargaining Process and The Importance of Trade Union ................... 148
10.10. Trade Union.................................................................................................................. 151
10.11. Industrial Disputes........................................................................................................ 153
10.12. Review Questions ......................................................................................................... 157
UNIT 11: DIVERSITY MANAGEMENT AND HARASSMENT ......................................... 158
11.1. Introduction .................................................................................................................. 158
11.2. Unit Objectives ............................................................................................................. 158
11.3. Overview of Workforce Diversity Management .......................................................... 159
11.4. General Diversity Management Guidelines ................................................................. 160
11.5. Types of Diversity Management .................................................................................. 161
11.6. Challenges and Prospects of Workforce Diversity Management................................. 162
11.7. Workforce Empowerment and Equal Employment Opportunity ................................. 163
11.8. Harassment in the Work Place ..................................................................................... 166
11.9. Remedies to Address Diversity and Harassment Issues............................................... 170
11.10. Review Questions ......................................................................................................... 174
UNIT 12: MANAGING EMPLOYEE DISCIPLINE AAND SEPARATION ......................... 175
12.1. Introduction .................................................................................................................. 175
12.2. Unit Objectives ............................................................................................................. 176
12.3. Overview of Managing for Employee Discipline ........................................................ 177
12.4. The Discipline Process and Disciplinary Action Guidelines and Procedures .............. 177
12.5. Managing for Separation .............................................................................................. 181
12.6. Review Questions ......................................................................................................... 184

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UNIT 13: PERFORMANCE MANAGEMENT ........................................................................ 185
13.1. Introduction .................................................................................................................. 185
13.2. Unit Objectives ............................................................................................................. 186
13.3. Overview and Aims of Performance Management ...................................................... 187
13.4. Characteristics of Performance Management .............................................................. 188
13.5. The Comparison between Performance Management and Performance Appraisal ..... 189
13.6. Meaning and Uses of Performance Appraisal .............................................................. 190
13.7. The Performance Appraisal Process ............................................................................ 192
13.8. Performance Appraisal Methods .................................................................................. 193
13.9. Strategic Performance Management Tools .................................................................. 196
13.10. Problems in Performance Appraisal ............................................................................. 199
13.11. Employee Counseling .................................................................................................. 200
13.12. Review Questions ......................................................................................................... 201
UNIT 14: OVERVIEW OF STRATEGIC HUMAN RESOURCE MANAGEMENT............. 202
14.1. Introduction .................................................................................................................. 202
14.2. Unit Objectives ............................................................................................................. 202
14.3. Future Global SHRM Trends ....................................................................................... 203
14.4. Challenges for SHRM .................................................................................................. 206
14.5. Review Questions ......................................................................................................... 216

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UNIT 1: OVERVIEW OF HUMAN RESOURCE MANAGEMENT

1.1. Introduction
The terms ‘human resource management’ (HRM) and ‘human resources’ (HR) have largely
replaced the term ‘personnel management’ as a description of the processes involved in
managing people in organizations. The concept of HRM underpins all the activities such as job
analysis, human resource planning, recruitment, selection, induction and placement, training and
development, reward systems, employee welfare, pension, and benefits, employees health and
safety, industrial relations, diversity management, employees discipline and separation, and
performance management. This module describes all these activities in its subsequent units.

In the mean time, this very first unit provides a framework for what follows by defining the
concepts of HRM and an HR system, describing the various models of HRM and discussing its
aims and characteristics.

1.2. Unit Objectives

After studying this unit, you should be able to:

 Explain the meaning of human resource management

 Describe human resource management system

 Discuss human resource management models, and

 Identify the characteristics of human resource management

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1.3. Human Resource Management Defined

Human resource management is defined as a strategic and coherent approach to the management
of an organization’s most valued assets – the people working there who individually and
collectively contribute to the achievement of its objectives. Storey (1989) believes that HRM can
be regarded as a ‘set of interrelated policies with an ideological and philosophical underpinning’.
He suggests four aspects that constitute the meaningful version of HRM:

1. A particular constellation of beliefs and assumptions;

2. A strategic thrust informing decisions about people management;
3. The central involvement of line managers; and
4. Reliance upon a set of ‘levers’ to shape the employment relationship.

1.4. Human Resource Management System

 Human resource management operates through human resource systems that bring
together in a coherent way:
 HR philosophies describing the overarching values and guiding principles adopted in
managing people.
 HR strategies defining the direction in which HRM intends to go.
 HR policies, which are the guidelines defining how these values, principles and
 The strategies should be applied and implemented in specific areas of HRM.
 HR processes consisting of the formal procedures and methods used to put HR
 Strategic plans and policies into effect.
 HR practices comprising the informal approaches used in managing people.
 HR programmes, which enable HR strategies, policies and practices to be implemented
according to plan.

1.5. Models of HRM

There are very useful models of HRM that help understand the subject of HRM better. The
following paragraphs illustrate the matching model and the Harvard model of HRM.
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The Matching Model of HRM

One of the first explicit statements of the HRM concept was made by the Michigan School
(Fombrun et al, 1984). They held that HR systems and the organization structure should be
managed in a way that is congruent with organizational strategy (hence the name ‘matching
model’). They further explained that there is a human resource cycle (an adaptation of which is
illustrated in the figure below), which consists of four generic processes or functions that are
performed in all organizations. These are:
1. Selection – matching available human resources to jobs;
2. appraisal – performance management;
3. rewards – ‘the reward system is one of the most under-utilized and mishandled
managerial tools for driving organizational performance’; it must reward short as well as
long-term achievements, bearing in mind that ‘business must perform in the present to
succeed in the future’;
4. Development – developing high quality employees.

Fig. 1.1 The Human Resource Cycle (Fombrun et al, 1984 )

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The Harvard framework

The other founding fathers of HRM were the Harvard School’s Beer et al (1984) who developed
what Boxall (1992) calls the ‘Harvard framework’. This framework is based on the belief that the
problems of historical personnel management can only be solved: when general managers
develop a viewpoint of how they wish to see employees involved in and developed by the
enterprise, and of what HRM policies and practices may achieve those goals. Without either a
central philosophy or a strategic vision –which can be provided only by general managers –
HRM is likely to remain a set of independent activities, each guided by its own practice tradition.

Beer and his colleagues believed that ‘Today, many pressures are demanding a broader, more
comprehensive and more strategic perspective with regard to the organization’s human
resources.’ These pressures have created a need for: ‘A longer-term perspective in managing
people and consideration of people as potential assets rather than merely a variable cost.’ They
were the first to underline the HRM tenet that it belongs to line managers. They also stated that:
‘Human resource management involves all management decisions and action that affect the
nature of the relationship between the organization and its employees – its human resources.’
The Harvard school suggested that HRM had two characteristic features: 1) line managers accept
more responsibility for ensuring the alignment of competitive strategy and personnel policies; 2)
personnel has the mission of setting policies that govern how personnel activities are developed
and implemented in ways that make them more mutually reinforcing. The Harvard framework as
modeled by Beer et al is shown in the following figure.

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Fig. 1.2 The Harvard Model
According to Boxall (1992) the advantages of this model are that it:
 incorporates recognition of a range of stakeholder interests;
 recognizes the importance of ‘trade-offs’, either explicitly or implicitly, between the
interests of owners and those of employees as well as between various interest groups;
 widens the context of HRM to include ‘employee influence’, the organization of work
and the associated question of supervisory style;
 acknowledges a broad range of contextual influences on management’s choice of
strategy, suggesting a meshing of both product-market and socio-cultural logics;
 Emphasizes strategic choice – it is not driven by situational or environmental
determinism.

The Harvard model has exerted considerable influence over the theory and practice of HRM,
particularly in its emphasis on the fact that HRM is the concern of management in general rather
than the personnel function in particular.

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1.6. Aims of HRM

The overall purpose of human resource management is to ensure that the organization is able to
achieve success through people. HRM systems can be the source of organizational capabilities
that allow firms to learn and capitalize on new opportunities. Specifically, HRM is concerned
with achieving objectives in the areas summarized below.

Organizational effectiveness

Distinctive human resource practices shape the core competencies that determine how firms
compete. Extensive research has shown that such practices can make a significant impact on firm
performance. HRM strategies aim to support programmes for improving organizational
effectiveness by developing policies in such areas as knowledge management, talent
management and generally creating ‘a great place to work’. This is the ‘big idea’ as described by
Purcell et al (2003), which consists of a ‘clear vision and a set of integrated values’. More
specifically, HR strategies can be concerned with the development of continuous improvement
and customer relations policies.

Human capital management

The human capital of an organization consists of the people who work there and on whom the
success of the business depends. Human capital has been defined by Bontis et al (1999) as
follows: Human capital represents the human factor in the organization; the combined
intelligence, skills and expertise that give the organization its distinctive character. The human
elements of the organization are those that are capable of learning, changing, innovating and
providing the creative thrust which if properly motivated can ensure the long-term survival of the
organization.
Human capital can be regarded as the prime asset of an organization and businesses need to
invest in that asset to ensure their survival and growth. HRM aims to ensure that the organization
obtains and retains the skilled, committed and well-motivated workforce it needs. This means
taking steps to assess and satisfy future people needs and to enhance and develop the inherent
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capacities of people – their contributions, potential and employability – by providing learning
and continuous development opportunities. It involves the operation of ‘rigorous recruitment and
selection procedures, performance-contingent incentive compensation systems, and management
development and training activities linked to the needs of the business’ (Becker et al, 1997). It
also means engaging in talent management – the process of acquiring and nurturing talent,
wherever it is and wherever it is needed, by using a number of interdependent HRM policies and
practices in the fields of resourcing, learning and development, performance management and
succession planning.
Knowledge management

Knowledge management is any process or practice of creating, acquiring, capturing, sharing and
using knowledge, wherever it resides, to enhance learning and performance in organizations.
HRM aims to support the development of firm-specific knowledge and skills that are the result
of organizational learning processes.

Reward management
HRM aims to enhance motivation, job engagement and commitment by introducing policies and
processes that ensure that people are valued and rewarded for what they do and achieve and for
the levels of skill and competence they reach.

Employee relations

The aim is to create a climate in which productive and harmonious relationships can be
maintained through partnerships between management and employees and their trade unions.

Meeting diverse needs

HRM aims to develop and implement policies that balance and adapt to the needs of its
stakeholders and provide for the management of a diverse workforce, taking into account
individual and group differences in employment, personal needs, work style and aspirations and
the provision of equal opportunities for all.

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1.7. Characteristics of HRM
The characteristics of the HRM concept as they emerged from the writings of the pioneers and
later commentators are that it is:

 diverse;
 strategic with an emphasis on integration;
 commitment-oriented;
 based on the belief that people should be treated as assets (human capital);
 unitarist rather than pluralist, individualistic rather than collective in its approach
to employee relations;
 a management-driven activity – the delivery of HRM is a line management responsibility;
 Focused on business values.

1.8. Review Questions

1. Define Human resource Management

2. Explain HRM systems
3. Discuss the models of HRM
4. Describe the characteristics of HRM

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 UNIT 2: JOB ANALYSIS
2.1. Introduction
A company would select a business strategy to win competition on in a dynamic and changing
environment. The jobs of organization need to be studied and analyzed to help the organization
meet its strategy. Job analysis should fit the human resource management strategies which
support its business strategies.

In this unit we explore why Strategic Job Analysis is important to managers and why it is the
bedrock of most human resource programs.

2.2. Unit Objectives

After studying this chapter, you should be able to:

 Understand the nature of recruitment, including what it is and how it’s used.

 Understand the recruitment process

 Write Job Analysis including job descriptions, and Job Specification

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2.3. Job Analysis Defined
Organizations consist of positions that have to be staffed. Job analysis is the procedure through
which you determine the duties of these positions and the characteristics of the people to hire for
them.

2.4. Relationship to other aspects of Human Resource management

It is extremely difficult to plan for the effective and strategic utilization of human resources
without first conducting a job analysis. The information derived from a job analysis is used to
develop job descriptions and person specifications which are then used as the basis for
determining recruitment and selection strategies. Further to this, training, development,
performance management and remuneration strategies cannot be developed without foundation
information about the job, how it is to be performed and the competencies required to perform
that job.

2.5. Job Analysis Components

There are two major outcomes of job analysis, which are considered as the components of job
analysis. In other words, Job Description and Job Specification are the output of Job analysis.
Job descriptions refers to list of the characteristics of the job, and Job specifications-the
characteristics of the people that need to be hired for the job.

Job Descriptions

The job or position description is a description of the duties to be performed in the job and the
conditions under which the job is performed. Whilst there is no standard format for this job
description, the following information is generally required:

 Job title
 Job location
 Level/salary
 Responsibility statements - to what position does this job report and what positions, if
any, is the job responsible for

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  Duties/responsibilities
 Accountability
 Problem solving
 Job complexity
 Performance standards
 Working conditions

It is important that the job description accurately reflects the nature of the job, is reviewed
regularly and is written well so that the position incumbent understands what is expected of
them.

Person Specifications

Unlike the job description, which describes the job to be performed, the person specification
reflects the characteristics the person is required to bring to the job to perform it effectively.
These characteristics include:

 Experience.
 Qualifications.
 Training.
 Skills.
 Attributes, skills and abilities.
 Knowledge.

The development of accurate person specifications is essential as this forms the foundation for
the selection criteria for recruiting and selecting staff; the criteria against which training and
development needs are determined; and the competencies against which the performance of the
individual is determined.

These person specifications will need to be reviewed, along with the job description, every time
the job changes, new technology is introduced or the skill requirements to perform the job
change.

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2.6. Information Required for Job Analysis
Human Resource Management specialist normally collects one or more of the following types of
information via the job analysis 3 :

 Work activities: First, he or she collects information about the job’s actual work
activities, such as cleaning, selling, teaching, or painting. This list may also include how,
why, and when the worker performs each activity.
 Human behaviors: The specialist may also collect information about human behaviors
like sensing, communicating, deciding, and writing. Included here would be information
regarding job demands such as lifting weights or walking long distances.
 Machines, tools, equipment, and work aids: This category includes information
regarding tools used, materials processed, knowledge dealt with or applied (such as
finance or law), and services rendered (such as counseling or repairing).
 Performance standards: The employer may also want information about the job’s
performance standards (in terms of quantity or quality levels for each job duty, for
instance). Management will use these standards to appraise employees.
 Job context: Included here is information about such matters as physical working
conditions, work schedule, and the organizational and social context—for instance, the
number of people with whom the employee would normally interact. Information
regarding incentives might also be included here.
 Human requirements: This includes information regarding the job’s human
requirements, such as job-related knowledge or skills (education, training, work
experience) and required personal attributes (aptitudes, physical characteristics,
personality, interests).

2.7. Uses of Job Analysis

Job analysis information is the basis for several interrelated HR management activities.

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 Fig 2.1: Uses of Job Analysis Information

 Recruitment and Selection: Job analysis provides information about what the job entails and
what human characteristics are required to perform these activities. This information, in the form
of job descriptions and specifications, helps management decide what sort of people to recruit
and hire.
Compensation: Job analysis information is crucial for estimating the value of each job and its
appropriate compensation. Compensation (such as salary and bonus) usually depends on the
job’s required skill and education level, safety hazards, degree of responsibility, and so on—all
factors you can assess through job analysis. Furthermore, many employers group jobs into
classes (say, secretary III and IV). Job analysis provides the information to determine the relative
worth of each job—and thus its appropriate class.
 Performance Appraisal: A performance appraisal compares each employee’s actual
performance with his or her performance standards. Managers use job analysis to determine the
job’s specific activities and performance standards.
 Training: The job description should show the activities and skills—and therefore the training—
that the job requires.
 Discovering Unassigned Duties: Job analysis can also help reveal unassigned duties. For
example, your company’s production manager says she’s responsible for a dozen or so duties,
such as production scheduling and raw material purchasing. However, she may have an assigned
duties that she does but missing in the job analysis (description) example managing raw material
inventories. On further study, you may learn that none of the other production (manufacturing)

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 people are responsible for inventory management, either. In such a way job analysis will help to
uncover an essential unassigned duty.
 EEO Compliance: Job analysis also plays a big role in EEO compliance. Government (federal
Agencies)’ stipulates that job analysis is a crucial step in validating all major personnel activities.
For example, employers must be able to show that their selection criteria and job performance
are actually related.

2.8. Steps in Job Analysis

There are six steps in doing a job analysis. Let’s look at each of them.

Step 1: Decide how you’ll use the information, since this will determine the data you collect and
how you collect them. Some data collection techniques—like interviewing the employee
and asking what the job entails—are good for writing job descriptions and selecting
employees for the job. Other techniques, like the position analysis questionnaire, do not
provide qualitative.
Step 2: Review relevant background information such as organization charts, process charts, and
job descriptions.5 Organization charts show the organization wide division of work,
how the job in question relates to other jobs, and where the job fits in the overall
organization. The chart should show the title of each position and, by means of
interconnecting lines, who reports to whom and with whom the job incumbent
communicates. A process chart provides a more detailed picture of the work flow. In its
simplest form a process chart (like that in Figure 3-2) shows the flow of inputs to and
outputs from the job you’re analyzing. (In Figure 3-2 the inventory control clerk is
expected to receive inventory from suppliers, take requests for inventory from the two
plant managers, provide requested inventory to these managers, and give information to
these managers on the status of in-stock inventories.) Finally, the existing job
description, if there is one, usually provides a starting point for building the revised job
description.
Step 3: Select representative positions. Why? Because there may be too many similar jobs to
analyze representative positions need to be selected.. For example, it is usually

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 unnecessary to analyze the jobs of 200 assembly workers when a sample of 10 jobs will
do.
Step 4: Actually analyze the job—by collecting data on job activities, required employee
behaviors, working conditions, and human traits and abilities needed to perform the job.
For this step, use one or more of the job analysis methods explained later in this chapter.
Step 5: Verify the job analysis information with the worker performing the job and with his or
her immediate supervisor. This will help confirm that the information is factually correct
and complete. This review can also help gain the employee’s acceptance of the job
analysis data and conclusions, by giving that person a chance to review and modify your
description of the job activities.
Step 6: Develop a job description and job specification. These are two tangible products of the
job analysis. The job description (to repeat) is a written statement that describes the
activities and responsibilities of the job, as well as its important features, such as
working conditions and safety hazards. The job specification summarizes the personal
qualities, traits, skills, and background required for getting the job done. It may be in a
separate document or in the same document as the job description.

2.9. Methods of Collecting Job Analysis Information

There are various ways to collect information for job analysis. The following are some of the
important ones. In practice, any one of them, or their combinations can be used to fit the purpose
of job analysis.

Conducting the job analysis usually involves a joint effort by an HR specialist, the worker, and
the worker’s supervisor. The HR specialist (perhaps an HR manager, job analyst, or consultant)
might also be involved

Interviews, questionnaires, observations, and diary/logs are the most popular methods for
gathering job analysis data. They all provide realistic information about what job incumbents
actually do. Managers use them for developing job descriptions and job specifications.

The Interview

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Managers use three types of interviews to collect job analysis data—individual interviews with
each employee, group interviews with groups of employees who have the same job, and
supervisor interviews with one or more supervisors who know the job. They use group
interviews when a large number of employees are performing similar or identical work, since it
can be a quick and inexpensive way to gather information. As a rule, the workers’ immediate
supervisor attends the group session; if not, you can interview the supervisor separately to get
that person’s perspective on the job’s duties and responsibilities.

Interview Pros and Cons: It’s a relatively simple and quick way to collect information, including
information that might never appear on a written form. A skilled interviewer can unearth
important activities that occur only occasionally, or informal contacts that wouldn’t be obvious
from the organization chart. The interview also provides an opportunity to explain the need for
and functions of the job analysis. And the employee can vent frustrations that might otherwise go
unnoticed by management.

Distortion of information is the main problem—whether due to outright falsification or honest

misunderstanding. Job analysis is often a prelude to changing a job’s pay rate. Employees
therefore may legitimately view the interview as an efficiency evaluation that may affect their
pay. They may then tend to exaggerate certain responsibilities while minimizing others.
Obtaining valid information can thus be a slow process, and prudent analysts get multiple inputs.

Typical Questions Despite their drawbacks, interviews are widely used. Some typical interview
questions include:

 What is the job being performed?

 What are the major duties of your position? What exactly do you do?
 What physical locations do you work in?
 What are the education, experience, skill, and [where applicable] certification and licensing
requirements?
 In what activities do you participate?
 What are the job’s responsibilities and duties?
 What are the basic accountabilities or performance standards that typify your work?

21
  What are your responsibilities? What are the environmental and working conditions
involved?
 What are the job’s physical demands? The emotional and mental demands?
 What are the health and safety conditions?
 Are you exposed to any hazards or unusual working conditions?

Interview Guidelines Keep several things in mind when conducting a job analysis interview.
First, the job analyst and supervisor should work together to identify the workers who know the
job best—and preferably those who’ll be most objective in describing their duties and
responsibilities.

Second, quickly establish rapport with the interviewee. Know the person’s name, speak in easily
understood language, briefly review the interview’s purpose, and explain how the person was
chosen for the interview.

Third, follow a structured guide or checklist, one that lists questions and provides space for
answers. This ensures you’ll identify crucial questions ahead of time and that all interviewers (if
there’s more than one) cover all the required questions. (However, also make sure to give the
worker some leeway in answering questions, and provide some open-ended questions like, “Was
there anything we didn’t cover with our questions?”)

Fourth, when duties are not performed in a regular manner—for instance, when the worker
doesn’t perform the same job over and over again many times a day—ask the worker to list his
or her duties in order of importance and frequency of occurrence. This will ensure that you don’t
overlook crucial but infrequently performed activities—like a nurse’s occasional emergency
room duties.

Finally, after completing the interview, review and verify the data. Specifically, review the
information with the worker’s immediate supervisor and with the interviewee.

Questionnaires

Having employees fill out questionnaires to describe their job-related duties and responsibilities
is another good way to obtain job analysis information.

22
You have to decide how structured the questionnaire should be and what questions to include.
Some questionnaires are very structured checklists. Each employee gets an inventory of perhaps
hundreds of specific duties or tasks (such as “change and splice wire”). He or she is asked to
indicate whether or not he or she performs each task and, if so, how much time is normally spent
on each. At the other extreme the questionnaire can be open-ended and simply ask the employee
to “describe the major duties of your job.” In practice, the best questionnaire often falls between
these two extremes. A typical job analysis questionnaire might have several open-ended
questions (such as “state your main job duties”) as well as structured questions (concerning, for
instance, previous experience required).

Whether structured or unstructured, questionnaires have both pros and cons. A questionnaire is a
quick and efficient way to obtain information from a large number of employees; it’s less costly
than interviewing hundreds of workers, for instance. However, developing the questionnaire and
testing it (perhaps by making sure the workers understand the questions) can be expensive and
time consuming.

Observation

Direct observation is especially useful when jobs consist mainly of observable physical
activities—assembly-line worker and accounting clerk are examples. On the other hand,
observation is usually not appropriate when the job entails a lot of mental activity (lawyer,
design engineer). Nor is it useful if the employee only occasionally engages in important
activities, such as a nurse who handles emergencies.

And reactivity—the worker’s changing what he or she normally does because you are
watching—can also be a problem.

Managers often use direct observation and interviewing together. One approach is to observe the
worker on the job during a complete work cycle. (The cycle is the time it takes to complete the
job; it could be a minute for an assembly line worker or an hour, a day, or longer for complex
jobs.) Here you take notes of all the job activities. Then, after accumulating as much information
as possible, you interview the worker. Ask the person to clarify points not understood and to
explain what other activities he or she performs that you didn’t observe. You can also observe
and interview simultaneously, asking questions while the worker performs his or her job.
23
Participant Diary/Logs

Another approach is to ask workers to keep a diary/log of what they do during the day. For
every activity he or she engages in, the employee records the activity (along with the time) in a
log. This can produce a very complete picture of the job, especially when supplemented with
subsequent interviews with the worker and the supervisor. The employee, of course, might try to
exaggerate some activities and underplay others. However, the detailed, chronological nature of
the log tends to mediate against this.

Some firms take a high-tech approach to diary/logs. They give employees pocket dictating
machines and pagers. Then at random times during the day, they page the workers, who dictate
what they are doing at that time. This approach can avoid one pitfall of the traditional diary/log
method: relying on workers to remember what they did hours earlier when they complete their
logs at the end of the day.

Position Analysis Questionnaire (PAQ): Quantitative Job Analysis Techniques

Qualitative approaches like interviews and questionnaires are not always suitable. For example,
if your aim is to compare jobs for pay purposes, you may want to be able to assign quantitative
values to each job. The position analysis questionnaire is one of the popular quantitative
methods.

The Position Analysis Questionnaire PAQ contains 194 items The advantage of the PAQ is that
it provides a quantitative score or profile of any job in terms of how that job rates on five basic
activities: (1) having decision-making/communication/social responsibilities, (2) performing
skilled activities, (3) being physically active, (4) operating vehicles/equipment, and (5)
processing information. The PAQ’s real strength is thus in classifying jobs. In other words, it lets
you assign a quantitative score to each job based on its decision-making, skilled activity,
physical activity, vehicle/equipment operation, and information-processing characteristics. You
can therefore use the PAQ results to quantitatively compare jobs to one another and then assign
pay levels for each job.

2.10. Review Questions

1. What is job analysis?

24
2. Discuss the uses of Job analysis

3. Discuss the two main components of job analysis

4. Explain the methods that can be used for collecting job analysis information

25
 UNIT 3: HUMAN RESOURCE PLANNING (HRP)

3.1. Introduction
Human resource strategic plan should be based on the strategic plans of the organization. Once
the strategic plan of the organization is written, the HR professional can begin work on the
functional level and operational plan. Strategic Human Resource planning is more detailed and
more focused to the management of People in the organization.

In this unit we explore why human resource planning is important to managers.

3.2. Unit Objectives

After studying this chapter, you should be able to:

 Discuss the nature of Human Resource Planning

 Discuss the Importance of Human Resource Planning

 Understand the process of human resource management Write Job Analysis including job
descriptions, and Job Specification

26
3.3. Definition of Human Resource Planning (HRP)
It is comprehensive, attempting to ensure organizations have the right ‘fit’: the right number of
people, with the right skills, at the right time and at the right cost.

Human resource planning involves forecasting human resource needs for an organization and
planning the necessary steps to meet short term and long term needs.

3.4. Importance of Human Resource Planning

 Helps to determine future human resource needs: Surplus or deficiency in staff strength is
the result of the absence of or defective planning

 Coping with Change: HRP enables an organization to cope with changes in competitive
forces, service (market), technology, products, and government regulations.

 Foundation for personnel functions: HRP provides essential information for designing and
implementing personnel functions, such as recruitment, selection, personnel movement
(transfers, promotions, layoffs) and training and development.

 Provides Information on the status of the human resource: Upper management has a
better view of the HR dimensions in the organization

 Reduces Cost and budget of human resource Management: Personnel costs may be less
because, it helps to anticipate imbalances before they become unmanageable and expensive

3.5. Human Resource Planning Process

The process of human resource planning involves a number of steps that human resource
planners follow during planning.

HR managers usually employ a systematic process when undertaking HRP, including:

 Labor demand forecasting and analysis,

 Labor supply forecasting and analysis,

 Determination of net human resource requirement

27
  Action plan

Total Human Total Human

Resource Resource Supply
Demand Forecasting
forecasting

Net Human Resource

Requirement

Action Plan

Fig. 3.1.

Human resource planning can be difficult and time consuming, but failure to plan effectively will
inevitably result in subsequent staffing problems, which will affect organizational effectiveness.
HRP should use both quantitative (measuring by numbers) and qualitative (describing the
quality) approaches as they complement each other and provide a more complete planning
coverage.

Step 1: Total Human Resource Demand Forecasting

As can be seen from the diagram above, total human resource demand forecasting is the first step
in the human resource planning.

Determining the total work force requirement begins with the analysis of theorganization
organization's operations by using projections of operations, output person and productivity.
Forecasting for new organizations may require the study of other organizations (benchmarking)
or by utilizing a range of qualitative or quantitative methods.

The type of method selected will be dependent upon the size and structure of the organization
along with the skills of the HR and line managers. Quantitative methods use a range of statistical
and mathematical techniques whilst qualitative methods use mainly judgmental methods, which
provide scenarios or feedback from people who provide analysis and predictions. Ideally, both

28
approaches should be used as they complement each other and provide a more complete planning
coverage.

Step 2: Total Human Resource Supply Forecasting

Once an organization has been able to forecast, to some degree, its future staffing requirements,
it must then determine the availability of the types and number of human resources and where
they can be obtained.

The total human resource supply forecast involves knowing the type and the number of human
resource available within the organization-the human resource inventory. The human resource
inventory is sometimes called the manpower audit. The HR audits summaries each employee’s
skills and abilities. The human resource audit consists of:

Skill audit: Skills inventories consolidate information about non-managers in the

organization. Because the organization from skills inventories is used as input into transfer
and promotion decisions. They should contain info about each employee’s current job.
Some of those such are:

 Personal data: age, sex, and marital status

 Skills – education, job experience, training

 Special qualifications- membership in professional bodies, special achievements

 Salary and job history: present and past salary, dates of pay raises, various jobs held.

 Company data-benefit plan data, retirement information, and seniority

 Capacity of individual –scores on psychological and other test, health information.

 Special preference of individual-geographic location, type of job.

Management audit: Skills inventories consolidate information about employees in the

management position

The data in the present manpower inventory is the picture of manpower available at a single
point in time, that is the number the day the inventory is taken. In the long run, changes in the

29
manpower position must be anticipated. This anticipation of change in manpower is called
turnover analysis.

Step 3: Determining the Net Human resource Requirement

Once the organization’s personnel demand and supply are forecast, the two must be reconciled
for balanced in order that vacancies can be filled by the right employees at the right time

The net human resource requirement is the difference between the total human resource demand
and the human resource supply forecast taking into account the anticipated change. The net
human resource requirement can result in either surpluses, shortages or it may balance.

Step 4: Action Plan

After estimating human resource demand and supply for a future period, an organization firm
faces one of three conditions, each of which requires a different set of responses.

Shortage of human resource

In this scenario, the firm will need more workers than will be available.

The reasons for shortages can be for several reasons including expansion of the company and its
jobs, poor human resource planning and turnover. A variety of actions (strategies) can then be
used to increase the labor supply available to a specific organization. These include:

 Training or retraining existing

 Workers, grooming current employees to take over vacant positions (succession planning),
promoting, transferring from within,

 Recruiting and hiring new permanent employees,

 Subcontracting part of the work to other firms,

 Hiring part-timers or temporary workers,

 Paying overtime to existing employees

 Offer incentives to postpone retirement

 Rehire retirees part-time

30
 Work current staff overtime

 Redesign job processes so fewer employees are needed

 Reduce operation

Surplus human resource

In this scenario, labor supply exceeds the labor demand. The reasons for surplus human resource
can be company contraction, over employment and poor human resource planning. This excess
means that the firm will have more employees than it needs. Firms may use a variety of measures
to deal with this situation. These include:

 Freeze hiring

 Reducing the number of hours worked,

 Do not replace those who

 Reduce overtime work

 Offer early retirement incentives

 Reduce outsourced work

 Expand operations

 Layoffs

Balanced Human resource

In the third scenario, labor demand is expected to match labor supply. The organization can deal
with this situation by replacing employees who quit with people promoted from the inside the
business or hired from the outside. The firm may also transfer or redeploy employees internally,
with training and career development programs designed to support these moves.

The HRP should include budgets, targets and standards. It should also clarify responsibilities for
implementation and control, and establish reporting procedures, which will enable achievements
to be monitored against the plan.

31
3.6. Succession Planning
• It is a human resource planning that determines who will replace who at the time of vacancy
of managerial/executive positions

• It is a career development activity prepares people to fill management/executive positions

• Preparing successors is useful because people leave organizations for various reasons such
as retirement, disability, death, resignation, quit etc.

• Succession plan uses a replacement analysis with a replacement chart

Succession planning uses replacement chart. The replacement chart is much like organizational
chart which depicts the current job holder, and the potential candidates with two dimensions,
Promote ability and Current performance. Candidates are placed in ranking order based on
promote ability

Promote ability candidate can be rated as

A: Ready now

B: Needs Training

C: Questionable

Current Performance of candidates can be rated as

1. Outstanding

2. Satisfactory

3. Needs improvement

32
Fig 3.2. Replacement Chart

Assessment Centers

Succession planning can use assessment center a Development program to assess and develop
candidate

• In a typical assessment-center, a potential manager spends two or three days away from
the job, performing many activities.

• These activities may include role playing, pencil-and-paper tests, cases, leaderless group
discussion, management games, peer evaluation, and in-basket exercises, in which the
trainee handles typical problems coming across a manger’s desks.

• For the most part, the exercises are samples of managerial situations that require the use
of managerial skills and behaviors. During the exercises, participants are observed by
several specially trained judges. Assessment centers are seen as an excellent means for
determining managerial talent.

33
3.7. Review Questions

1. Discuss the Importance of strategic human resource planning.

2. Discuss the Process that you may follow in strategic human resource planning.
3. What are the possible scenarios that an organization may encounter as the result of human
resource size and the possible action plan to be undertaken?

34
UNIT 4: HUMAN RESOURCE RECRUITMENT
4.1. Introduction
One of the most important and challenging elements of the strategic approach to HR
management today is the attraction of the ‘right’ people to the organization. Ensuring that the
most advantageous recruitment strategies is utilized - internal or external - is vital to the success
of the process.

Recruitment process is an important part of human resource management Strategy (SHRM). It

isn’t done without proper strategic human Resource job Analysis human resource planning
strategy. Recruitment provides the organization with a pool of qualified job candidates from
which to choose. Before companies recruit, they must understand the job analysis and the
strategic human Resource plan.

In this unit we explore why Strategic Recruitment is important to the management of strategic
human resource management.

4.2. Unit Objectives

After studying this chapter, you should be able to:

After studying this chapter, you should be able to:

 Understand the nature of recruitment, including what it is and how it’s used.

 Understand the recruitment process

 Understand the nature and uses of the sources of recruitment

 Conduct a realistic approach in recruitment

35
 4.3. Recruitment Defined
Recruitment is the process reaching out and attempting to attract potential and qualified job
candidates for a particular job. The word qualified need to be stressed because attracting
applicants who are unqualified for the job is a costly in terms of money, time and effort. To
avoid costs, the recruiting effort should be targeted solely at applicants who have the basic
qualifications for the job.

4.4. Recruitment Process

There are steps that can be followed by the recruiting team during recruitment. These include
obtain recruitment information, determining how many to recruit, determine the source of
recruitment, conduct realistic recruitment, and evaluate the recruitment.

Sources of
Recruitment Realistic
Recruitment

Recruitme
nt
Informatio
n How Many to
Recruit Recruitment
Evaluation

Fig.4.1. Recruitment Process

Obtain Recruitment information

The information required includes:

 The vision mission and goals of the of the organization, which sets the reason for the
existence of the organization and the organizations future direction

 Human resource Planning: To be effective, recruitment should be tied to human resource

planning. As we saw early, HRP involves a comparison of present workforce capabilities
with future demands. The analysis might indicate, for example, a need for 10 more staff
36
 personnel given the firm’s pension plans and anticipated market conditions. This
information should play a key role in determining the level of the recruitment effort.

 The job description and specification of the jobs-indicates the duties responsibilities,
knowledge, skills, attitudes, and the conditions under which the work is done. The job
description, in very clear language, sets forth the expectations that the job has of its
position holder.

 The labor market condition-indicates whether candidates for particular jobs are scarce
(fully employed), or abundant (surplus) in the market. Organizations often find it difficult
to recruit qualified employees when employment rate is high.

 Government requirement on recruitment-to understand the do's and dint's of recruitment.

Decide on How Many to Recruit

The number of candidates to be contacted during recruitment should be determined beforehand.
Organizations plan to attract usually more applicants than they could hire. This is because some
of the candidates will be uninterested, unqualified or both. Useful estimate and yield ratio (if the
organizations has conducted recruitment and selection before) can help in determining how many
to recruit. Yield ratios relate recruiting input to recruiting output of earlier recruitment and
selection practices.

For example, if the firm finds that it has to make two job offers to get one acceptance, this offer-
to-acceptance ratio indicates that approximately 200 offers will have to be extended to have 100
offers accepted. Perhaps the interview-to-offer ratio has been

This ratio indicates that the firm will have to conduct at least 600 interviews to make 200 offers.
Other ratios to consider are the number of invitations-to-interview ratio and the number of
advertisements or contacts-to-applicant ratio. Each firm sets its own number of candidates to
number of job openings ratio. The desired level of recruitment effort may be higher if the firm
wishes to be particularly selective in making employment offers.

Determine the source of Recruitment

Sources of recruitment are the places agencies and institutions, which recruiters go to seek
potential and qualified candidates that will fill the vacant jobs. A great number of recruitment

37
sources are available to organizations. There are two practical sources from which recruiters seek
potential candidates to fill job needs-internal source and external source.

Internal source:

The internal source is recruiting from within the organization (in-house), that is from own
employees. Many organizations have internal recruitment policy. Internal recruitment is usually
done through transfer and promotion. The way in which internal applicants are located is often
through job posting and job bidding.

The following are the advantages and disadvantages of internal recruitment.

Fig.4.2. Internal Sources of Recruitment

External Sources:

External source is recruiting from outside the organization. Whenever internal sources cannot be
used, external sources are used. External source has the opposite of the positive and negative side
of the internal source presented above.

38
Fig.4.3. External Sources of Recruitment

Locating applicants from outside the organization has many more options associated with it, as
the entire labor market is a potential source. The most common source external source may
include the following.

 Unsolicited applicants: (Walk-ins, Write-ins) some organizations receive many unsolicited

applications from qualified and unqualified individuals. The former should be kept on file
for future reference. Good business practice suggests that all applicants be treated
courteously whether or not they are offered jobs.

 Word of Mouth: Putting the word on the street that you are looking for people can be an
effective and efficient way of finding employees. By tapping into your networks, you may
readily find the experienced professional that you need for that new contract with very
limited cash expense. Outplacement companies maintain job boards free of charge and can
be a good source of skilled workers.

 Newspaper/Trade Journal Ads: Most jobs are filled by the methods listed above. There may
be times when you need to place and ad in a newspaper or trade journal. You can reach the
largest pool of applicants locally, nationally or even internationally.

39
 The disadvantages to this method include price – it can be very expensive to place a decent
sized ad that potential applicants will see as they scan the career sections. This method is
also time-consuming, as you need to write the ad and let it run for some time. You also
need to plan how to handle the volume of applications.

 Colleges, Universities, vocational and high schools: These are a very effective way of
filling junior positions; with people whom you know are already qualified for working in
the specific organization because of their specialization. The placement officer in the
college or university will be more than willing to help you plan your recruitment strategy.
The problem with this group is lack of experience.

 Private employment agencies: These firms provide a service for employers and applicants
by matching people to jobs in exchange for a fee. Some fees are paid by the applicants, and
there is no cost to the employer; for highly qualified applicants in short supply, the
employer sometimes pays the fee.

 Employee referrals: References by current employees may provide excellent prospects for
the business. Evidence suggests that current employees hesitate to recommend applicants
with below average ability. Word of mouth is one of the most commonly used recruiting
sources in the small businessorganization.

 E-recruitment: The growing use of technology in the day-to-day operation of business has
also impacted upon traditional HR functions. The Internet has become a major source of
matching applicants to jobs. The major reasons for this are the lower costs associated with
advertising, the quick turn around time between when a position is advertised and the
lodgment of applications and the vast pool of labor that access online sites. However,
access to these sites is obviously limited to those who have access to computers and the
Internet and there may be issues associated with the confidentiality of the applications
received on the Internet

 Other Methods: There are a few other ways of finding the right employees. These include
people you meet at conferences, seminars and trade shows. You can attract them by either
setting up your own recruitment booth or through informal meetings.

40
Conduct Realistic Approach to Recruitment
The recruiter need to provide realistic information about the job and the organization. To often
the seeds of dissatisfaction and eventual turnover will be sawn during the recruitment process.
Do not inflate the expectation of the candidate beyond what the actual that your organization can
offer. When the candidate discovers the actual is less than the expectations that you have created
during the recruitment, the candidate may leave your organization, which results in a great loss
to the company in terms of effort and cost.

Evaluate the recruitment

Evaluation of the success of recruitment is based whether the candidates attracted are fit for
selection. If the selection process is fed with sufficient qualified candidates then one can say that
the recruitment was successful.

4.5. E-Recruitment and Outsourcing

E-recruitment

The growing use of technology in the day to day operation of business has also impacted upon
traditional HR functions. The Internet has become a major source of matching applicants to jobs.
The major reasons for this are the lower costs associated with advertising, the quick turnaround
time between when a position is advertised and the lodgment of applications and the vast pool of
labor that access online sites. However, access to these sites is obviously limited to those who
have access to computers and the Internet and there may be issues associated with the
confidentiality of the applications received on the Internet.

Outsourcing Recruitment
As with e-recruitment, there is a growing trend to outsourcing the recruitment function. Whilst
this can be cost effective for an organization with either no professional HR service available
internally or have an HR service but it is busy with a range of other issues. The credentials and
professionalism of the external recruitment agency or consultant needs to be carefully evaluated.
They can be costly and may lack the expertise to make the most effective recruitment decision
for the organization

41
4.6. Review Questions
1. Discuss the process that you may follow during recruitment.

2. Which of the two source of recruitment would use/ And Why?

3. What is realistic recruitment and why do use it?

4. Explain /e-recruitment and outsourcing recruitment

42
 UNIT 5: HUMAN RESOURCE SELECTION AND INDUCTION
5.1. Introduction
Human resource strategic selection strategic plans should be aligned to the strategic
organizational and to the strategic human resource management plan. Job analysis and human
resource planning are the base for human resource selection.

In this unit we explore why human resource selection is important to managers.

5.2. Unit Objectives

After studying this chapter, you should be able to:

 Discuss the importance of choosing the right person for a job

 Understand how to develop a selection criteria and verifying the validity and reliability of
selection instruments.

 Understand the selection process

 Understand the types of interview and how to use them.

 Understand how to place an employee on the job

 Introducing the new employee to the company

43
 5.3. Selection Defined
Whilst the recruitment process focuses on obtaining a pool (group) of applicants for a position,
selection follows on from this and is focused on choosing the most suitable applicant from that
pool for the vacant position.

Selection is a process of determining from among applicant recruiters which one best fits the
requirement of a job and should be offered the job position. It is a process of determining if a
potential candidate has the personal qualities, the job requires.

5.4. Importance of Selection

There are a number of positive consequences associated with good planning of the selection
process as well as making right selection decisions. These include:

The following are among the benefits of choosing the right person.

 Customers will receive the right quality service within the right time and get satisfied and
delighted.

 Fellow workers will receive a cooperative and compatible service and satisfied and delighted
to work with

 Fellow workers will be happy to work and stay at their organization

 Superiors (supervisors) will be satisfied and delighted to work with

 There will be cooperation and harmony among workers which will result in positive synergy

 The organization will have a good image

 The organization will achieve its goals and mission efficiently and effectively

 The company will grow, develop and become prosperous

 There are a number of negative consequences associated with poor planning of the selection
process as well as making poor selection decisions. These include:

 Increased induction, training, development and performance management costs for the
incumbent

44
 Dissatisfaction of customers because of poor service

 Frustrations for, or loss of, other key staff that have to work with the new employee

 Impaired image and reputation for the company

 Reduced productivity

5.5. Selection Criteria

Selection instruments, whether tests, interviews, or some other techniques, are meant to measure
job-related qualifications. Selection criteria are the tools that are used to select among the
recruitees that best fit the job requirement. Selection criteria therefore, are based on the job
analysis (job description and job specification).

Selection instruments often fail if they are not carefully designed and administered. Right
selection criteria will help select the right person while the wrong criteria will select the wrong
person.

Important concepts related to effectiveness of selection instruments such as tests and interviews
in maximizing positive outcomes and minimizing negative outcomes are validity and reliability.

Validity

Validity is the extent to which the technique measures the intended knowledge, skill, or ability.
In the selection context, this means that validity is the extent to which scores on a test or
interview correspond to actual job performance. Validity is at the heart of effective selection. It
represents how well the technique used to assess candidates for a certain job is related to
performance in that job. A technique that is not valid is useless and may even present legal
problems. In fact, documentation of the validity of a selection technique is central to that
technique’s legal defensibility. When discrimination in hiring practices is charged, the critical
evidence will be the job relatedness (validity) of the selection technique

There are typically two basic strategies for demonstrating the validity of selection methods:
content and empirical.

A content validity strategy assesses the degree to which the content of the selection method (say,
an interview or a test) is the representative of job content. Job knowledge tests are often
45
validated using a content validation strategy. A content validation assess whether the candidates
have all the necessary knowledge to perform the job.

An empirical (also known as criterion related) validity strategy demonstrates the relationship
between the selection method and job performance. Scores on the selection method (say,
interview judgments or test scores) are compared to ratings of job performance. If applicants
who receive higher scores on the selection method also turn out to be better job performers, then
empirical validity has been established.

There are two types of empirical validity: concurrent and predictive. Concurrent validity
indicates the extent to which scores on a selection measure are related to job performance levels.
To illustrate, say that a company develops a test to use for hiring additional workers. To see how
well the test might indicate job performance levels, the company gives the test to its current
workforce. The company then correlates the test scores with the performance appraisal scores
that supervisors just completed. The correlation between the test scores and job performance
scores indicates the concurrent validity of the test because both the test and job performance
scores were measured concurrently in time.

Predictive validity indicates the extent to which scores on a selection measure correlate with
future job performance. For example, the company gives the test to all applicant’ and then
checks their job performance level 12 months later. The correlation between test scores and job
performance in this case indicates the predictive validity of the test because the selection
measure preceded the assessment of job performance.

Reliability

Reliability refers to consistency of measurement, usually across time, but also across judges. If a
measure produces perfectly consistent results, that measure is perfectly reliable. For example, if
you take a math test every week for five weeks and always obtain the same score, then that
measure of your mathematical skill level would be considered perfectly reliable. Likewise, if five
different interviewers all judged you to have the same level of social skill, the inter judge
reliability would be perfect.

However, perfect reliability is rarely if ever achieved. Measurement almost always involves
some error and that error is “noise,” or unreliability. The greater the amount of noise in a
46
measure, the harder it is to determine the true signal that the measure is trying to detect. For
instance, the less similar your test scores on the math test you took repeatedly, the more difficult
it is to determine your true mathematical skill level.

Also, the less “agreement across interview judges, the more difficult it is to determine your true
level of social skill. Conceptually, reliability is the amount of noise in a measure, but
operationally, reliability is assessed by the level of similarity of agreement in scores over time or
among judges.

The error with which something is measured can be broken down into two types: deficiency
error and contamination error.

Deficiency error occurs when a component of the domain being measured is not included in the
measure. Not including subtraction questions in a test of basic math skill would yield a deficient
measure: one that does not capture the true level of basic math skill.

Contamination error occurs when a measure includes unwanted influences. For example, ran
interviewer may be under undue time pressure from other job duties and not take the time to
accurately assess a job candidate. Alternatively, a job candidate may be exceptional at creating a
favorable first impression that sways an interviewer’s assessment of his/her job skills.
Alternatively, an interviewer might rate an average job candidate lower than average because of
the contrast with an outstanding candidate who preceded him.

5.6. The Selection Process

The selection of the most appropriate staff member for a vacant position in an organization can
be a time consuming process. Selection requires the determination of selection criteria and use of
a process that involves a number of steps. The most common methods include the preliminary
screening, interview, tests, background investigations and medicals. Factors such as the nature of
the position, number of applicants for the position and the type of organization the vacant
position exists in will determine how many of the stages should be followed.

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 Preliminary Tests Interviews
Screening

Selection
Informatio
n
& Criteria Application Reference
Resume Medical
Step 1: Selection Information and Criteria
Fig.5.1. The Selection process

The information required includes:

 The vision mission and goals of the of the organization, which sets the reason for the
existence of the organization and the organizations future direction

 Human resource Planning: To be effective, selection should be tied to human resource

planning. This information should play a key role in determining the level of the selection
decision.

 The job analysis (job description and job specification) indicates the duties responsibilities,
knowledge, skills, attitudes, and the conditions under which the work is done. The job
description, in very clear language, sets forth the expectations that the job has of its position
holder.

 Government requirement on selection: governments have several employment requirements

including equal employment opportunities, affirmative actions. Employers need to know
what government laws allow or prohibit. Organizations that ask job applicants certain
questions (for example, their race, creed, sex, national origin, marital status, or number of
children) either on application forms or in the interview process run the risk of being sued.

Step2: Application and Resume

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Organizations often use application forms and resume as screening devices to determine if a
candidate satisfies minimum job specifications, particularly for entry-level jobs. The forms
typically ask for information regarding past jobs and present employment status.

A recent variation on the traditional application form is the bio data form. This is essentially a
more detailed version of the application form in which applicants respond to a series of questions
about their background, experiences, and preferences.

Responses to these questions are then scored. For instance, candidates might be asked how
willing they are to travel on the job, what leisure activities they prefer, and how much experience
they have had with computers. As with any selection tool, the bio data most relevant to the job
should be identified through job analysis before the application form is created.

An applicant can also be asked to submit his resume or bio data an information document
designed and written by the applicant

Application and resume are important because they provide information including the mobility
propensity of the candidate. The information obtained from the application and resume is
generally used as a basis for further exploration of the applicant's background.

The problem with resume is that applicants come armed with elaborate and attractive resumes.
Some borderline and totally incompetents may engage the service of employment consultants to
help them design elaborate and attractive resumes that extol their alleged virtues and abilities.

It is useful to ask applicants to sign statement that the information contained in the application
blank and resume is true, and that he or she accepts the employer's right to terminate the
candidate's employment if any of the information is subsequently found to be false.

Step 3: Preliminary screening (Interview)

Applications should be short listed through ‘Pre-employment screening’, whereby the
applications are assessed against minimum educational level, experience, and competency.
Preliminary interviews are often conducted when there are a number of applications, which
appear to meet the position’s requirements. Preliminary interviews are often brief and informal
and are used to shorten the list of applicants further.

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The testing and interviewing components are the most time consuming and often costly
components of the process. However, these elements provide important information about the
person applying for the job as well as their capacity to meet the selection criteria.

Step 4: Tests
A test is an objective and standardized measure of a sample of behavior. Various tests measure a
wide range of abilities, from verbal and qualitative skills to perceptual speed.

The following tests are usually applied in the selection process.

 Personality Tests: These tests measure certain characteristics such as emotional maturity,
sentiments, conflict ascendance, sociability, objectivity etc. of candidates. Whether a
candidate has a thick or healthy personality can be determined by this test.

 Achievement Tests: These tests are also known as proficiency tests. Aims at measuring the
skill already acquired by the candidate either through his education or through experience.
Such skill is essential for the job being considered. Fore example a candidate for truck driver
may be asked to drive a truck, a prospective financial manager may be given a case
study/problem, which requires the application of specific financial tools.

 Aptitude Tests: Is used to know whether the selected candidate will be capable of learning
the job or not. Tests designed to measure the learning capacity of the candidates are known
as aptitude tests. Aptitude tests measure whether an individual has the latent (hidden) ability
to learn a given job, if he is given adequate training.

 Intelligence Tests: These tests measure the mental ability or alertness of an applicant. These
include verbal and written tests.

 Interest Tests: These tests are designed to the interests of the candidates in terms of likings
and disliking. Fore example, men and women may have different interests. The interest,
which have occupational significance social, esthetic, religious, literature, music etc.

 Dexterity Tests: Dexterity tests aim to measure the swiftness with which the prospective
employer can make use of various body parts e.g. ability to move hands, eyes, etc. Some
times due to the nature of the job, these tests become essential.

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 Disposition-Ability to measure the capacity of the individual to work with others

 Limitation of Tests

 Selection Tests have certain limitations. The following are some of the limitation of test.

 Tests cannot be relied upon in isolation be cause of the validity and reliability problems.
Many qualifications (strengths and weaknesses) of the candidate may be reviled during
interview or actual performance for example.

 Tests have also a high margin of error

 Therefore tests before they are used as a selection instrument they need to be checked for
their validity and reliability.

Step 5: Interviews
Interview is perhaps the most widely used selection instrument. Areas of interview include:

Situational questions try to elicit from candidates how they would respond to particular work
situations. These questions can be developed from the critical incident technique of job analysis:
Supervisors and workers rewrite critical incidents of behavior as situational interview questions,
then generate and score possible answers. During the interview, candidates’ answers to the
situational questions are scored based on the possible answers already generated.

 Job knowledge questions assess whether candidates have the basic knowledge needed to
perform the job.

 Worker requirements questions assess candidates’ willingness to perform under prevailing

job conditions.

Types of Interview

Interviews can be structured or unstructured.

Structured interview is an interview in which interview questions are predetermined before the
interview takes place.

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The structured (directive) interview is based directly on a thorough job analysis. It applies a
series of job-related questions with predetermined answers consistently across all interviews for
a particular job.

Structured interviews are can be good predictors of job performance. Structured interview has a
number of advantages:

 First, the content of a structured interview is, by design, limited to job-related factors.

 Second, the questions asked are consistent across all interviewees. The interviewers ask same
set of job related question of each candidate.

 Third, all responses are scored the same way.

 Finally, since panel of interviewers are typically involved in conducting the structured
interview, the impact of individual interviewers’ idiosyncrasies and biases is limited.

The unstructured (non-directive) interview is an interview, which allows the applicant the
maximum amount of freedom in determining the course of the discussion. This is achieved by
interviewer asking broad open questions. Unstructured question permits applicants to talk freely
with minimum of interruption.

The use of highly structured interview is more likely to provide the type of information that is
needed for making sound decisions. It also helps to reduce the possibility of legal charges of
unfair discrimination.

The heart of the interview is gathering information to make decision. A wrong interview will
lead to acceptance or rejection errors. Therefore, interviewers need to know how to conduct
interview.

Training for interviewers usually is concerned with how to prepare for interview, conduct a job
interview and how to evaluate applicants.

In training for interview topics such as preparing for the interview (preparing interview
questions, legal issues, use of job analysis etc), conducting the interview (such as rapport
building, asking questions, listening, recording), and evaluation of candidates are included.

Step 6: Reference checking (background investigations)

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Reference checking provides the opportunity to question individuals, who either have worked
with the applicant or know them in some other capacity, about their suitability for the role and to
match them against the selection criteria. By contacting the applicant’s current or previous
managers or co-workers, you are making sure the applicant has the skills and experience listed
on their application and resume.

Reference checks are important since research shows that about third of all applicants are
creative with or lie about their employment history. You want to make sure the person will not
be a liability to you and your clients if they claim to have technical expertise that they do not in
fact possess.

Step 7: Medical testing

Medical testing is increasing in popularity and checks are made for any physical or mental
conditions that may prevent the applicant from successfully performing the requirements of the
role. Only those candidates, who are physically fit, should be selected.

If a person with poor health is selected, it may lead to the following complications.

 He may spread diseases among the other workers

 He may remain absent from duty because of illness and subsequently resign

 The candidate may claim compensation for being dismissed

Step 8: The Selection Decision

There are three basic strategies in selection decision.

The first requires making a preliminary selection decision after completion of each method. This
approach is called multiple hurdle strategy because an applicant has to clear each hurdle before
moving on to the next one. Those who do not clear the hurdle are eliminated from further
consideration. The multiple hurdle strategy is often the choice when a large number of applicants
must be considered. Usually, the procedure is to use the less-expensive methods first to screen
out clearly unqualified applicants

The combination method involves collecting all the information before making any decision; the
difference is in how that information is combined. In a clinical strategy, the decision maker
subjectively evaluates all of the information and comes to an overall judgment. In a statistical
53
strategy, the various pieces of information are combined according to a mathematical formula,
and the job goes to the candidate with the highest score.

5.7. Induction and Placement

We must all know that after a candidate joins the firm, he or she goes through the firm’s
orientation program.

Induction is the process of acquainting new employees with the organization with his new job
and with the employees. It is the process of receiving and welcoming an employee when he first
joins a company and giving him the basic information he needs to settle down quickly and start
work.

Induction Serves the Following Purposes

i) Removes fears: A newcomer steps into an organization as a stranger. He is new to the

people, workplace and work environment. He is not very sure about what he is supposed to do.
Induction helps a new employee overcome such fears of:

(a) The job, its content, policies, rules and regulations.

(b) The people with whom he is supposed to interact. .

(c) The terms and conditions of employment.

ii) Creates a good impression: Another purpose of induction is to make the newcomer
feel at home and develop a sense of pride in the organization. Induction helps him to:

(a) Adjust and adapt to new demands of the job.

(b) Get along with people.

(c) Get off to a good start.

iii) Act as a valuable source of information: Induction serves as a valuable source of

information to new recruits. It classifies many things through employee manuals/handbook.
Informal discussions with colleagues may also clear the fog surrounding certain issues. The basic
purpose of induction is to communicate specific job requirements to the employee, put him at
ease and make him feel confident about his abilities.

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 5.8. Steps in Induction Program
The HR department may initiate the following steps while organizing the induction program:

i) Welcome to the organization

ii) Explain about the company

iii) Show the location department where the new recruit will work

iv) Give the company’s manual to the new recruit

v) Provide details about various work groups and the extent of unionism within the
company

vi) Give details about pay, benefits, holidays, leave, etc. Emphasize the importance of
attendance or punctuality

vii) Explain about future training opportunities and career prospects

viii) Clarify doubts, by encouraging the employee to come out with questions

ix) Take the employee on a guided tour of buildings, facilities, etc. Hand him over to his
supervisor

5.9. Contents of Induction Program

The areas covered in employee induction program may be stated as follows:

Organizational Issues Employee Benefits Issue

 History of company  Pay scales, pay days

 Names and titles of key executives  Vacations, holidays

 Employees’ title and department  Rest pauses

 Layout of physical facilities  Training Avenues

 Probationary period  Counseling

 Products/services offered  Insurance, medical, recreation,

retirement benefit

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 Overview of production process

 Company policy and rules

 Disciplinary procedures

 Safety steps

 Employees’ handbook

Introductions Job Duties

 To supervisors  Job location

 To co-workers  Job tasks

 To trainers  Job safety needs

 To employee counselor  Overview of jobs

 Job objectives

 Relationship with other jobs

Table 5.1. Areas of Employees’ Induction

5.10. Placement
After all the formalities are completed, the candidates are placed on their jobs initially on
probation basis. When the parties agree to have a probation period, the agreement shall be made
in writing. In such a case, the probation period shall not exceed forty five consecutive days.
However in some circumstances like for managerial positions, there is experience in different
organization in which the probation period may range from 45 days up to three months if there is
agreement reached between the two parties.

If the new recruit fails to adjust himself to the job and turns out poor performance, the
organization may consider his name for placement elsewhere or termination.

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 5.11. Review Questions
1. Discuss the Importance of choosing the right person for a job

2. How do you develop selection criteria for a job and test the reliability and validity.

3. Explain the selection process.

4. What do we mean by employee induction program and why should it be done?

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 UNIT 6: TRAINING AND DEVELOPMENT
6.1. Introduction
Training and development is vital part of the human resource management strategy. It is
assuming ever important role in wake of the advancement of technology which has resulted in
ever increasing competition, rise in customer’s expectation of quality and service and a
subsequent need to lower costs. It is also become more important globally in order to prepare
workers for new jobs.

Noted management author Peter Drucker said that the fastest growing industry would be training
and development as a result of replacement of industrial workers with knowledge workers.

In the current write up, we will focus more on the emerging need of training and development,
its implications upon individuals and the employers. Successful organizations and managers
realize that people are a key resource in maintaining competitive advantage. These organizations
and managers view employee training as an investment in their people, not an expense.
Successful employers want their employees to have the best skills and the broadest
understanding of the organization and its clients or customers.

6.2. Unit Objectives

After studying this chapter, you should be able to:

 Understand the purpose and the role of training and development in strategic human
resource management

 Understand how to manage the training process

 Understand the types of training

 Understand how to develop and conduct training and development

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 6.3. Training versus Development
Lots of time training is confused with development, both are different in certain respects yet
components of the same system.

Training: Training typically focuses on providing employees with specific skills or which help
correct deficiencies in their performance. For example, new equipment may require workers to
learn new ways of doing the job or a worker may have a deficient understanding of a work
process. In both cases, training can be used to correct the skill deficit. In contrast, development is
an effort to provide employees with the abilities the organization will need in the future.

In training, the focus is solely on the current job; in development, the focus is on both the current
job and jobs that employees will hold in the future. The scope of training is on individual
employees, whereas the scope of development is on the entire work group or organization

Development implies opportunities created to help employees grow. It is more of long term or
futuristic in nature as opposed to training, which focus on the current job. It also is not limited to
the job avenues in the current organization but may focus on other development aspects that may
or may not help them directly.

6.4. Purpose of Training and Development

Reasons for emphasizing the growth and development of personnel include

 Creating a pool of readily available and adequate replacements for personnel who may leave or
move up in the organization

 Enhancing the company's ability to adopt and use advances in technology because of a
sufficiently knowledgeable staff.

 Building a more efficient, effective and highly motivated team, which enhances the company's
competitive position and improves employee morale.

 Ensuring adequate human resources for expansion into new programs

Specific benefits from training and developing its workers, including:

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  Increased productivity

 Reduced employee turnover

 Increased efficiency resulting in financial gains

 Decreased need for supervision

Employees frequently develop a greater sense of self-worth, dignity and well-being as they become
more valuable to the firm and to society. Generally, they will receive a greater share of the material
gains that result from their increased productivity. These factors give them a sense of satisfaction
through the achievement of personal and company goals.

6.5. The Increased Need to Training

The following are the two biggest factors that contribute to the increased need to training and
development in organizations:

Change: The word change encapsulates almost everything. It is one of the biggest factors that
contribute to the need of training and development. There is in fact a direct relationship between the
two. Change leads to the need for training and development and training and development leads to
individual and organizational change, and the cycle goes on and on. More specifically it is the
technology that is driving the need; changing the way how businesses function, compete and
deliver.

Development: It is again one the strong reasons for training and development becoming all the
more important. Money is not the sole motivator at work and this is especially very true for the 21st
century. People who work with organizations seek more than just employment out of their work;
they look at holistic development of self.

Spirituality and self awareness for example are gaining momentum world over. People seek
happiness at jobs which may not be possible unless an individual is aware of the self.

The critical question however remains the implications and the contribution of training and
development to the organizational strategy and the bottom line performance. To assume a leadership
position in the market space and stay in competition, an organization will need to emphasis on the

60
kind of training and development programs it uses to improvise performance and productivity and
not just how much they simply spend on learning!

6.6. Managing the Training Process

Effective training can raise performance, improve morale, and increase an organization’s
potential. Poor, inappropriate, or inadequate training can be a source of frustration for everyone
involved.

The training process consists of four phases.

 Training needs assessment, and Training Objectives

 Developing training (selecting Trainees, select the training methods and mode, select
trainers)

 Conducting the Training

 Training evaluation

1. Training
Need 2. Developing
Assessment Training
and 3. Conducting
 Selecting 4. Evaluating
Training Training
Trainees Training
Objectives
 Selecting
training methods
and Modes
 Selecting
trainers

Fig. 6.1. The Training process

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Training Need Assessment and Determining Training Objectives

In the needs assessment phase, managers determine whether a gap or problem exists that the
training must address. Training need assessment can be undertaken at three levels:
organizational, task and personal level.

Organizational Need Assessment

Organizational analysis examines broad factors such as the organization’s culture, mission,
business climate, long and short-term goals, and structure. Its purpose is to identify both overall
organizational needs and the level of support for training. Perhaps the organization lacks the
resources needed to support a formal training program, or perhaps the organization’s strategy
emphasizes innovation. In both cases, the organizational analysis that reveals such information
plays a major role in determining whether training will be offered and the type of training (or
alternative to training) that would be most appropriate. If a lack of resources prevents formal
training, a mentoring program might be used as an alternative.

Task Need Assessment

Task analysis is an examination of the job to be performed. It focuses on the duties and tasks of
jobs throughout the organization to determine which jobs require training. A recent and carefully
conducted job analysis should provide all the information needed to understand job
requirements. These duties and tasks are then used to identify the knowledge, skills, and abilities
(KSAs) required performing the job adequately.

Then the KSAs are used to determine the kinds of training needed for the job.

Person Need Assessment

Person analysis determines which employees need training by examining how well employees
are carrying out the tasks that make up their jobs. Training is often necessary when there is a
discrepancy between a worker’s performance and the organization’s expectations or standards.
Often, a person analysis entails examining worker performance ratings, and then identifying
individual workers or groups of workers who are weak in certain skills. The source of most
performance ratings is the supervisor, but a more complete picture of workers’ strengths and

62
weaknesses may be obtained by expanding the sources to include self-assessment by the
individual worker and performance assessments by the worker’s peers.

Determination of the objectives of training

The objectives of the training program should relate directly to the needs determined by the
assessment process outlined above. Course objectives should clearly state what behavior or skill
will be changed as a result of the training and should relate to the mission and strategic plan of the
company. Objectives should include milestones to help take the employee from where he or she is
today to where the firm wants him or her in the future. Setting goals helps to evaluate the training
program and also to motivate employees. Fore example in training the employee recruitment
personnel, suitable objectives might be (a) To know what realistic recruitment is, (b) to know the
sources of recruitment, (c) to know the legal requirement of recruitment. The statement of such
objectives is important because they define what should be included in the training program and
evaluation of the training program.

Developing Training
Developing training include selecting trainees, determining the method and mod of the training,

Selection of Trainees
Once you have decided what training is necessary and set the training objectives the next decision is
who should be trained? Training an employee is expensive. Therefore, it is important to carefully
select who will be trained. Employees who must be trained are those whose deficiency has been
discovered through the personal training identification in the training need identification.

Training programs should be designed to consider the ability of the employee to learn the material
and to use it effectively, and to make the most efficient use of resources possible. It is also important
that employees be motivated by the training experience. Employee failure in the program is not only
damaging to the employee but a waste of money as well. Selecting the right trainees is important to
the success of the program.

Determination of the training methods

Training can be carried out either on the job or off the job.

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On the Job: In the very common [Link]- job training (OJT) approach, the trainee works in the
actual work setting, usually under the guidance of an experienced worker, supervisor, or trainer.
Training often relies on one-on-one coaching, hands-on demonstrations, and practice.

Job rotation, allows employees to gain experience in different kinds of narrowly defined jobs in
the organization. It is often used to give future managers a broad background.

OJT has both benefits and drawbacks. This type of training is obviously relevant to the job,
because the tasks confronted and learned are generated by the job itself. Very little that is,
learned in the context of OJT would not transfer directly to the job.

OJT also spares the organization the expense of taking employees out of the work environment
for training and usually the cost of hiring outside trainers because company employees generally
are capable of doing the training.

On the negative side, OJT can prove quite costly to the organization. Errors and damage to
equipment that occur when a trainee is on the job may prove costly. Another potential drawback
is that trainers might be excellent in terms of their skills but inadequate at transferring their
knowledge to others.

Off-the-job training: off the job training is another alternative to the on the job training.
Common examples of off-the-job training are formal courses, simulations, and role-playing
exercises in a classroom setting. One advantage of off-the-job training is that it gives employees
extended uninterrupted periods of study. Another is that a classroom setting may be more
conducive to learning retention because it avoids the distractions and interruptions that
commonly occurring an OJT environment.

The big disadvantage of off-the-job training is that what is learned may not transfer back to the
job. After all, a classroom is not the workplace, and the situations simulated in the training may
not closely match those encountered on the job. In addition, if employees view off-the-job
training as an opportunity to enjoy some time away from work, not much learning is likely to
take place.

Combination Methods

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Apprenticeships, programs typically associated with the skilled trades, derive from the medieval
practice of having the young learn a trade from an experienced worker. .It combines theory and
practice. Just as apprenticeships are a route to certain skilled blue-collar jobs, internships are a
route to white-collar or managerial jobs in a variety of fields. Internships are opportunities for
students to gain real-world job experience, often during summer vacations from school.
Although most internships offer very low or no pay, student interns can often gain college credits
and, possibly, the offer of a full-time job after graduation.

Selecting Trainers

Who actually conducts the training depends on the type of training needed and who will be
receiving it. On-the-job training is conducted mostly by supervisors while off-the-job training, by
either in-house personnel or outside instructors.

In-house training is the daily responsibility of supervisors and employees. Supervisors are
ultimately responsible for the productivity and, therefore, the training of their subordinates. If
supervisors are used as trainers, they should be taught the techniques of good training. They must be
aware of the knowledge and skills necessary to make a productive employee. Trainers should be
taught to establish goals and objectives for their training and to determine how these objectives can
be used to influence the productivity of their departments. They also must be aware of how adults
learn and how best to communicate with adults. Organizations may need to develop their
supervisors' training capabilities by sending them to courses on training methods.

There are many outside training sources, including consultants, technical and vocational schools,
continuing education programs, chambers of commerce and economic development groups.
Selecting an outside source for training has advantages and disadvantages. The biggest advantage is
that these organizations are well versed in training techniques, which is often not the case with in-
house personnel.

The disadvantage of using outside training specialists is their limited knowledge of the company's
product or service and customer needs. These trainers have a more general knowledge of customer
satisfaction and needs. In many cases, the outside trainer can develop this knowledge quickly by
immersing himself or herself in the company prior to training the employees. Another disadvantage

65
of using outside trainers is the relatively high cost compared to in-house training, although the
higher cost may be offset by the increased effectiveness of the training.

Whoever is selected to conduct the training, either outside or in-house trainers, it is important that
the company's goals and values be carefully explained.

Conducting the training

Having planned the training program properly, the training should be administered to the selected
employees. It is important to follow through to make sure the goals are being met. Questions to
consider include:

 Location

 Facilities

 Accessibility

 Comfort

 Equipment

 Timing

The Evaluation Phase

In the evaluation phase of the training process, the effectiveness of the training program is
assessed. The training should be judged on how well it addressed the needs it was designed to
address. Evaluation of the training includes:

 Participants’ reaction to the training at the time of the training

 Participants’ learning of the content of the training

 Participants’ use of their new skills and knowledge back on the job

In the participants' reaction, trainees rate the course and instructor at the time of training.

In the participants' learning, participants are given pretest and post test. The results of pretest and
posttests are compared. The tests can also be administered with a group of controlled group who
did not go through the training (the control group) and their scores compared with those who
have taken the training.
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In Participants’ use of their new skills and knowledge back on the job participants' performance
after the training is compared against their previous performance or job performance of the
control group.

6.7. Cost Benefit analysis for Training

Training comes at a cost and therefore any organization would be interested in knowing the cost
and benefits of training.

Organizations use different methods to assess the benefits of training in terms of numbers i.e. the
profits. Some of the frequently used methods are return on investment (ROI) and Utility analysis.
There are many costs that are associated with the training apart from the direct and apparent
costs. These costs can be described under two headings:

There are costs incurred towards the training needs analysis, compensation of the training
program designers, procurement of training material and various media like the computers,
handouts, props, gifts and prizes, audio visuals etc.

Then there is another category is costs incidental to the training session itself such as trainer’s fee
/ salary, facility costs / rental etc.

Finally there are costs involved is losing a man day of work (for those who are sent for training),
travelling, boarding and lodging and training material that cannot be reused in some other
training program.

The various models that are used to estimate the benefits of the training program are as under.

The Return on Investment Model (ROI)

Organisations spend huge amount of money on employee development, it is therefore very

important to ascertain the benefits of training. Different studies were conducted to evaluate the
effectiveness of training programs. In one of the studies it was found out that sales and technical
trainings gave better ROI compared to managerial training programs. Ford, for example,
evaluates all the training programs against the profitability in a given product line. The basic
formula for calculating the ROI for training is as:

ROI (in percent) = Program benefits / Costs × 100

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Let’s assume that the total costs incurred towards a certain training is USD. 80,000/- all inclusive
and the benefits in terms of overall improvement in productivity and quality are USD. 4,00,000/-.
Thus the ROI is 525 %, which means for each rupee invested the return in USD. 5.25 over and
above the cost of the program.

This problem however relies upon the assessment of benefits from outside, sometimes which
requires that non financial benefits may be converted into financial benefits. This requires
precision and the sources have to be credible.

Utility Analysis

This is another way of reflecting upon the usefulness of a training program. Utility itself is a
function of the duration up to which the training leaves an impact upon the trainee, the relative
importance of the training program, the importance of the position or profile that received
training and the cost of conducting the training. For example leadership programs conducted for
top and middle management tend to be high on value where as sales training programs for the
front line sales staff tends to be low on value scale.

Utility analysis basically derives the effectiveness from analyzing the change in the behavior of
the trainee and the positive financial implications of the same. This model is not very famous
because the deductions made are essentially subjective in nature.

6.8. Strategic Human Resource Development (SHRD)

The field of HRD or Human Resource Development encompasses several aspects of enabling
and empowering human resources in organization. Whereas earlier HRD was denoted as
managing people in organizations with emphasis on payroll, training and other functions that
were designed to keep employees happy, the current line of management thought focuses on
empowering and enabling them to become employees capable of fulfilling their aspirations and
actualizing their potential. This shift in the way human resources are treated has come about due
to the prevailing notion that human resources are sources of competitive advantage and not
merely employees fulfilling their job responsibilities. The point here is that the current paradigm
in HRD treats employees as value creators and assets based on the Resource Based View (
RBV).

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The field of SHRD spans several functions across the organization starting with employee
recruitment and training, appraisals and payroll and extending to the recreational and
motivational aspects of employee development.

Indeed, one reason for the emergence of the RBV or the SHRM paradigm is that with the advent
of the service sector and the greater proportion of companies in the service sector, employees are
not merely a factor of production like land, labor and capital but in fact, they are sources of
competitive advantage. This is characterized by many CEO’s calling employees their chief assets
and valuing their contribution accordingly. As a matter of fact, many IT and Financial Services
companies routinely refer to employees as the value creators and value enhancers rather than just
resources doing their job.

What this has meant is that the field of HRD has become prominent and important for
organizations and has morphed into a function that takes its place among other support functions
in organizations and indeed, it is the main driver of competitive advantage. Further, the field of
HRD now has taken on a role that goes beyond employee satisfaction and instead, the focus now
is on ensuring that employees are delighted with the working conditions and perform their jobs
according to their latent potential which is brought to the fore. This has resulted in the HRD
manager and the employees of the HRD department becoming partners in the organization’s
progress instead of just yet another line function. Further, the HR managers now routinely
interact with the functional managers and the people managers to ensure high levels of job
satisfaction and fulfillment.

6.9. Career Development

One of the major challenges for employers is determining ways in which to retain the services of
good performers. The mind set of employees has changed from that of remaining in a
comfortable and secure job for life to one which aims to gain as much experience across a
diverse range of jobs, organizations and even countries as possible. An employee is likely to
leave an organization that does not provide for their career expectations and aspirations to one
that will.

Career development is a dual responsibility between the employer and employee and there are a
range of opportunities available to meet the needs of both. It is a planned process in which
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individual and family goals, job requirements, organisational and strategic objectives need to be
considered

The Career Development Process

The process of career planning and development is a shared one between the employee and the
employer. The ultimate aim of such a process is the alignment of the interests and skills of the
employee with that of the organization.

It is essential that career development is aligned with the organization’s human resources
strategic plan and that the plan, in turn, reflects the desired business objectives of the
organization.

The process makes clear that career development is a joint process. The individual has as much
responsibility for making clear and accurate career decisions as has the organization.

In today’s work environment there is no such thing as a guaranteed or permanent job. Work is
extremely mobile and is often part time and casual. Jobs are continuously changing and being
restructured, with skills that an employee possesses today, being obsolete (no longer needed)
tomorrow. It is an employee’s responsibility to ensure that their skills, knowledge and
qualifications are up to date and marketable. They need to be proactive (do something in
advance) and objectively assess and evaluate themselves.

However, organizations wishing to remain competitive in today’s uncertain environment must

also adopt career development strategies to ensure a better match between employee career
aspirations and organizational opportunities as well as maintaining a ready supply of highly
skilled individuals to fill new and changing positions.

Benefits of Career Planning

 Aligns strategy and internal staffing requirements.

 Develops promotable employees.
 Facilitates international placement.
 Assists with work force diversity.
 Lowers turnover.
 Taps (makes use of) employee potential.
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  Furthers personal growth.
 Satisfies employees needs.
 Assists affirmative action plans.

Successful Career Development

The most important objective of any career development program is to provide the tools and
techniques that will enable employees to gauge their potential for a successful career path.
Informal counseling by HR staff and supervisors is widely used. Many organizations also give
their employees information on educational assistance and job requirements. A range of books
and workshops are also popular means for helping employees identify their potential and the
strength of their interests.

For employees, performance is the foundation to their career success It is clear that an employee
who is not performing will not be considered for training and development opportunities, nor
will they be identified for promotion. Employees also need to align themselves with
organizations with a sound reputation.

One of the most important strategies an employee can adopt is to continue to update and upgrade
their skills and experience. Exposure to projects, international travel, diverse cultural
experiences, new technology and new trends all assist in obtaining support for career
development opportunities. It is essential that employees plan ahead, identify where they want to
go and the necessary skills required to take them there.

Stages of Career Development

It is also important for organizations to recognize that career aspirations change as an employee
matures. There are four phases in the career development process:

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Fig. 6.2. Phases of Career Development

The first phase is that of the learner who undergoes an intensive period of induction and training
in order to develop the necessary competencies. The organization needs to evaluate these staff to
identify the potential ‘stars’. The stars, who progress to the next stage, are often ‘fast tracked’
(moved ahead of others or promoted) and are usually the staff organizations invest heavily in.

The majority of the organization will consist of the ‘solid citizen’ who have often plateaued and
although performing well, are having difficulty identifying the next stage in their career. These
staff will often need assistance to cope with their situation The ‘deadwood’ (those who do not
make progress) have also plateaued, but unlike the solid citizens, they are often poor performers
who have little chance of advancement. The organization needs to make difficult decisions with
these staff which may include consideration of redundancy or transfer.

These ‘career plateaus’ create problems for both the individual and the organization and are now
occurring much earlier in careers than they occurred in the past.

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 6.10. Review Questions
1. Discuss the importance of training and development

2. Explain the process of training and development

3. What are the types of training?

4. What do you understand about HRD and Career development?

5. Explain the Process of career development.

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 UNIT 7: REWARD STRATEGY

7.1. Introduction
Strategic reward management is about the development and implementation of reward strategies
and the philosophies and guiding principles that underpin them. It provides answers to two basic
questions: 1) where do we want our reward practices to be in a few years’ time? and 2) how do
we intend to get there? It therefore deals with both ends and means. As an end it describes a
vision of what reward processes will look like in a few years’ time. As a means, it shows how it
is expected that the vision will be realized.

This chapter starts with a definition of reward strategy and an explanation of why it is necessary.
Consideration is then given to the structure and content of reward strategies. The guiding
principles for inclusion in a reward strategy are discussed next and this is followed by a
description of the development process and a note of the criteria for effectiveness.

7.2. Unit Objectives

After studying this chapter, you should be able to:

1. Explain the meaning of reward strategy

2. To discuss the necessity for reward strategy.

[Link] the aims of reward management

4. Discuss the elements of reward management

[Link] understand the characteristics of reward strategy

[Link] understand the structure of reward strategy

[Link] discuss content of reward strategy

[Link] know the guiding principles

9. To know about reward strategy development

10. To know the effective reward strategies

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 7.3. Reward Strategy Defined
Reward strategy is a declaration of intent that defines what the organization wants to do in the
longer term to develop and implement reward policies, practices and processes that will further
the achievement of its business goals and meet the needs of its stakeholders. Reward strategy
provides a sense of purpose and direction and a framework for developing reward policies,
practices and processes. It is based on an understanding of the needs of the organization and its
employees and how they can best be satisfied. It is also concerned with developing the values of
the organization on how people should be rewarded and formulating guiding principles that will
ensure that these values are enacted. Reward strategy is underpinned by a reward philosophy that
expresses what the organization believes should be the basis upon which people are valued and
rewarded. Reward philosophies are often articulated as guiding principles.

7.4. The Need for Reward Strategy

Overall, in the words of Duncan Brown (2001): ‘Reward strategy is ultimately a way of thinking
that you can apply to any reward issue arising in your organization, to see how you can create
value from it.’ More specifically, there are four arguments for developing reward strategies:

1. You must have some idea where you are going, or how do you know how to get there, and
how do you know that you have arrived (if you ever do)?

2. Pay costs in most organizations are by far the largest item of expense – they can be 60 percent
and often much more in labour-intensive organizations – so doesn’t it make sense to think about
how they should be managed and invested in the longer term?

3. There can be a positive relationship between rewards, in the broadest sense, and performance,
so shouldn’t we think about how we can strengthen that link?

4. As Cox and Purcell (1998) write, ‘the real benefit in reward strategies lies in complex linkages
with other human resource management policies and practices’. Isn’t this a good reason for
developing a reward strategic framework that indicates how reward processes will be linked to
HR processes so that they are coherent and mutually supportive?

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 7.5. The Aims of Reward Management
The aims of reward management are to:

● Reward people according to what the organization values and wants to pay for;

● Reward people for the value they create;

● Reward the right things to convey the right message about what is important in terms of
behaviours and outcomes;

● Develop a performance culture;

● Motivate people and obtain their commitment and engagement;

● Help to attract and retain the high quality people the organization needs;

● Create total reward processes that recognize the importance of both financial and non-financial
rewards;

● Develop a positive employment relationship and psychological contract;

● Align reward practices with both business goals and employee values; as Brown (2001)

emphasizes, the ‘alignment of your reward practices with employee values and needs is every
bit as important as alignment with business goals, and critical to the realization of the latter’;

● Operate fairly – people feel that they are treated justly in accordance with what is due to them
because of their value to the organization: the ‘felt-fair’ principle of Jaques (1961);

● Apply equitably – people are rewarded appropriately in relation to others within the
organization, relativities between jobs are measured as objectively as possible and equal pay is
provided for work of equal value;

● Function consistently – decisions on pay do not vary arbitrarily and without due cause between
different people or at different times;

● Operate transparently – people understand how reward processes operate and how they are

affected by them.

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 7.6. The Element of Reward Management
The elements of reward management are described below.

Reward system

A reward system consists of:

● Policies that provide guidelines on approaches to managing rewards.

● Practices that provide financial and non-financial rewards.

● Processes concerned with evaluating the relative size of jobs (job evaluation) and assessing

individual performance (performance management).

● Procedures operated in order to maintain the system and to ensure that it operates

efficiently and flexibly and provides value for money.

Reward strategy

Reward strategy sets out what the organization intends to do in the longer term to develop and
implement reward policies, practices and processes that will further the achievement of its
business goals.

Reward policies

Reward policies address the following broad issues:

● The level of rewards, taking into account ‘market stance’, ie how internal rates of pay should
compare with market rates, for example aligned to the median or the upper quartile rate;

● Achieving equal pay;

● The relative importance attached to external competitiveness and internal equity;

● The approach to total reward;

● The scope for the use of contingent rewards related to performance, competence, contribution
or skill;

● The role of line managers;

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● Transparency – the publication of information on reward structures and processes to
employees.

Total reward

Total reward is the combination of financial and non-financial rewards available to

employees.

Total remuneration

Total remuneration is the value of all cash payments (total earnings) and benefits received by
employees.

Base or basic pay

The base rate is the amount of pay (the fixed salary or wage) that constitutes the rate for the job.
It may be varied according to the grade of the job or, for manual workers, the level of skill
equired. Base pay will be influenced by internal and external relativities. The internal relativities
may be measured by some form of job evaluation. External relativities are assessed by tracking
market rates. Alternatively, levels of pay may be agreed through collective bargaining with trade
unions or by reaching individual agreements. Base pay may be expressed as an annual, weekly or
hourly rate. For manual workers this may be called a ‘time rate’ system of payment. Allowances
for overtime, shift working, unsocial hours or increased cost of living in London or elsewhere
may be added to base pay. The base rate may be adjusted to reflect increases in the cost of living
or market rates by the organization, unilaterally or by agreement with a trade union.

Job evaluation

Job evaluation is a systematic process for defining the relative worth or size of jobs within an
organization in order to establish internal relativities and provide the basis for designing an
equitable grade structure, grading jobs in the structure and managing relativities. It does not
determine the level of pay directly. Job evaluation can be analytical or non-analytical. It is based
on the analysis of jobs or roles, which leads to the production of job descriptions or role profiles.

Market rate analysis

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Market rate analysis is the process of identifying the rates of pay in the labour market for
comparable jobs to inform decisions on levels of pay within the organization. A policy decision
may be made on how internal rates of pay should compare with external rates – an organization’s
market stance.

Grade and pay structures

Jobs may be placed in a graded structure according to their relative size. Pay levels in the
structure are influenced by market rates. The pay structure may consist of pay ranges attached to
grades, which provide scope for pay progression based on performance, competence,
contribution or service. Alternatively, a ‘spot rate’ structure may be used for all or some jobs in
which no provision is made for pay progression in a job.

Contingent pay

Additional financial rewards may be provided that are related to performance, competence,
contribution, skill or experience. These are referred to as ‘contingent pay’. Contingent payments
may be added to base pay, ie ‘consolidated’. If such payments are not consolidated (ie paid as
cash bonuses) they are described as ‘variable pay’.

Employee benefits

Employee benefits include pensions, sick pay, insurance cover, company cars and a number of
other ‘perks’ as described in Chapter 48. They comprise elements of remuneration additional to
the various forms of cash pay and also include provisions for employees that are not strictly
remuneration, such as annual holidays.

Performance management

Performance management processes define individual performance and contribution

expectations, assess performance against those expectations, provide for regular constructive
feedback and result in agreed plans for performance improvement, learning and personal
development. They are a means of providing non-financial motivation and may also inform
contingent pay decisions.

Non-financial rewards
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These are rewards that do not involve any direct payments and often arise from the work itself,
for example, achievement, autonomy, recognition, scope to use and develop skills, training,
career development opportunities and high quality leadership.

7.7. Characteristics of Reward Strategy

As Murlis (1996) points out: ‘Reward strategy will be characterised by diversity and conditioned
both by the legacy of the past and the realities of the future.’ All reward strategies are different,
just as all organizations are different. Of course, similar aspects of reward will be covered in the
strategies of different organizations but they will be treated differently in accordance with
variations between organizations in their contexts, strategies and cultures.

Reward strategists may have a clear idea of what needs to be done but they have to take account
of the views of top management and be prepared to persuade them with convincing arguments
that action needs to be taken. They have to take particular account of financial considerations –
the concept of ‘affordability’ looms large in the minds of chief executives and financial directors,
who will need to be convinced that an investment in rewards will pay off. They also have to
convince employees and their representatives that the reward strategy will meet their needs as
well as business needs.

7.8. The Structure of Reward Systems

Reward strategy should be based on a detailed analysis of the present arrangements for reward,
which would include a statement of their strengths and weaknesses. This, as suggested by the
Chartered Institute of Personnel and Development (2004), could take the form of a ‘gap
analysis’,

which compares what is believed should be happening with what is happening and indicates
which ‘gaps’ need to be filled. A format for the analysis is shown in Figure 7.1.

A diagnosis should be made of the reasons for any gaps or problems so that decisions can be
made on what needs to be done to overcome them. It can then be structured under the headings
set out below:

1. A statement of intentions – the reward initiatives that it is proposed should be taken.

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2. A rationale – the reasons why the proposals are being made. The rationale should make out
the business case for the proposals, indicating how they will meet business needs and setting out
the costs and the benefits. It should also refer to any people issues that need to be addressed and
how the strategy will deal with them.

3. A plan – how, when and by whom the reward initiatives will be implemented. The plan should
indicate what steps will need to be taken and should take account of resource constraints and the
need for communications, involvement and training. The priorities attached to each element of
the strategy should be indicated and a timetable for implementation should be drawn up. The
plan should state who will be responsible for the development and implementation of the
strategy.

4. A definition of guiding principles – the values that it is believed should be adopted in

formulating and implementing the strategy.

7.9. The Content of Reward Systems/Strategy

Reward strategy may be a broad-brush affair simply indicating the general direction in which it
is thought reward management should go. In addition or alternatively, reward strategy may set
out a list of specific intentions dealing with particular aspects of reward management.

Broad-brush reward strategy

Abroad-brush reward strategy may commit the organization to the pursuit of a total rewards
policy. The basic aim might be to achieve an appropriate balance between financial and non-
financial rewards. A further aim could be to use other approaches to the development of the
employment relationship and the work environment that will enhance commitment and
engagement and provide more opportunities for the contribution of people to be valued and
recognized.

Table 7.1 : A reward gap analysis

[Link]. What should be happening What is What
Happening needs to
Be done
1. A total reward approach is adopted that emphasizes the
significance of both financial
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 and non-financial rewards.
2. Reward policies and practices are developed within the
framework of a well-articulated
strategy that is designed to support the achievement of
business objectives and meet
the needs of stakeholders.
3. A job evaluation scheme is used that properly reflects the
values of the organization, is up to date with regard to the
jobs it covers and is non-discriminatory.
4. Equal pay issues are given serious attention. This includes
the conduct of equal pay
reviews that lead to action.
5. Market rates are tracked carefully so that a competitive
pay structure exists that
contributes to the attraction and retention of high-quality
people.
6. Grade and pay structures are based on job evaluation and
market rate analysis appropriate to the characteristics and
needs of the organization and its employees,
facilitate the management of relativities, provide scope
for rewarding contribution,
clarify reward and career opportunities, are constructed
logically, operate transparently
and are easy to manage and maintain.
7. Contingent pay schemes reward contribution fairly and
consistently, support the motivation of staff and the
development of a performance culture, deliver the right
messages about the values of the organization, contain a
clear ‘line of sight’ between contribution and reward, and
are cost-effective.
8. Performance management processes contribute to
performance improvement, people development and the
management of expectations, operate effectively
throughout
the organization and are supported by line managers and
staff.
9. Employee benefits and pension schemes meet the needs
of stakeholders and are
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 cost-effective.
10. A flexible benefits approach is adopted.
11. Reward management procedures exist that ensure that
reward processes are managed
effectively and that costs are controlled.
12. Appropriate use is made of computers (software and
spreadsheets) to assist in the
process of reward management.
13. Reward management aims and arrangements are
transparent and communicated well to staff.
14. Surveys are used to assess the opinions of staff about
reward, and action is taken on
the outcomes.
15. An appropriate amount of responsibility for reward is
devolved to line managers.
16. Line managers are capable of carrying out their devolved
responsibilities well.
17. Steps are taken to train line managers and provide them
with support and guidance as
required.
18. HR has the knowledge and skills to provide the required
reward management advice
and services and to guide and support line managers.
19. Overall, reward management developments are conscious
of the need to achieve
affordability and to demonstrate that they are cost-
effective.
20. Steps are taken to evaluate the effectiveness of reward
management processes and to
ensure that they reflect changing needs.
Examples of other broad strategic aims include:

1) Introducing a more integrated approach to reward management – encouraging continuous

personal development and spelling out career opportunities;

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2) Developing a more flexible approach to reward that includes the reduction of artificial barriers
as a result of overemphasis on grading and promotion;

3) Rewarding people according to their contribution;

4) Supporting the development of a performance culture and building levels of competence; and

5) Clarifying what behaviours will be rewarded and why.

Specific reward initiatives

The selection of reward initiatives and the priorities attached to them will be based on an analysis
of the present circumstances of the organization and an assessment of the needs of the business
and its employees. The following are examples of possible specific reward initiatives, one or
more of which might feature in a reward strategy:

 The replacement of present methods of contingent pay with a pay-for contribution scheme;
 The introduction of a new grade and pay structure, example a broad-graded or career family
structure;
 The replacement of an existing decayed job evaluation scheme with a computerized scheme
that more clearly reflects organizational values;
 The improvement of performance management processes so that they provide better support
for the development of a performance culture and more clearly identify development needs;
 The introduction of a formal recognition scheme;
 The development of a flexible benefits system;
 The conduct of equal pay reviews, with the objective of ensuring that work of equal value is
paid equally;
 Communication programmes designed to inform everyone of the reward policies and
practices of the organization;
 Training, coaching and guidance programmes designed to increase line management
capability.

7.10. Guiding principles of Reward system

Guiding principles define the approach an organization takes to dealing with reward. They are
the basis for reward policies and provide guidelines for the actions contained in the reward
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strategy. They express the reward philosophy of the organization – its values and beliefs about
how people should be rewarded.

Members of the organization should be involved in the definition of guiding principles, which
can then be communicated to veryone to increase understanding of what underpins reward
policies and practices. However, employees will suspend their judgement of the principles until
they experience how they are applied. What matters to them is not the philosophies themselves
but the pay practices emanating from them and the messages about the employment ‘deal’ that
they get as a consequence. It is the reality that is important, not the rhetoric. Guiding principles
should incorporate or be influenced by general beliefs about fairness, equity, consistency and
transparency. They may be concerned with such specific matters as:

 Developing reward policies and practices that support the achievement of business goals;
 Providing rewards that attract, retain and motivate staff and help to develop a high-
performance culture;
 Maintaining competitive rates of pay;
 Rewarding people according to their contribution;
 Recognizing the value of all staff who are making an effective contribution, not just the
exceptional performers;
 Allowing a reasonable degree of flexibility in the operation of reward processes and in
the choice of benefits by employees;
 Devolving more responsibility for reward decisions to line managers.

7.11. Developing the Reward Strategy

The formulation of corporate strategy can be described as a process for developing and
defining a sense of direction. The Chartered Institute of Personnel and Development (2004)
suggests the following key development phases:

1. The diagnosis phase, when reward goals are agreed, current policies and practices assessed

against them, options for improvement considered and any changes agreed;

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2. The detailed design phase, when improvements and changes are detailed and any changes
tested (pilot testing is important);

3. The final testing and preparation phase;

4. The implementation phase, followed by ongoing review and modification.

A logical step-by-step model for doing this is illustrated in Figure 7.2. This incorporates ample
provision for consultation, involvement and communication with stakeholders, who include
senior managers as the ultimate decision makers as well as employees and line managers. In
practice, however, the formulation of reward strategy is seldom as logical and linear a process as
this. Reward strategies evolve; they have to respond to changes in organizational requirements,
which are happening all the time. Reward strategists need to track emerging trends in reward
management and may modify their views accordingly, as long as they do not leap too hastily on
the latest bandwagon.

It may be helpful to set out reward strategies on paper for the record and as a basis for planning
and communication. But this should be regarded as no more than a piece of paper that can be
torn up when needs change – as they will – not a tablet of stone.

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Fig 7.1 : A model of the reward strategy development process

7.12. Effective Reward Systems/strategy

Components of an effective reward strategy

Duncan Brown (2001) has suggested that effective reward strategies have three components:

1. They have to have clearly defined goals and a well-defined link to business objectives.

2. There have to be well-designed pay and reward programmes, tailored to the needs of the
organization and its people, and consistent and integrated with one another.

3. Perhaps most important and most neglected, there need to be effective and supportive HR and
reward processes in place.

Criteria for effectiveness

The questions to be answered when assessing the effectiveness of a reward strategy are:

1. Does it support the achievement of the organization’s business and HR strategies?

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2. Will it reinforce organizational values?

3. Is there a convincing statement of how the business needs of the organization will be met and
how the needs of stakeholders will be catered for?

4. Is it based on a thorough analysis and diagnosis of the reward situation in the organization?

5. Has a realistic assessment been made of the resources required to implement the strategy and
the costs involved?

6. Is it affordable in the sense that the benefits will exceed any costs?

7. Have steps been taken to ensure that supporting processes such as performance management,
communication and training are in place?

8. Is the programme for implementation realistic?

9. Have steps been taken to ensure that it is supported and understood by line managers and
staff?

10. Will HR and line managers be capable of implementing and managing the strategy in
practice?

7.13. Review Questions

1. Define Reward strategy

2. What are the elements of reward strategy?

3. Discuss the characteristics of reward strategy.

4. Describe the structure of reward strategy.

5. Discuss the procedure to develop the reward strategy.

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 UNIT 8: EMPLOYEE WELFARE, PENSION AND BENEFITS

8.1. Introduction
Chapter VIII discuss about employee welfare, pension and benefits. First we have to discuss
about managing stress and emotional welfare. Managing physical welfare is an important aspect
in strategic human resource management. The next part of this chapter describe about
occupational health departments, pension and benefits. Last part of this chapter is to describe
about occupational pension in human resource management and flexible benefits.

8.2. Unit objectives

After studying this chapter, you should be able to:

1. Explain how to manage stress and emotional welfare.

2. To understand about physical welfare management.

3. To know occupational health departments.

4. To understand pension and benefits.

5. To understand about occupational pensions and HRM.

6. To learn about flexible benefits.

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 8.3. Managing Stress and Emotional Welfare
Workplace stress is the welfare topic which has received the most coverage in recent years. It is
also a source of litigation which has led to particularly high amounts of damages being paid to
those who have sustained illnesses brought on directly as a result of work-related strain. An out-
of-court settlement worth £175,000 was agreed following the High Court ruling in the landmark
case of Walker v. Northumberland County Council (1995). Here a social work manager who had
returned to work following a nervous breakdown was given inadequate support and an increased
workload leading to a further breakdown. The court held that this amounted to a breach of the
implied duty of care, because the second illness had been clearly foreseeable. In Ingram v.
Worcester County Council (2000), a settlement of £203,000 was reached after a warden
responsible for the regulation of travellers’ sites suffered a single breakdown after having been
subjected to physical and verbal abuse from site residents. The fact that he had been undermined
in his efforts by senior council officials and had suffered ‘prolonged and unremitting stress’ led
to the finding that the duty of care had been breached.

In recent years there have been fewer successful personal injury claims based on stress and lower
amounts of damages awarded to victorious applicants. This trend follows guidance given by the
Court of Appeal in four linked cases heard in February 2002. The Court overturned the
judgments of lower courts in three of the cases and reduced the damages that had been awarded
in the fourth. They made the following important points in their judgment:

• Employers are not obliged to make searching enquiries to establish whether an individual
is at risk.

• Employees who stay in stressful jobs voluntarily are responsible for their own fate if they

 subsequently suffer stress-based illnesses.

• There must be indications of impending harm arising from workload in order for an
employer to take action.

 • The employer is only in breach where the risk is foreseeable ‘bearing in mind the size of
the risk, the gravity of the harm, the costs of preventing it and the justification of
running the risk’.

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 • There are no occupations which should be regarded as intrinsically dangerous to mental
health.

• Employers who offer confidential counselling services with access to treatment are
unlikely to be found in breach.

• The illness must clearly be caused by breach of duty and not just by occupational stress.

• Damages must be reduced to take account of pre-existing disorders or the chance that the
claimant would have fallen ill anyway.

Thanks to these rulings, employers were able to take a tougher line on stress related absences and
the management of these issues for much of 2002 and 2003. However, the respite was short-
lived because in 2003 the Health and Safety Executive announced that its inspectors would soon
be adding stress-related illnesses to their list of checks when visiting employer premises and that
the first improvement notices concerning stressful working environments had been served. The
Executive’s guidance makes it clear that employers are now expected to treat stress like any
other health hazard, and that there is consequently ‘a legal duty to take reasonable care to ensure
that health is not placed at risk through excessive and sustained levels of stress arising from the
way people deal with each other at their work or from the day-today demands placed on their
workforce’ (Willey 2003, p. 414).

Stress at work is not a new idea, although it was originally viewed in terms of executive stress
(see Levinson 1964), and seen only to apply to those in senior management positions. The
literature on the subject of stress at work is large (for example, Cooper and Marshall 1980;
Palmer 1989; Nykodym and George 1989; Roney and Cooper 1997; Jex 1998; Macdonald 1999).
It is defined by Ganster and Murphy (2000) as a form of ‘strain’ provoked in response to
situational demands labelled ‘stressors’ which occur ‘when jobs are simultaneously high in
demands and low in control’:

According to Willey (2003, p. 413) the incidence of chronic stress is often seen as a ‘by-product’
of management initiatives adopted in many countries, including the UK, in the past twenty years.

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These include delayering, downsizing, the intensification of work, increased monitoring of staff,
moves towards greater flexibility at work and competitive tendering. Each has placed increased
burdens on staff groups who have had to accept lower job security, greater levels of
responsibility and longer hours of work. The inability to reconcile such demands with family life
is a further cause of strain. The results are twofold:

• adverse health conditions (such as heart disease, high blood pressure, ulcers, depression
and

• panic attacks;

• behavioural consequences (such as insomnia, anxiety, poor concentration and increased

• consumption of alcohol, tobacco and other substances).

Both can lead to increased rates of absence, high staff turnover, low levels of job satisfaction and
the sustenance of a low-trust employee relations environment. Stress and its consequences are
often caused by a combination of strains originating in and outside work. A person who is
normally able to cope well with the demands of a stressful job may cease to do so when home-
based problems come to the fore, the major culprits being bereavement, debt and marital
breakdown. There is thus a good business case for employers to provide formal mechanisms for
emotional support, quite aside from the strong ethical case. The following are examples of
available approaches.

Someone to talk to/someone to advise

A person to talk to could be the individual’s manager, or the human resource manager, but it is
often more usefully someone who is distinct from the work itself. Occupational health nurses,
welfare officers or specialised counsellors are the sort of people well placed to deal with this
area. There are two benefits that come from this, the first being advice and practical assistance.
This would be relevant, for example, if the individual had financial problems, and the
organisation was prepared to offer some temporary assistance. Alternatively, the individual could
be advised of alternative sources of help, or referred, with agreement, to the appropriate agency
for treatment. The second benefit to be gained is that of having someone just listen to the
individual’s problem without judging it, in other words, counselling. De Board (1983) suggests

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that the types of work-related problems that employees may need to be counselled on are:
technical incompetence, under work, overwork, uncertainty about the future and relationships at
work. Counselling aims to provide a supportive atmosphere to help people to find their own
solution to a problem.

Reorganisation of work

This is a preventive measure involving reorganisation of those aspects of work that are believed
to be affecting the mental health of employees. This may include changes that could be grouped
as ‘organisational development’, such as job rotation and autonomous work-groups. Eva and
Oswald (1981) suggest greater control over the speed and intensity of work, an increase in the
quality of work and a reduction in unsocial hours. Individually based training and development
programmes would also be relevant here. Specifically for the executive, there is growing use of
the ‘managerial sabbatical’. Some American companies have begun to give a year off after a
certain number of years’ service in order to prevent ‘executive burnout’. In the UK, the John
Lewis Partnership has a programme allowing six months away from work.

Positive health programmes

Positive health programmes display a variety of different approaches aimed at relieving and
preventing stress and associated problems, and promoting healthy lifestyles. There is increasing
activity in terms of healthy eating and no-smoking campaigns and support, together with the
provision of resources for physical activity. Corporate wellness programmes have been in place
for a longer period in the USA, where the prime motivation was the reduction of medical costs
(most employers covering these costs as a benefit for their employees). In the UK the
programmes are more often seen as an employee benefit in themselves, with the hope that
providing them will also encourage higher productivity and reduce absence levels. However,
Mills (1996) argues that although there is a weak positive relationship between healthier
lifestyles and the bottom line, there is little evidence that health promotion programmes are
actually working. He argues that only a small number of employees are affected by such
programmes and that these are likely to be those who already have healthier lifestyles. Mills
suggests that blue-collar employees, who have the least control over their working lives, also
tend to have less healthy lifestyles and are more resistant to health promotions. He suggests that

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all three factors are interrelated and connected in a complex manner with employee motivation.
If Mills is right, this presents a challenge to organisations and suggests at the very least that they
should evaluate positive health programmes as well as investigating the impact of the prevailing
management style.

Some approaches to corporate wellness include the use of yoga and meditation. Others, such as
‘autogenic training’, are based on these principles, but are presented in a new guise. Autogenic
training is developed through exercises in body awareness and physical relaxation which lead to
passive concentration. It is argued that the ability to achieve this breaks through the vicious circle
of excessive stress, and that as well as the many mental benefits, there are benefits to the body
including relief of somatic symptoms of anxiety, and the reduction of cardiovascular risk factors
(Carruthers 1982). Another approach is ‘chemo feedback’, which is geared towards the
connection between stress and coronary heart disease, high blood pressure and strokes. Chemo
feedback (Positive Health Centre 1985) is designed as an early warning system to pick up signs
of unfavourable stress. The signs are picked up from the completion of a computerised
questionnaire together with a blood test. This approach, like others such as the Occupational
Stress Indicator , is being offered as a ‘stress-audit’ tool for use on a company-wide basis.

8.4. Managing Physical Welfare

There are a number of ways in which managerial responsibility can be discharged to implement
the organisation’s health and safety policy statement and to ensure compliance with legal
requirements.

Making the work safe

Making the work safe is mainly in the realm of the designer and production engineer. It is also a
more general management responsibility to ensure that any older equipment and machinery that
is used is appropriately modified to make it safe, or removed. The provision of necessary safety
wear is also a managerial responsibility – for example, making sure goggles and ear protectors
are available.

Enabling employees to work safely

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Whereas making the work safe is completely a management responsibility, the individual
employee may contribute by his or her own negligence, working unsafely in a safe situation. The
task of managers is twofold; first, the employee must know what to do; second, this knowledge
must be translated into action: the employee must comply with the safe working procedures that
are laid down. To meet the first part of the obligation management needs to be scrupulous in
communication of drills and instructions and the analysis of working situations to decide what
the drills should be. That is a much bigger and more difficult activity than can be implied in a
single sentence, but the second part of getting compliance is more difficult and more important.
Employee failure to comply with clear drills does not absolve the employer and the management.
When an explosion leaves the factory in ruins it is of little value for the factory manager to shake
his head and say: ‘I told them not to

do it.’ We examine the way to obtain compliance shortly, in the course of our discussion about
training and other methods of persuasion.

In larger organisations the initiative on safe working will be led by the professionals within the
management team. They are the safety officer, the medical officer, the nursing staff and the
safety representatives. Although there is no legal obligation to appoint a safety officer, more and
more organisations are making such appointments. One reason is to provide emphasis and focus
for safety matters. The appointment suggests that the management means business, but the
appointment itself is not enough. It has to be fitted into the management structure with lines of
reporting and accountability which will enable the safety officer to be effective and which will
prevent other members of management becoming uncertain of their own responsibilities –
perhaps to the point of thinking that they no longer exist. Ideally, the safety officers operate on
two fronts: making the work safe and ensuring safe working, although this may require an ability
to talk constructively on engineering issues with engineers as well as being able to handle
training and some industrial-relations-type arguments.

The medical officer (if one is appointed) will almost certainly be the only medically qualified
person and can therefore introduce to the thinking on health and safety discussions a perspective
and a range of knowledge that is both unique and relevant. Second, the medical officer will
probably carry more social status than the managers dealing with health and safety matters and
he or she will be detached from the management in their eyes and his or her own. Doctors have
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their own ethical code, which is different from that of the managers. They are authoritative
advisers to management on making the work safe and can be authoritative advisers to employees
on working safely. They are invaluable members of the safety committee and potentially
important features of training programmes. Occupational nurses also deal directly with working
safely and often play a part in safety training, as well as symbolising care in the face of hazard.

Safety training and other methods of persuasion

Safety training has three major purposes: (1) employees should be told about and understand the
nature of the hazards at the place of work; (2) employees need to be made aware of the safety
rules and procedures; and (3) they need to be persuaded to comply with them. The first of these
is the most important, because employees sometimes tend to modify the rules to suit their own
convenience. Trainers cannot, of course, condone the short cut without implying a general
flexibility in the rules, but they need to be aware of how employees will probably respond. In
some areas the use of short cuts by skilled employees does not always mean they are working
less safely, but there are many areas where compliance with the rules is critical, for example, the
wearing of safety goggles.

Safety training needs to be carried out in three settings: at induction, on the job and in refresher
courses. A variety of different training techniques can be employed, including lectures,
discussions, films, role playing and slides. These methods are sometimes supplemented by poster
or other safety awareness campaigns and communications, and disciplinary action for breaches
of the safety rules. Management example in sticking to the safety rules no matter what the tempo
of production can also set a good example.

Research by Pirani and Reynolds (1976) indicated that the response to a variety of methods of
safety persuasion – poster campaigns, film shows, fear techniques, discussion groups, role
playing and disciplinary action – was very good in the short term (over two weeks) but after four
months the initial improvement had virtually disappeared for all methods except role playing.
From this it can be concluded that: first, a management initiative on safety will produce
gratifying results in the obeying of rules, but a fresh initiative will be needed at regular and
frequent intervals to keep it effective; and, second, the technique of role playing appears to
produce results that are longer lasting.

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 8.5. Occupational Health Departments
Occupational health and welfare is a broad area which includes both physical and emotional
well-being. The medical officer, occupational health nurse and welfare officer all have a
contribution to make here. In a broader sense so do the dentist, chiropodist and other
professionals when they are employed by the organisation. The provision of these broader
welfare facilities is often found in large organisations located away from centres of population,
especially in industrial plants, where the

necessity of at least an occupational health nurse can be clearly seen.

In terms of physical care the sorts of facility that can be provided are:

1. Emergency treatment, beyond immediate first aid, of injuries sustained at work.

2. Medical, dental and other facilities, which employees can use and which can be more easily
fitted into the working day than making appointments with outside professionals.

3. Immediate advice on medical and related matters, especially those connected with work.

4. Monitoring of accidents and illnesses to identify hazards and danger points, and formulating
ideas to combat these in conjunction with the safety officer.

5. On-site medical examinations for those joining the organisation.

6. Regular medical examinations for employees.

7. Input into health and safety training courses.

8. Regular screening services (e.g. cervical cancer screening).

8.6. Pension and Benefits

Employee benefits commonly used to be known as ‘fringe benefits’, suggesting a peripheral role
in the typical pay packet. The substantial growth in the value of most benefits packages over the
past ten or twenty years means that the title ‘fringe’ is no longer appropriate. An increasing
proportion of individual remuneration is made up of additional perks, allowances and
entitlements which are mostly paid in kind rather than cash. The total value of benefits ‘paid’ by
employers to employees commonly represents between 20 per cent and 50 per cent of an
organisation’s salary budget, depending on what is included (IDS 1999). Pensions alone can
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easily account for 20 per cent, to which must be added the costs of providing some or all of the
following: company cars, sick pay, meals, live-in accommodation, parking facilities, private
health insurance, crèche facilities, mobile phones, Christmas parties, staff discounts, relocation
expenses and any holiday or maternity allowances paid in excess of the required statutory
minima. Smith (2000a, p. 153) shows that these extra elements of pay are distributed unevenly
between members of staff. Those earning at the top of the scale (especially directors and senior
managers) tend to gain rather more than average employees, 30 per cent or 40 per cent of their
take-home pay being accounted for by benefits of various kinds.

Despite these developments, there remains a big question-mark over how far employees value
the benefits provided to them by their employers or appreciate the extent of the costs involved in
their provision. A survey of 13,000 employees carried out by Towers Perrin (IRS 2000a, pp. 5–9,
Thompson and Milsome 2001, pp. 55– 62) found that a majority were dissatisfied with the level
of benefits provided and that only 21 per cent were interested in improving the package by
reducing their take-home pay. They concluded that ‘traditional benefits are not a significant
factor in the recruitment, retention and motivation of most employees’ because there was ‘a
misalignment between their needs and the extent to which their employers are meeting those
needs’. This does not mean, of course, that employers can easily stop offering benefits. While the
full cost may not be appreciated by employees, they are generally in favour of the benefits and
would resent their removal. Poor publicity would also inevitably follow the withdrawal of
rewards such as pensions which are generally seen as being the hallmark of a good employer.
The alternative courses of action involve communicating the true value of benefits to employees
more effectively and providing them with a degree of choice as to which benefits they wish to
receive. The latter approach, involving the provision of ‘flexible’ or ‘cafeteria’ benefits, has
become very common in the USA and has received a great deal of attention in the UK too.

PENSIONS

Occupational pensions are increasingly seen as a form of ‘deferred pay’ rather than a reward for
a lifetime of employment, and as such are attracting more attention from employees, trade
unions, government and the media. Once a peripheral concern of most HR departments, and
many reward management specialists, they have now, as a result of recent developments, moved
to the centre of the stage. The trade union AMICUS recently stated that pensions are the top
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priority issue for its members, while the CIPD’s annual survey on reward management practices
now places the section on pensions at the beginning, ahead of all other pay topics (CIPD 2004).

The role of employers in providing pensions has moved up the agenda for several reasons, but
underlying all of them are the long-term demographic trends which have called into question the
ability of the established UK pension system to provide an adequate income to older people after
they retire. On the one hand people are living increasingly longer and thus require a bigger
pension to provide them with an income across their years of retirement. On the other, fewer
children are being born, leading to an increase in the dependency ratio, by which is meant the
proportion of retired people vis-à-vis working people in the economy. At present in the UK there
are around 3.3 people working for every pensioner, but this figure will reduce quite rapidly after
2010. By 2030 it is expected to fall to 2.7 and to continue declining for two further decades
(Hopegood 1994). This has major implications for the government, which will have to raise
taxation very considerably in order to fund decent state pensions for so many retired people, in
addition to providing for their health, welfare and other care needs. The government is seeking to
tackle this issue in different ways. Overseas immigration is being allowed to rise considerably
for the first time in decades, while the state pension age is likely to rise to 70 in the near future.
However, an important part of the strategy is to shift the burden of providing pension income
from the state to the private and occupational sectors. For this strategy to succeed ways must be
found to encourage today’s working population to save a great deal more for their own
retirement than is currently the case. Employers will also have to be persuaded both to make
contributions themselves and to provide pension schemes which encourage workers themselves
to contribute. Unfortunately, in recent years the opposite trend has occurred. Far from growing,
the occupational sector is declining in terms of both the number of people covered and the size of
pension that is being provided to retirees. In fact, since 2000 we have witnessed the dismantling
of large parts of the established occupational pensions structure. A majority of larger employers
have downgraded their pension commitments, reducing the amount of money they contribute to
funds and shifting investment risks on to employees. This ongoing situation is regularly seen in
the press and by pensions experts as constituting a ‘pensions crisis’ (IRS 2003a).

State schemes
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The state runs two schemes: a basic scheme and the State Second Pension (S2P) scheme. The
latter replaced SERPS (the State Earnings Related Pension Scheme) in 2002, but people who
contributed to SERPS have all their accrued entitlements under that scheme protected. Every
employee is obliged to contribute a standard amount to the basic scheme, which currently
provides an old age pension at the age of 65 for men and 60 for women. By 2020 the pensionable
age for both men and women will be 65 and in the 10 years prior to this date there will be a
gradual phasing in of the new pensionable age for women. Anyone earning above a ‘low
earnings threshold’ determined by the government (£10,800 in 2003) makes payments towards
S2P through their national insurance contributions, it being intended that the scheme will pay out
an additional flat-rate state pension to those who retire after April 2006 or 2007 (IDS 2002a, pp.
22–3). SERPS operated along similar lines, but produced a second state pension that varied in
size depending on how much had been contributed by the individual retiree.

The state pension scheme is organised on a pay-as-you-go basis. This means that there is no state
pension fund as such, and the money that is paid to today’s pensioners comes from today’s taxes
and national insurance contributions. The money that will be paid to today’s contributors, when
they become pensioners, will come not from the investment of their and their employers’
contributions, but from the contributions of the workforce and their employers in the future. This
is why there is growing concern about the ability of future governments to be able to fund state
pensions for many more retired people beyond a basic subsistence level.

Occupational schemes

The UK has had, for many years, one of the most extensive and effective systems of
occupational pension provision in the world. There are over 150,000 separate schemes in
operation with combined assets worth approximately £600 billion. Just over 10 million people
are members of occupational pension schemes, while around eight million pensioners draw an
income from their funds (Government Actuary’s Department 2003). Although there has been
some reduction recently in the proportion of the workforce covered by occupational pensions,
they remain by far the most significant employee benefit in terms of their cost to employers.

In general, occupational schemes provide an additional retirement pension on top of the state
pension, providing better and wider-ranging benefits than the state schemes and a great deal

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more flexibility. They are most often found in large organisations and the public sector, but some
smaller organisations also run such schemes. Men and women have equal access to occupational
schemes and, since 1990, have had to be treated equally in respect of all scheme rules. Yet, in
spite of this, men and women continue to fare differently in terms of pensions benefits due to the
typical pattern of women’s employment being different from male patterns and women’s longer
average life expectancy. A higher proportion of managerial and professional workers have
occupational pensions than other groups, blue-collar workers being the least likely to be in
schemes. It is no longer lawful for an employer to exclude part-time or temporary workers.

With the exception of one or two in the public sector, occupational schemes do not pay their
pensioners in the pay-as-you-go manner operated by the state, but create a pension fund, which is
managed separately from the business. The advantage of this is that should the organisation
become bankrupt, the pension fund cannot be seized to pay debtors because it is not part of the
company. The money in the pension fund is invested and held in trust for the employees of the
company at the time of their retirement.

Larger organisations administer their own pension funds through an investment or fund manager.
The manager will plan how to invest the money in the fund to get the best return and to ensure
that the money that is needed to pay pensions and other benefits will be available when required.
An actuary can provide mortality tables and other statistical information in order to assist
planning and must be hired regularly to carry out a formal actuarial assessment of the scheme’s
assets and liabilities. Smaller organisations tend to appoint an insurance company or a bank to
administer their pension funds, and so use their expertise. Pension funds can be invested in a
variety of different ways, and are often worth more than the market value of their sponsoring
companies. As a result they have come to dominate investment on the stock market.

During the 1990s as the worth of stocks and shares increased, the typical pension fund found
itself in surplus. It thus had more assets than it needed to pay its liabilities. As a result benefit
levels were increased and many employers were able to enjoy lengthy ‘contribution holidays’,
meaning that they did not have to put any money into their funds. In recent years this position
has changed radically as stock markets have fallen, life expectancy has risen, the amount of
taxation levied on the funds has been increased and costly new regulations have been imposed.
By the end of 2002 all but nine of the FTSE 100 companies (i.e. the largest in the country) had
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pension funds in deficit, the combined shortfall amounting to £77 billion. This was equivalent to
93 per cent of their annual operating profits. The figures for smaller companies were even worse,
their fund deficits representing over 130 per cent of operating profits (IRS 2003). New
accounting regulations, known as FRS17 standards, threaten to make the situation worse after
2005 as they will require companies to include details of pension fund assets (and hence the
substantial deficits) in their annual accounts. The current picture, from an employer’s point of
view, is thus one of very substantial escalating costs and far less predictability about how much
by way of a contribution the organisation will have to make each year. This has resulted in
profound changes being made by many private sector funds, which have substantially reduced
the likely level of pension that many employees will receive when they retire. At the time of
writing (early 2004) an improved stock market position has led some commentators to contend
that the worst is over and that we will begin to see a reversal of recent trends, but there is little
sign of this happening in practice (IRS 2004, p. 31). Occupational pensions take one of three
basic forms.

Defined benefit schemes dominated for the past thirty or forty years, but the number of people
with access to them has declined hugely in the last two or three years. Virtually all the public
sector schemes take this form, but they now account for just 42 per cent of the schemes offered
by private sector employers. Even among larger employers, only 66 per cent now operate defined
benefit schemes (National Association of Pension Funds, 2003). Here contributions are made
into a single organisation-wide fund which is invested on behalf of members by a fund manager.
Retired employees then draw a pension from the fund calculated according to a defined formula.
Most defined benefit schemes take the final salary form, in which the value of the pension is
determined by the level of salary being received by each individual at the time of retirement. In
the private sector it is common for this to be calculated on a ‘sixtieths’ basis, whereby the retiree
is paid an annual pension equivalent to 1/60th (1.67 per cent) of their final salary multiplied by
the number of years’ pensionable service they have completed. In the public sector it is usual for
the figure to be based on ‘eightieths’, with a tax-free lump sum being paid in addition at the time
of retirement. In either case the size of pension is heavily related to the length of scheme
membership, the maximum pension payable equalling two-thirds of final salary.

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Another form of defined benefit scheme bases the pension calculation on the average salary
earned over a period of 5, 10 or 20 years prior to retirement rather than on pay in the final year.
Unless most of someone’s pensionable service has been spent earning close to the final salary
level, such schemes are less generous than the final salary variety in terms of the amount of
pension paid. High levels of inflation also reduce the value of pensions calculated on an average
salary basis. Most defined benefit schemes are contributory. This means that monies are paid into
the fund on a regular basis by both the employer and the employee. In the case of employees the
contribution is fixed as a percentage of salary (typically 5 per cent), a sum which is subject to tax
relief. Employers, by contrast, are obliged only to pay in sufficient funds to ensure that the
scheme remains solvent. When the pension fund is in surplus, as many were in the 1980s and
1990s, employers can take ‘contribution holidays’. By contrast, when the fund is in deficit, the
employer has to contribute whatever is necessary to ensure that assets are sufficient to meet
possible liabilities. This means that the amount of employer contribution can vary considerably,
year on year, in an unpredictable fashion. In 2003 contribution rates for employers were
averaging 15–16 per cent of salary (NAPF 2003). Employers, like employees, gain from tax
relief on contributions paid.

In some industries, as well as parts of the public sector, it has been traditional for occupational
pensions to be non-contributory. In such schemes the employee makes no contribution at all, but
nonetheless draws a pension calculated according to the final salary. Civil servants benefit from
this kind of arrangement, as do many employees in the banking and finance sectors. Defined
benefit schemes typically offer extra benefits such as ill-health pensions for those forced to retire
early and death-inservice benefits for widows and widowers.

Defined contribution schemes (also known as money purchase schemes) are organised in a
totally different way from defined benefit arrangements, and there are no promises about what
the final level of pension will be. Employees and employers both contribute a fixed percentage of
current salary to these schemes, usually 5 per cent or 6 per cent on a monthly basis. The pension
benefits received are then entirely dependent on the money that has been contributed and the way
that it has been invested. Where investments perform well, a good level of pension can be
gained.

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Where investments are disappointing, the result is a low level of pension. Further uncertainty
derives from the way that money purchase schemes result in the payment of a single lump sum to
the employee when he/she retires. This is then used to buy an annuity from an insurance
company from which a weekly or monthly income is paid for life. Annuity rates vary
considerably from year to year, and there is also considerable variation between the deals offered
by different providers. In essence this means that the risk associated with pension investments is
carried by the employee in a defined contribution arrangement, rather than by the employer as in
a final salary scheme. For this reason defined contribution schemes are generally less satisfactory
than defined benefit schemes when seen from an employee’s perspective. Investments have to
perform unusually well while inflation remains low for a money purchase scheme to give an
equivalent level of benefit. However, despite these drawbacks, money purchase schemes are
more flexible and more easily transferable than defined benefit arrangements. For people
changing jobs frequently or working on a self employed basis for periods of time, particularly
during the early years of a career, they can thus be a more attractive option.

In recent years there has been a strong trend away from defined benefit schemes and towards
defined contribution provision. At the time of writing 62 per cent of all UK schemes are of the
money purchase variety, compared with only 5 per cent in 1990 (National Association of
Pension Funds 1992 and 2003). The majority of newly established schemes take the defined
contribution form, while many organisations now offer only a money purchase scheme to new
employees. By 2003 all but 19 percent of final salary schemes in the private sector had been
closed to new members. The trend has coincided with a period in which long contribution
holidays have come to an end and in which the amount of regulation to which defined benefit
schemes are subject has increased substantially. Employers have thus taken the opportunity to
reduce their own liabilities and to move to a form of provision which is more predictable
financially from their point of view. Many employees are less well served as a result, but the lack
of appreciation and understanding of pensions issues referred to above has allowed employers to
make the change without becoming any less attractive in the labour market.

Hybrid schemes too are becoming more common, although as yet they represent a small
minority of UK pension funds. These, in various different ways, combine elements of the defined
benefit and defined contribution forms of provision. The most common form is the ‘money
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purchase underpin’ which is basically a final salary arrangement, but one which calculates
pensions and transfer values on a money purchase basis where these are higher. Such schemes
seek to combine the best aspects of both main types of scheme. They offer a generous, secure
and predictable pension, but also incorporate the flexibility associated with defined contribution
schemes.

Group personal pensions

Since the 1980s there has been substantial growth in the market for personal pensions. Self-
employed people have always needed to be concerned with making their own provisions for
retirement, as they have been excluded from joining S2P, and before that SERPS. More general
attention has been focused on this area due to increasing job mobility and the perceived greater
portability of personal pensions. A personal pension is arranged, usually through an insurance
company, and the individual pays regular amounts into their own ‘pension fund’ in the same way
that they would with a company fund. The employer may also make a contribution to the fund,
but at present there are very few employers who have chosen to do so.

An alternative arrangement is a Group Personal Pension plan (GPP) set up by an employer

instead of an occupational pension scheme. From a legal and taxation perspective a GPP is no
different from any individual personal pension arrangement, but charges are lower because the
employer is able to arrange a bulk discount. The scheme is administered by an insurance
company, the employer making contributions as well as the employee. Pensions are calculated
on the same basis as an occupational money purchase scheme, but tend to be less extensive
because employees

are responsible for paying some of the administrative charges. From an employee perspective a
GPP is inferior to an occupational pension scheme, but is better than a situation in which no
employer provision is made at all. Such arrangements are mainly entered into by small firms, but
one or two big companies have also set them up in place of conventional occupational pensions.

Stakeholder pensions

A new form of government-sponsored pension arrangement, the stakeholder pension, was

established in 2001. These are aimed primarily at the five million or so middle income earners
(that is, those earning in the £10,000 to £20,000 a year range) who do not have access to an
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occupational scheme. The aim is to reduce the number of people in future decades who are
reliant on state pensions for their retirement income.

A stakeholder pension scheme can be operated by an employer, a financial services company or

a trade union. They operate along money purchase lines and are regulated by established
authorities. Charges are kept low because providers are obliged to follow minimum standards set
by the government. Employers are not obliged to make contributions to a stakeholder pension,
but must provide access to one through their payroll. If employees join a scheme, for example
one provided by their trade union, the employer is therefore obliged to make deductions via the
payroll out of pre-tax income.

Views vary on whether or not the stakeholder scheme can be hailed as a success. Supporters
point to the fact that over 600,000 plans have now been set up, while critics stress that 80 per
cent of these are ‘designation only’ which means that no money has actually been invested in
them. Moreover, because many of the schemes which are being used are set up by employers to
replace existing money purchase plans, it would seem that relatively few of the 5 million target
group are actually benefiting in practice.

8.7. Occupational Pension Schemes

While occupational pension schemes are governed by a board of trustees which includes member
representatives, in most organisations the pensions manager and pensions department are part of
the HR function. It is thus important that HR professionals are familiar with the types of scheme
offered and the main operating rules so that they can give accurate and timely advice to staff and
to potential recruits. They also need to be familiar with the regulatory environment for
occupational pensions, which has changed considerably in recent years. Aside from new
legislation outlawing discrimination on grounds of sex or against part-time and temporary staff,
several other important regulatory changes have been made and new regulatory bodies
established. The Pensions Act 1995 now sets out in detail what information must be disclosed to
scheme members on request and what must be sent to them automatically each year. The Act
also requires all occupational funds to meet a defined minimum funding level so that they are
always able to meet their liabilities in the event of the employing company being wound up.
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Moreover, strict restrictions are now placed on ‘self-investment’, making sure that fund assets
cannot be invested in property or other business ventures controlled by the sponsoring
organisation. However, the most important single piece of legislation was the Social Security Act
1985 which put in place a series of measures to protect ‘early leavers’, ensuring that people who
switch employers during their careers do not suffer substantial loss in the value of their pensions.

Early leavers now have one of three options in making their pension arrangements when they
begin work for a new employer. One option is to claim back the contributions that the individual
has made into the former employer’s pension scheme. Deductions are made in accordance with
tax laws, and of course, the employer’s contribution is lost, but a substantial sum can be
reinvested in the new employer’s scheme or in a personal pension. Another alternative involves
opting for a preserved pension. With a final salary scheme, if there were no inflation, and if the
individual progressed very little up the career ladder, a preserved pension from an old employer
plus a pension from the recent employer would equate well with the pension they would have
received had they been with the new employer for the whole period. However, if these
conditions are not met, which in recent times they have not been, individuals who have had more
than one employer lose out in the pension stakes. Past employers are required to revalue
preserved pensions in line with inflation (to a maximum of 5 per cent), but the value of such a
pension remains linked to the level of salary at the date of leaving.

The third option is usually preferable, but is only open (in 2004) to people who have completed
two years’ membership of a scheme. This involves the transfer of the pension from the old
employer’s fund into that of the new employer. The process is straightforward in the case of a
money purchase scheme, because the worth of each person’s pension is readily calculated. It is
simply the value of the employee’s contributions, plus those of the employer, together with funds
accrued as a result of their investment. The process is more complicated in the case of a final
salary scheme, the transfer value being calculated according to standard actuarial conventions
which take account of the employee’s age, their length of pensionable service, the level of salary
at the time of leaving and the current interest rate. All things being equal, ‘early leavers’ still fare
worse than ‘stayers’ in terms of final pensions, but the difference is a great deal less than used to
be the case.

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Aside from giving advice and taking overall responsibility for pensions issues, HR managers are
concerned with determining their organisations’ pension policy. Is an occupational pension to be
offered? If so, what form should it take? What level of contribution is the employer going to
make? It is quite possible to make a judgement in favour of generous occupational provision
simply on paternalistic grounds. Many organisations have thus decided that they will offer
pensions because it is in the interests of their staff that they should. Occupational schemes
represent a convenient and tax-advantageous method of providing an income in old age; it
therefore makes sense to include a pension in the total pay and benefits package.

The problems with such a commitment, particularly in the case of defined benefit schemes, are
the cost and the fact that the long-term financial consequences are unpredictable. This, combined
with the fact that many employees do not seem to appreciate the value of an occupational
pension, means that many employers are now questioning their commitment to final salary
schemes and to pension provision in general.

Research suggests that interest in and understanding of occupational pensions varies

considerably from person to person (Goode 1993; Taylor 2000). Older people, professional
workers and those working in the financial services sector usually have a clearer perception of
their value than other groups of staff. For these groups pensions are important, and their labour
market behaviour will be affected as a result. A firm which does not offer a good pension will
thus find it harder to recruit and retain them than one which does. By contrast, a firm which
largely employs younger people, and/or workers in lower-skilled occupations, may find that it
makes more sense to offer additional pay in place of an occupational scheme.

SICK PAY

As with pension schemes, the provision of sick pay is seen as the mark of a good employer. Sick
pay is an important issue due to the need for control and administration of absence. Research
suggests that sickness absence represents around 4 per cent of working time (CBI 2000),
although there are large differences between sector and job type. The HR manager and the HR
department have a variety of roles to play in relation to sick pay, particularly since the
introduction of statutory sick pay in 1983 when state sick pay in addition to occupational sick
pay became managed by the employer.

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Statutory sick pay (SSP)

Statutory sick pay is a state benefit that has been in existence for several decades. It provides a
basic income (£64.35 per week in 2004) to employees who are incapable of going to their normal
place of work as a result of illness. SSP, however, is not claimed from a benefit office; it is
administered by employers and paid through the payroll according to regulations set out in
statute.

Since 1994 employers have been required to take full financial responsibility for SSP for the first
four weeks of absence, after which they can claim back a portion of the costs from the state
through reduced employer national insurance contributions. However, the method of calculation
used now ensures that smaller employers are able to claim back a very considerably higher
proportion of the costs than larger employers who usually have to fund it all themselves. Most
employees are entitled to state sickness benefit; however, there are some exceptions: employees
who fall sick outside the EU, employees who are sick during an industrial dispute, employees
over pensionable age and part-timers whose earnings are below the lower earnings limit (£77
per week in 2004). These groups, as well as self-employed people, are obliged to claim state
incapacity benefit instead from the Benefits Agency. SSP is built around the concepts of
qualifying days, waiting days, certification, linked periods, transfer to the Department for Work
and Pensions (DWP) and record periods.

Qualifying days are those days on which the employee would normally have worked, except for
the fact that he or she was sick. For many Monday-to-Friday employees this is very
straightforward. However, it is more complex to administer for those on some form of rotating
week or shift system. Sick pay is only payable for qualifying days.

Waiting days have to pass before the employee is entitled to receive sick pay – at present the
number of days is three. These three days must be qualifying days, and on the fourth qualifying
day the employee is entitled to sickness benefit, should he or she still be away from work due to
sickness.

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Certification from a doctor is required after seven days of sickness absence. Prior to this the
employee provides self-certification. This involves notifying the employer of absence due to
sickness by the first day on which benefit is due – that is, immediately following the three
waiting days.

Linked periods of illness mean that the three waiting days do not apply. If the employee has had
a period of incapacity from work (PIW) within the previous eight weeks, then the two periods
are linked and treated as just one period for SSP purposes, and so the three waiting days do not
have to pass again. The employer does not have to administer SSP for every employee
indefinitely. Where the employee has been absent due to sickness for a continuous or linked
period of 28 weeks the responsibility for payment passes from the employer to the state. A
continuous period of 28 weeks’ sickness is clearly identifiable. It is not so clear when linked
periods are involved. An employee who was sick for five days, back at work for four weeks, sick
for one day, at work for seven weeks and then sick for two days would have a linked period of
incapacity of eight days. Alternatively, an employee who was sick for four days, back at work
for ten weeks and then sick for five days would have a period of incapacity this time of five days.
The DWP requires employers to keep SSP records for three years so that these can be inspected.

Occupational sick pay

There is no obligation on employers to pay employees for days of absence due to sickness
beyond what is required under the state’s SSP scheme. However, most employers choose to do
so via a benefit known as occupational sick pay (OSP). The most common approach is to
continue paying the full salary for a set period of time, but other schemes involve reducing the
pay rate for days taken off as a result of illness. In either case a sum in excess of the statutory
minimum is paid, the portion accounted for by SSP being reclaimed from the state where
possible. Paying the full salary is straightforward for those staff who receive a basic salary with
no additions. It is more difficult to define for those whose pay is supplemented by shift
allowances or productivity bonuses.

Occupational sick pay arrangements tend to be most generous in unionised environments and in
the public sector, although professional and managerial employees are usually well covered in
most organisations. The common public sector approach involves paying full pay for the first six

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months of an illness, once three years’ service have been completed, before moving the
employee on to half-pay for a further six months. Thereafter OSP ceases. At the other end of the
scale are employers who pay no OSP at all. They take the view that occupational sick pay will be
abused and so pay only what is due under the state scheme. Another approach involves paying a
predetermined flat rate in addition to money provided via SSP.

Occupational sick pay schemes also vary according to the period of service required. Some
employers provide sick pay for sickness absence from the first day of employment. Others
require a qualifying period to be served. For some this is a nominal period of four weeks, but the
period may be three or six months, or a year or more. There is a major difference here between
OSP and SSP. With SSP pay is available immediately after employment has begun.

COMPANY CARS

A form of employee benefit which is a great deal more common in the UK than in other
countries is the company car, nearly 2 million employees enjoying this benefit in 2000 (IRS
2000b, p. 2). Managers from overseas often take some persuading that cars are necessary to
attract and retain high-calibre managers, but the received wisdom is that they are. Their
importance to employees is demonstrated by the comparative lack of take-up of cash alternatives
where these are offered (Smith 2000a, p. 161). After pensions, they are the second most
significant employee benefit in cost terms, and are provided for some employees by over 90 per
cent of large and medium-sized companies.

There are a number of sound reasons underlying the provision of company cars. First, for some
there is a need as part of their jobs to travel very widely and regularly. Not everyone can be
assumed to own a reliable car, so it is sometimes necessary to provide one simply to enable an
employee to carry out his/her day-to-day job duties. In the case of sales representatives and
senior managers the impression created when travelling on company business can be important.
It is therefore often considered necessary to provide them with upmarket and up-to-date models
to ensure that clients and potential clients are suitably impressed. A case can also be made on
cost efficiency grounds for people who clock up a great number of business miles each year. The
cost of paying them a reasonable mileage allowance to drive their own cars is often greater than

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the cost of providing them with a company vehicle; it costs £9,000 a year to reimburse someone
who has travelled 30,000 miles at 30p per mile.

However, most possessors of company cars do not fit either of the above categories. Their car
entitlements simply come as an expected part of the pay package for middle and senior
managers. As such, they signify the achievement of a certain level of status. Indeed, in many
companies the cars offered become steadily more imposing as people climb up the corporate
hierarchy. Being upgraded to a more impressive car thus signifies in a very manifest way the
company’s approval. Downgrading, of course, has the opposite effect.

One of the reasons that company cars are so significant in the UK is historical, because before
April 1994 they were a highly tax-efficient benefit. It was a good deal cheaper to drive a
company car than to purchase one’s own out of taxed income, so it made sense for people to be
‘paid’ in part with a car. This is now far from being the case.

The current tax regime introduced in April 2002 encourages employers to lease or purchase cars
which are environmentally friendly. Until then company cars were simply taxed according to the
number of miles driven on company business, the annual tax paid by the driver being equivalent
to a percentage of the car’s list price. The more business miles clocked up, the less tax was paid.
In addition there were substantial discounts for people who drove older cars. Now the tax paid
depends on carbon emissions or engine size and there are no reductions for people who drive a
great number of miles or use an older vehicle. So there is a substantial incentive for people who
drive a great deal as part of their jobs to use smaller cars or larger ones with low carbon
emissions. Most employers offer cash alternatives equal to the tax payable on the car (IDS
2002b, p. 1), but many of those eligible choose not to take these up despite the fact that there are
no longer any obvious tax advantages associated with driving a company car. This is partly
because company cars tend to be more expensive than individuals could justify spending from
their own income, but mainly because of the substantial savings that still accrue in terms of
insurance, maintenance and repair costs. The tax changes have, however, led to a preference for
‘trading down’. This means where a choice is given, employees are increasingly opting for a
smaller car and more cash in their pay packets.

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A major policy choice faced by employers in the provision of cars is whether to buy or lease
their fleet. There are advantages and disadvantages associated with both approaches, much
depending on the nature of the deal that is struck with a leasing company. Where the company is
reputable and where the agreement provides for insurance, maintenance and repair of vehicles,
the financial case for leasing is strong.

LONDON ALLOWANCES

Most larger employers pay a standard, organisation-wide allowance or salary weighting to

employees working in central London. In some cases such allowances are also paid to employees
working in the region around London. The purpose is to attract and retain staff who are obliged
to live and commute in the capital where the cost of property, transport and parking is so much
higher than it is elsewhere in the country. The typical level of allowance is between £3,000 and
£4,000 a year, the highest sums being paid by the finance houses of the City and the lowest by
the retailers and public sector employers. According to IDS (2002c), the level of allowances has
tended to rise more slowly than wage inflation generally and have often been frozen for a
number of years. This has occurred because employers are increasingly moving towards the
development of wholly separate London-based salary scales. The flat-rate allowance has thus
become a less significant part of the total pay packet, allowing employers to target resources on
the groups who are hardest to recruit. In tight labour markets, therefore, there is now a greater
differential between pay rates in and out of London than was the case ten years ago.

8.8. Flexible Benefits

Flexible benefits or ‘cafeteria plans’ have proliferated in the United States over recent years
where they are specifically recognised in the tax regime. By contrast, take-up of the idea in the
UK has been slow (Smith 2000b, p. 379). However, several high profile organisations have
moved towards greater flexibility, and the case for others doing so is strong. Such flexibility
involves giving individual employees a choice as to how exactly their pay packet is made up.
The overall value of the package is set by the employer, but it is for employees to choose for
themselves what balance they wish to strike between cash and the different kinds of benefit.
Those who have children, for example, can opt for benefits that are of value to them such as
childcare vouchers, access to a company crèche or additional holidays. A young person in their

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first job might well prefer to forgo most benefits in return for higher take-home pay, while an
older person may wish to purchase additional years of pensionable service in exchange for cash
or perhaps a car.

There are a number of good reasons for considering such an approach. First, it helps ensure that
employees are only provided with benefits which they are aware of and appreciate. Resources
that would otherwise be wasted by providing unwanted benefits are thus saved. The employer
gets maximum value per pound spent, while at the same time allowing employees to tailor their
own ‘perfect’ benefits mix. The result should be improved staff retention and a better motivated
workforce.

Flexible benefits plans take many different forms, the main distinction being between those that
are ‘fully flexible’ and those that allow a degree of flexibility within prescribed limits. The
former allow employees a free hand to make up their own package and to change it at regular
intervals. Under such a regime an employee could theoretically swap all benefits for cash, or
could double their holiday entitlement in exchange for a pay cut. A degree of restriction is more
common, a compulsory core of benefits being compulsory, with flexibility beyond that. Under
such a scheme everyone might be required to take four weeks’ holiday and invest in a minimal
pension, but be allowed freedom to determine whether or not they wished to benefit from private
health insurance, gym membership, discounts on company products, etc. Typical plans also
permit some choice of the make and model of car.

A third approach is administratively simpler but is more restrictive in terms of employee choice.
This involves ‘pre packaging’ a number of separate benefits menus designed to suit different
groups of employees (rather like a pre-set banquet menu in a Chinese restaurant). Employees
must then opt for one package from a choice of five or six, each having the same overall cash
value. One is typically tailored to meet the needs of older staff, another is for those with young
families, a third for new graduates and so on.

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 8.9. Review Questions
1. How did you manage stress of your employees?

2. What are the physical welfare facilities provided by the human resource department?

3. Discuss different types of pension.

4. Describe about flexible benefits.

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 UNIT 9: EMPLOYEE HEALTH AND SAFETY
9.1. Introduction
This part deals with the services provided by the HR department in order to help the organization
meet its legal and social responsibilities to ensure a healthy and safe place of work, to help
employees cope with their personal problems, to help elderly and retired employees and, in some
cases, to make recreational facilities available.

Health and safety policies and programmes are concerned with protecting employees – and other
people affected by what the company produces and does – against the hazards arising from their
employment or their links with the company. Occupational health programmes deal with the
prevention of ill-health arising from working conditions. They consist of two elements:

• occupational medicine, which is a specialized branch of preventive medicine concerned

with the diagnosis and prevention of health hazards at work and dealing with any ill-
health or stress that has occurred in spite of preventive actions;

• occupational hygiene, which is the province of the chemist and the engineer or
ergonomist engaged in the measurement and control of environmental hazards.

Safety programmes deal with the prevention of accidents and with minimizing the resulting loss
and damage to persons and property. They relate more to systems of work than the working
environment, but both health and safety programmes are concerned with protection against
hazards, and their aims and methods are clearly inter-linked. The Royal Society for the
Prevention of Accidents (Bibbings, 2003) has made the following observation on accident
prevention:

We fail to prevent accidents not just because of incomplete control of the circumstances which
give rise to them, but because of our partial knowledge of how things really are and, of course,
our inevitably incomplete knowledge of what will happen in the future. Human beings in this
sense fail to bring order to an essentially chaotic and dangerous world – not just because it defies
their efforts to control it but because they do not fully understand its complexity and randomness.
The result is a potentially dangerous tendency to deny that error and disorder are permanent
features of the natural world and all human undertakings in particular. We become complacent
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and fail to take preventative action. Good investigation of accidents, where it takes place, tends
almost invariably to show that failures to prevent them are rooted either in weaknesses in risk
assessment or in the implementation of control measures.

9.2. Unit objectives

After studying this chapter, you should be able to:

1. Explain about Health and Safety at work

2. To understand the importance of Health and safety

3. To know the benefits of health and safety

4. To understand about health and safety policies

5. To understand different occupational health programmes

6. To learn about the performance measurement

7. To understand health and safety training

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 9.3. Managing Health and Safety at Work
It is estimated by the Health and Safety Executive (HSE) that in the UK about 500 people are
killed at work every year and several hundred thousand more are injured or suffer ill-health. It is
also estimated that, apart from the pain and misery caused to those directly or indirectly
concerned, the total cost to British employers of work related injury and illness exceeds £4
billion a year.

The achievement of a healthy and safe place of work and the elimination to the maximum extent
possible of hazards to health and safety are the responsibility of everyone employed in an
organization, as well as those working there under contract. But the onus is on management to
achieve and indeed go beyond the high standard in health and safety matters required by the
legislation – the Health and Safety at Work etc. Act in 1974 and the various regulations laid
down in the Codes of Practice.

The importance of healthy and safe policies and practices is, sadly, often underestimated by
those concerned with managing businesses and by individual managers within those businesses.
But it cannot be emphasized too strongly that the prevention of accidents and elimination of
health and safety hazards are a prime responsibility of management and managers in order to
minimize suffering and loss.

9.4. The Importance of Health and safety in The Work Place

The achievement of the highest standards of health and safety in the workplace is important
because the elimination, or at least minimization, of health and safety hazards and risks is the
moral as well as the legal responsibility of employers – this is the over-riding reason. Close and
continuous attention to health and safety is important because ill-health and injuries inflicted by
the system of work or working conditions cause suffering and loss to individuals and their
dependants. In addition, accidents and absences through ill-health or injuries result in losses and
damage for the organization. This ‘business’ reason is very much less significant than the
‘human’ reasons given above but it is still a consideration, albeit a tangential one. As described
in this chapter, managing health and safety at work is a matter of:

• developing health and safety policies;

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 • conducting risk assessments which identify hazards and assess the risks attached to them;

• carrying out health and safety audits and inspections;

• implementing occupational health programmes;

• managing stress;

• preventing accidents;

• measuring health and safety performance;

• communicating the need for good health and safety practices;

• training in good health and safety practices;

• Organizing health and safety.

9.5. Benefits of Workplace Health and Safety

Research by the Health and Safety Executive (2004a) in 19 case-study organizations such as
AstraZeneca, Severn Trent Water and Transco, established that the tangible benefits from better
health and safety management include higher productivity, lower absence, avoiding the cost of
accidents and litigation, meeting client demands, and improved staff morale and employee
relations. These organizations have managed to overcome the common perception that health
and safety is a compliance or staff welfare issue, and use initiatives in this area to add value to
the business. Employers in the study made a number of headline savings from investing in
occupational health and safety:

● Rolls Royce saved £11 million through improved absence management;

● in one month, St Bartholomew’s Hospital and the London NHS Trust recouped the cost of flu
injections for staff;

● manual-handling injuries were eliminated and the resultant lost hours reduced to zero at
furniture retailer MFI;

● British Polythene Industries saved £12 for every £1 spent on manual handling improvements;

● The Port of London Authority cut absence by 70 per cent.

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 9.6. Health and Safety Policies
Written health and safety policies are required to demonstrate that top management is concerned
about the protection of the organization’s employees from hazards at work and to indicate how
this protection will be provided. They are, therefore, first, a declaration of intent, second, a
definition of the means by which that intent will be realized, and third, a statement of the
guidelines that should be followed by everyone concerned – which means all employees – in
implementing the policy.

The policy statement should consist of three parts:

● the general policy statement;

● the description of the organization for health and safety;

● details of arrangements for implementing the policy.

The general policy statement

The general policy statement should be a declaration of the intention of the employer to
safeguard the health and safety of employees. It should emphasize four fundamental points:

● that the safety of employees and the public is of paramount importance;

● that safety takes precedence over expediency;

● that every effort will be made to involve all managers, team leaders and employees in the
development and implementation of health and safety procedures;

● that health and safety legislation will be complied with in the spirit as well as the letter of the
law.

Organization

This section of the policy statement should describe the health and safety organization of the
company through which high standards are set and achieved by people at all levels in the
organization. This statement should underline the ultimate responsibility of top management for
the health and safety performance of the organization. It should then indicate how key
management personnel are held accountable for performance in their areas. The role of safety

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representatives and safety committees should be defined, and the duties of specialists such as the
safety adviser and the medical officer should be summarized.

9.7. Conducting Risk Assessments

What is a risk assessment?

Risk assessments are concerned with the identification of hazards and the analysis of the risks
attached to them.

A hazard is anything that can cause harm (eg working on roofs, lifting heavy objects, chemicals,
electricity etc). A risk is the chance, large or small, of harm actually being done by the hazard.
Risk assessments are concerned with looking for hazards and estimating the level of risk
associated with them.

There are two types of risk assessment. The first is quantitative risk assessment, which produces
an objective probability estimate based upon risk information that is immediately applicable to
the circumstances in which the risk occurs. The second is qualitative risk assessment, which is
more subjective and is based on judgement backed by generalized data. Quantitative risk
assessment is preferable if the specific data are available. Qualitative risk assessment may be
acceptable if there are little or no specific data as long as it is made systematically on the basis of
an analysis of working conditions and hazards and informed judgement of the likelihood of harm
actually being done.

Looking for hazards

The following, as suggested by the HSE and others, are typical activities where accidents happen
or there are high risks:

● receipt of raw materials, eg lifting, carrying;

● stacking and storage, eg falling materials;

● movement of people and materials, eg falls, collisions;

● processing of raw materials, eg exposure to toxic substances;

● maintenance of buildings, eg roof work, gutter cleaning;

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● maintenance of plant and machinery, eg lifting tackle, installation of equipment;

● using electricity, eg using hand tools, extension leads;

● operating machines, eg operating without sufficient clearance, or at an unsafe speed; not using
safety devices;

● failure to wear protective equipment, eg hats, boots, clothing;

● distribution of finished jobs, eg movement of vehicles;

● dealing with emergencies, eg spillages, fires, explosions;

● health hazards arising from the use of equipment or methods of working, eg VDUs, repetitive
strain injuries from badly designed work stations or working practices.

The HSE suggests that most accidents are caused by a few key activities. It advises that assessors
should concentrate initially on those that could cause serious harm. Operations such as roof
work, maintenance and transport movement cause far more deaths and injuries each year than
many mainstream activities. When carrying out a risk assessment it is also necessary to consider
who might be harmed, eg employees, visitors (including cleaners and contractors and the public
when calling in to buy products or enlist services). Hazards should be ranked according to their
potential severity as a basis for producing one side of the risk equation. A simple three-point
scale can be used such as ‘low’, ‘moderate’ and ‘high’. A more complex severity rating scale has
been proposed by Holt and Andrews (1993), as follows:

1. Catastrophic – imminent danger exists, hazard capable of causing death and illness on a wide
scale.

2. Critical – hazard can result in serious illness, severe injury, property and equipment damage.

3. Marginal – hazard can cause illness, injury, or equipment damage, but the results would not be
expected to be serious.

4. Negligible – hazard will not result in serious injury or illness; remote possibility of damage
beyond minor first-aid case.

Assessing the risk

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When the hazards have been identified it is necessary to assess how high the risks are.

The HSE suggests that this involves answering three questions:

● What is the worst result?

● How likely is it to happen?

● How many people could be hurt if things go wrong?

A probability rating system can be used such as the one recommended by Holt and Andrews:

1. Probable – likely to occur immediately or shortly.

2. Reasonably probable – probably will occur in time.

3. Remote – may occur in time.

4. Extremely remote – unlikely to occur.

Taking action

Risk assessment should lead to action. The type of action can be ranked in order of potential
effectiveness in the form of a ‘safety precedence sequence’ as proposed by Holt and Andrews:

● Hazard elimination – use of alternatives, design improvements, change of process.

● Substitution – for example, replacement of a chemical with one which is less risky.

● Use of barriers – removing the hazard from the worker or removing the worker from the
hazard.

● Use of procedures – limitation of exposure, dilution of exposure, safe systems of work (these
depend on human response).

● Use of warning systems – signs, instructions, labels (these also depend on human response).

● Use of personal protective clothing – this depends on human response and is used as a side
measure only when all other options have been exhausted.

Monitoring and evaluation

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Risk assessment is not completed when action has been initiated. It is essential to monitor the
hazard and evaluate the effectiveness of the action in eliminating it or at least reducing it to an
acceptable level.

9.8. Health and Safety Audit

What is a health and safety audit?

Risk assessments identify specific hazards and quantify the risks attached to them. Health and
safety audits provide for a much more comprehensive review of all aspects of health and safety
policies, and procedures and practices programmes. As defined by Saunders (1992):

A safety audit will examine the whole organisation in order to test whether it is meeting its safety
aims and objectives. It will examine hierarchies, safety planning processes, decision-making,
delegation, policy-making and implementation as well as all areas of safety programme planning.

Who carries out a health and safety audit?

Safety audits can be conducted by safety advisers and/or personnel specialists but the more
managers, employees and trade union representatives are involved, the better. Audits are often
carried out under the auspices of a health and safety committee with its members taking an active
part in conducting them. Managers can also be held responsible for conducting audits within
their departments and, even better, individual members of these departments can be trained to
carry out audits in particular areas. The conduct of an audit will be facilitated if check lists are
prepared and a simple form used to record results. Some organizations also use outside agencies
such as the British Safety Institute to conduct independent audits.

What is covered by a health and safety audit?

A health and safety audit should cover:

Policies

● Do health and safety policies meet legal requirements?

● Are senior managers committed to health and safety?

● How committed are other managers, team leaders and supervisors to health and safety?

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● Is there a health and safety committee? If not, why not?

● How effective is the committee in getting things done?

Procedures:

How effectively do the procedures:

● support the implementation of health and safety policies?

● communicate the need for good health and safety practices?

● provide for systematic risk assessments?

● ensure that accidents are investigated thoroughly?

● record data on health and safety which are used to evaluate performance and initiate action?

● ensure that health and safety considerations are given proper weight when designing systems
of work or manufacturing and operational processes (including the design of equipment and
work stations, the specification for the product or service, and the use of materials)?

● provide safety training, especially induction training and training when jobs or working
methods are changed?

Safety practices

● To what extent do health and safety practices in all areas of the organization conform to the
general requirements of the Health and Safety at Work Act and the specific requirements of the
various regulations and codes of practice?

● What risk assessments have been carried out? What were the findings? What actions were
taken?

● What is the health and safety performance of the organization as shown by the performance
indicators? Is the trend positive or negative? If the latter, what is being done about it?

● How thoroughly are accidents investigated? What steps have been taken to prevent their
recurrence?

● What is the evidence that managers and supervisors are really concerned about health and
safety?
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What should be done with the audit?

The audit should cover the questions above but its purpose is to generate action. Those
conducting the audit will have to assess priorities and costs and draw up action programmes for
approval by the Board.

9.9. Safety Inspections

Safety inspections are designed to examine a specific area of the organization – operational
department or manufacturing process – in order to locate and define any faults in the system,
equipment, plant or machines, or any operational errors that might be the source of accidents.
Safety inspections should be carried out on a regular and systematic basis by line managers and
supervisors with the advice and help of health and safety advisers. The steps to be taken in
carrying out safety inspections are as follows:

● Allocate the responsibility for conducting the inspection.

● Define the points to be covered in the form of a checklist.

● Divide the department or plant into areas and list the points to which attention needs to be
given in each area.

● Define the frequency with which inspections should be carried out – daily in critical areas.

● Use the check lists as the basis for the inspection.

● Carry out sample or spot checks on a random basis.

● Carry out special investigations as necessary to deal with special problems such as operating
machinery without guards to increase throughput.

● Set up a reporting system (a form should be used for recording the results of inspections).

● Set up a system for monitoring that safety inspections are being conducted properly and on
schedule and that corrective action has been taken where necessary.

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 9.10. Occupational Health Programs
Almost 20 million working days a year are lost because of work-related illness. Two million
people say they suffer from an illness they believe was caused by their work. Muscular disorders,
including repetitive strain injury and back pain, are by far the most commonly reported illnesses
with 1.2 million affected, and the numbers are rising. The next biggest problem is stress, which
500,000 people say is so bad that it is making them ill. These are large and disturbing figures and
they show that high priority must be given to creating and maintaining programmes for the
improvement of occupational health.

The control of occupational health and hygiene problems can be achieved by:

● eliminating the hazard at source through design and process engineering;

● isolating hazardous processes and substances so that workers do not come into contact with
them;

● changing the processes or substances used, to promote better protection or eliminate the risk;

● providing protective equipment, but only if changes to the design, process or specification
cannot completely remove the hazard;

● training workers to avoid risk;

● maintaining plant and equipment to eliminate the possibility of harmful emissions, controlling
the use of toxic substances and eliminating radiation hazards;

● good housekeeping to keep premises and machinery clean and free from toxic substances;

● regular inspections to ensure that potential health risks are identified in good time;

● pre-employment medical examinations and regular checks on those exposed to risk;

● ensuring that ergonomic considerations (ie, those concerning the design and use of equipment,
machines, processes and workstations) are taken into account in design specifications,
establishing work routines and training – this is particularly important as a means of minimizing
the incidence of repetitive strain injury (RSI);

● maintaining preventive medicine programmes which develop health standards for each job and
involve regular audits of potential health hazards and regular examinations for anyone at risk.
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Particular attention needs to be exercised on the control of noise, fatigue and stress. Control of
stress should be regarded as a major part of any occupational health programme.

9.11. Managing Stress

There are four main reasons why organizations should take account of stress and do something
about it:

1. They have the social responsibility to provide a good quality of working life.

2. Excessive stress causes illness.

3. Stress can result in inability to cope with the demands of the job, which, of course, creates
more stress.

4. Excessive stress can reduce employee effectiveness and therefore organizational performance.

The ways in which stress can be managed by an organization include:

● job design – clarifying roles, reducing the danger of role ambiguity and conflict and giving
people more autonomy within a defined structure to manage their responsibilities;

● targets and performance standards – setting reasonable and achievable targets which may
stretch people but do not place impossible burdens on them;

● placement – taking care to place people in jobs that are within their capabilities;

● career development – planning careers and promoting staff in accordance with their
capabilities, taking care not to over- or under-promote;

● performance management processes, which allow a dialogue to take place between managers
and individuals about the latter’s work, problems and ambitions;

● counselling – giving individuals the opportunity to talk about their problems with a member of
the personnel department or the company medical officer, or through an employee assistance
programme;

● management training in performance review and counselling techniques and in what managers
can do to alleviate their own stress and reduce it in others;

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● work–life balance policies which take account of the pressures on employees who have
responsibilities as parents, partners or carers, and which can include such provisions as special
leave and flexible working hours.

The Health and Safety Executive (2003) has named the following ‘beacons of excellence’ for
stress prevention:

● Senior management commitment – stress interventions are unlikely to be implemented

successfully without the long-term commitment of management.

● Participative approach – involving employees from all levels of the organization at every
stage in a stress management programme increases the likelihood of a successful outcome.

● Stress prevention strategy – this should cover the aims of interventions, tasks, responsibilities
and resources available.

● Risk assessment and task analysis – an appraisal of work activities should enable an employer
to recognize stress hazards before interventions are designed.

● Work-related and worker-related prevention and management – interventions should be

designed to tackle the causes of stress emanating from the work environment and support
individuals who are not protected by the first set of interventions, or who are subject to special
stressors.

9.12. Accident Prevention

The prevention of accidents is achieved by:

● identifying the causes of accidents and the conditions under which they are most likely to
occur;

● taking account of safety factors at the design stage – building safety into the system;

● designing safety equipment and protective devices and providing protective clothing;

● carrying out regular risk assessments audits, inspections and checks and taking action to
eliminate risks;

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● investigating all accidents resulting in damage to establish the cause and to initiate corrective
action;

● maintaining good records and statistics in order to identify problem areas and unsatisfactory
trends;

● conducting a continuous programme of education and training on safe working habits and
methods of avoiding accidents;

● leadership and motivation – encouraging methods of leadership and motivation that do not
place excessive demands on people.

9.13. Measuring Health and Safety performance

The saying that ‘if you can’t measure it you can’t manage it’ is totally applicable to health and
safety. It is essential to know what is happening, and it is even more essential to measure trends
as a means of identifying in good time where actions are necessary. The frequency rate and
incidence rate are the common measurement techniques.

9.14. Communicating the Need for Better Health and Safety Practices
As Holt and Andrews (1993) observe, various forms of propaganda selling the health and
safety message have been used for many years, although: ‘They are now widely felt to be of little
value in measurable terms in changing behaviour and influencing attitudes to health and safety
issues.’ But they believe that it is still necessary to deliver the message that health and safety is
important as long as this supplements rather than replaces other initiatives. They suggest that the
following steps can be taken to increase the effectiveness of safety messages:

● Avoid negatives – successful safety propaganda should contain positive messages, not
warnings of the unpleasant consequences of actions.

● Expose correctly – address the message to the right people at the point of danger.

● Use attention-getting techniques carefully – lurid images may only be remembered for what
they are, not for the message they are trying to convey.

● Maximize comprehension – messages should be simple and specific.

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● Messages must be believable – they should address real issues and be perceived as being
delivered by people (ie. managers) who believe in what they say and are doing something about
it.

● Messages must point the way to action – the most effective messages call for positive actions
that can be achieved by the receivers and will offer them a tangible benefit.

Approaches to briefing staff on the importance of health and safety

Advice to a group of staff on the importance of health and safety in the workplace must be based
on a thorough understanding of the organization’s health and safety policies and procedures and
an appreciation of the particular factors affecting the health and safety of the group of people
concerned. The latter can be based on information provided by risk assessments, safety audits
and accident reports. But the advice must be positive – why health and safety is important and
how accidents can be prevented. The advice should not be over-weighted by awful warnings.

The points to be made include:

● a review of the health and safety policies of the organization with explanations of the
reasoning behind them and a positive statement of management’s belief that health and safety is
a major consideration because (1) it directly affects the wellbeing of all concerned; and (2) it can,
and does, minimize suffering and loss;

● a review of the procedures used by the organization for the business as a whole and in the
particular area to assess risks and audit safety position;

● an explanation of the roles of the members of the group in carrying out their work safely and
giving full consideration to the safety of others;

● a reiteration of the statement that one of the core values of the organization is the maintenance
of safe systems of work and the promotion of safe working practices.

9.15. Health and Safety Training

Health and safety training is a key part of the preventative programme. It should start as part of
the induction course. It should also take place following a transfer to a new job or a change in
working methods. Safety training spells out the rules and provides information on potential

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hazards and how to avoid them. Further refresher training should be provided and special courses
laid on to deal with new aspects of health and safety or areas in which safety problems have
emerged.

9.16. Organizing Health and Safety

Health and safety concerns everyone in an establishment although the main responsibility lies
with management in general and individual managers in particular. The specific roles are
summarized below:

● Management develops and implements health and safety policies and ensures that procedures
for carrying out risk assessments, safety audits and inspections are implemented. Importantly,
management has the duty of monitoring and evaluating health and safety performance and taking
corrective action as necessary.

● Managers can exert the greater influence on health and safety. They are in immediate control
and it is up to them to keep a constant watch for unsafe conditions or practices and to take
immediate action. They are also directly responsible for ensuring that employees are conscious
of health and safety hazards and do not take risks.

● Employees should be aware of what constitutes safe working practices as they affect them and
their fellow workers. While management and managers have the duty to communicate and train,
individuals also have the duty to take account of what they have heard and learned in the ways
they carry out their work.

● Health and safety advisers advise on policies and procedures and on healthy and safe methods
of working. They conduct risk assessments and safety audits and investigations into accidents in
conjunction with managers and health and safety representatives, maintain statistics and report
on trends and necessary actions.

● Medical advisers have two functions: preventive and clinical. The preventive function is most
important, especially on occupational health matters. The clinical function is to deal with
industrial accidents and diseases and to advise on the steps necessary to recover from injury or
illness arising from work. They do not usurp the role of the family doctor in non-work-related
illnesses.

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 ● Safety committees consisting of health and safety representatives advise on health and safety
policies and procedures, help in conducting risk assessments and safety audits, and make
suggestions on improving health and safety performance

9.17. Review Questions

1. Explain the importance of health and safety in work place.

2. What are the benefits of health and safety policies?
3. Discuss the different occupational health programmes.
4. Explain how to measure health and safety performance?

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 UNIT 10: INDUSTRIAL RELATIONS

10.1. Introduction
Strategic industrial relations, which is broadly understood as r employees relation is an approach
for analyzing the strategic choices made by the actors: employers, workers and their
organizations, and policy‐ makers – in industrial relations systems and the implications of those
choices for industrial relations outcomes. Although in most SHRM books employment relations
(ER) can be seen as encompassing the study of all aspects of people at work including industrial
relations and human resource management, in this course those terms are used interchangeably.

Strategic industrial relations is based on the premise that these actors deliberately choose the
strategies and institutional structures that they believe will best facilitate attainment of their
objectives. Strategic industrial relations build on concepts drawn from two bodies of research:
strategic management and industrial organization economics. Specifically, strategic industrial
relations focuses on identifying and implementing choices that advance the individual or joint
objectives of workers, worker organizations, and industrial relations policy‐ makers as well as
the objectives of employing organizations.

In an organization, there is continuous relationship between employees and an employer.

Employees in every organization need to have the right to express their grievances by themselves
or through their union. This aspect of human resource management that deals with the
interaction, communication and relationships between employees and the management is
considered as industrial relations. It’s also referred by its other names such as labour relations.

Labour relations are defined as a continuous relationship between a defined group of employees
(represented by a union or association) and an employer. This relationship actually involves the
negotiation of a written contract concerning pay, working hours, and other conditions of
employment and the interpretation and administration of this contract over its period of coverage.
That is the interaction and relationship between the employers (management) and employees
(labour union) is an integral part of strategic human resources management. It ensures a
continuous relationship between the two groups.
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In view of this, this module presents overview of industrial relations, its objectives, importance
as well as decisive issues in industrial relations such as collective bargaining, trade union, and
industrial disputes.

10.2. Unit Objectives

After successfully completing this unit, you will be able to:

• Explain the meanings and importance of industrial relations.

• Identify and discuss the objectives of industrial relations.

• Explain the collective bargaining process and the role of trade union.

• List and explain the types of industrial disputes

• Discuss the methods to handle industrial disputes

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 10.3. The Concept and Meaning of Industrial Relations
The discipline of industrial relations covers the relationship of workers with the organization and
with each other. Labor relations is concerned with anticipating, addressing and diffusing
workplace issues that may interfere with an organization’s business objectives, as also with
resolving disputes between and among management and workers. It includes the processes of
ensuring that relations with workers comply with applicable central and local laws and
regulations and resolving workplace disputes.

Industrial relationship is about the relationship between an employee and management. Industrial
relations has become one of the most delicate and complex problems of modern industrial
society. Industrial progress is impossible without cooperation of labors and harmonious
relationships. Therefore, it is in the interest of all to create and maintain good relations between
employees (labor) and employers (management).

Industrial relations is concerned with the relationship between management and workers and role
of regulatory mechanism to resolve disputes between employer and workers. It deals with the
system, rules and procedures used by unions and employers to determine the reward for effort
and other conditions of employment to protect the interests of the employed and their employers,
and to regulate ways in which employers treat their employees. It focuses on the relation of
individual or group of employee and employer for engaging themselves in a way to maximize
the productive activities.

The term 'Industrial Relations' comprises of two terms: 'Industry' and 'Relations'. "Industry"
refers to "any productive activity in which an individual (or a group of individuals) is (are)
engaged". By "relations" we mean "the relationships that exist within the industry between the
employer and his workmen." The term industrial relations explain the relationship between
employees and management which stems directly or indirectly from union-employer
relationship.

Industrial relations are the relationships between employees and employers within the
organizational settings. The field of industrial relations looks at the relationship between
management and workers, particularly groups of workers represented by a union. Industrial
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relations are basically the interactions between employers, employees and the government, and
the institutions and associations through which such interactions are mediated.

The term industrial relations has a broad as well as narrow outlook. Originally, industrial
relations was broadly defined to include the relationships and interactions between employers
and employees. From this perspective, industrial relations covers all aspects of the employment
relationship, including human resource management, employee relations, and union-management
(or labor) relations. Now its meaning has become more specific and restricted. Accordingly,
industrial relations pertains to the study and practice of collective bargaining, trade unionism,
and labor-management relations, while human resource management is a separate, largely
distinct field that deals with nonunion employment relationships and the personnel practices and
policies of employers.

The relationships which arise at and out of the workplace generally include the relationships
between individual workers, the relationships between workers and their employer and the
relationships between employees. The relationships employers and workers have with the
organizations are formed to promote their respective interests, and the relations between those
organizations, at all levels. Industrial relations also includes the processes through which these
relationships are expressed (such as, collective bargaining, workers' participation in decision-
making, and grievance and dispute settlement), and the management of conflict between
employers, workers and trade unions, when it arises.

10.4. Key Dimensions of Traditional Industrial Rrelations(IR) and

Employee Relations

The table below illustrates the key dimensions that differentiate strategic industrial relations from
the traditional labour relation.

LABOR RELATIONS EMPLOYEE

DIMENSION
(I.R.) RELATIONS

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 (SHRM)

Psychological Compliance Commitment

Contract

Norms, Customs, Practices Values, Mission

Behavior References

Low trust, pluralist, Collective High Trust,

Unitarist,
Relations
Individual

Formal Roles, Hierarchy, Division of Flexible roles, flat

labor, Managerial Control structure, teamwork
and autonomy, self
Organizational Design
control

Table 10.1 Comparison of Industrial Relations and Employee relations

10.5. Relevance of Labour Relations

The management of labour relations, which is commonly termed employee relations from long
term HRM perspective, is relevant to the field of HRM and strategic HRM for the following
reasons:

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 • In many industries (public or private) unionization is the norm. Managers and business
owners in these industries have no choice but to be well versed on the laws that regulate
the relationship with union employees.

• Competitors maybe unionized and settlements in those organizations may impact HR

practices, programs and policies needed to remain competitive in recruiting and retaining
productive employees.

• Organized labor presents a number of key strategic challenges for management

• 1hen workers unionize, the power based within the organization is redistributed. The
employers ability to manage workers at their discretion is severely curtailed.

• Unionization involves bringing in outside players whose support must be gained for any
new or ongoing management initiative

• Organized labor presents a number of key strategic challenges for management

• Unionized work setting greatly impacts the organization’s cost structure particularly
payroll expenses.

10.6. Objectives and importance of industrial relations

Objectives of Industrial Relations

The main objectives of industrial relations system are:-

• To safeguard the interest of labor and management by securing the highest level of
mutual understanding and good-will among all those sections in the industry which
participate in the process of production.

• To avoid industrial conflict or strife and develop harmonious relations, which are an
essential factor in the productivity of workers and the industrial progress of a country.

• To raise productivity to a higher level in an era of full employment by lessening the

tendency to high turnover and frequency absenteeism.

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 • To establish and promote the growth of an industrial democracy based on labor
partnership in the sharing of profits and of managerial decisions, so that ban individuals
personality may grow its full stature for the benefit of the industry and of the country as
well.

• To eliminate or minimize the number of strikes, lockouts and gheraos by providing

reasonable wages, improved living and working conditions, said fringe benefits.

• To improve the economic conditions of workers in the existing state of industrial

managements and political government.

• Socialization of industries by making the state itself a major employer

• Vesting of a proprietary interest of the workers in the industries in which they are
employed.

Importance of Industrial Relations

Need of Industrial Relation has arisen to defend the interest of workers for adjusting the
reasonable salary or wages. It also helps the workers to seek perfect working condition for
producing maximum output. Workers/employees are concerned with social security measures
through this. Industrial Relations is also needed for achieving the democracy by allowing worker
to take part in management, which helps to protect human rights of individual.

The healthy industrial relations are key to the progress and success. Their significance may be
discussed as under –

 Uninterrupted production – The most important benefit of industrial relations is that this
ensures continuity of production. This means, continuous employment for all from manager to
workers. The resources are fully utilized, resulting in the maximum possible production. There is
uninterrupted flow of income for all. Smooth running of an industry is of vital importance for
several other industries; to other industries if the products are intermediaries or inputs; to
exporters if these are export goods; to consumers and workers, if these are goods of mass
consumption.

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 Reduction in Industrial Disputes – Good industrial relations reduce the industrial disputes.
Disputes are reflections of the failure of basic human urges or motivations to secure adequate
satisfaction or expression which are fully cured by good industrial relations. Strikes, lockouts,
go-slow tactics, gherao and grievances are some of the reflections of industrial unrest which do
not spring up in an atmosphere of industrial peace. It helps promoting co-operation and
increasing production.

 High morale – Good industrial relations improve the morale of the employees. Employees work
with great zeal with the feeling in mind that the interest of employer and employees is one and
the same, i.e. to increase production. Every worker feels that he is a co-owner of the gains of
industry. The employer in his turn must realize that the gains of industry are not for him along
but they should be shared equally and generously with his workers. In other words, complete
unity of thought and action is the main achievement of industrial peace. It increases the place of
workers in the society and their ego is satisfied. It naturally affects production because mighty
co-operative efforts alone can produce great results.

 Mental Revolution – The main object of industrial relation is a complete mental revolution of
workers and employees. The industrial peace lies ultimately in a transformed outlook on the part
of both. It is the business of leadership in the ranks of workers, employees and Government to
work out a new relationship in consonance with a spirit of true democracy. Both should think
themselves as partners of the industry and the role of workers in such a partnership should be
recognized. On the other hand, workers must recognize employer’s authority. It will naturally
have impact on production because they recognize the interest of each other.

 Reduced Wastage – Good industrial relations are maintained on the basis of cooperation and
recognition of each other. It will help increase production. Wastages of man, material and
machines are reduced to the minimum and thus national interest is protected.

Thus, it is evident that good industrial relations is the basis of higher production with minimum
cost and higher profits. It also results in increased efficiency of workers. New and new projects
may be introduced for the welfare of the workers and to promote the morale of the people at
work. An economy organized for planned production and distribution, aiming at the realization
of social justice and welfare of the massage can function effectively only in an atmosphere of
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industrial peace. If the twin objectives of rapid national development and increased social justice
are to be achieved, there must be harmonious relationship between management and labor.

10.7. Approaches to Industrial Relations

There are three broad approaches to industrial relations: Unitary, pluralist, and Marxist.

The Unitary Approach

The Unitary Approach advocates the following points regarding industrial relations:

• It must be based on mutual cooperation, individual treatment, shared goals and team
work

• Everyone gains when there is common interest and goals and promotion of harmony

• Conflict is destructive and unnecessary

• Direct negotiations with employees

• No need to involve government, and unions to resolve conflict

The Pluralistic Approach

• There is competing interests, management’s role is to act as mediator amongst competing

interests groups

• Trade unions are representative of employee interests

• Concessions and compromised between management and unions

• Conflict between management and union is good for productive work environment and
innovation

• Unions balance interest of employees and employer

• Government interferes in form of regulations to protect the right of society and

employees

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The central idea of the pluralistic approach is that conflict is inevitable and needs to be
contained within the social mechanism of conciliation, collective bargaining, and arbitration

Marxist Approach

This approach focuses on the following points:

• Conflict is inevitable but it is because of capitalist society

• Conflict is not because of competing interests of employees and management but division
with in society between people who own resources and people who offer labour

• Industrial conflict is because of social and political unrest

• Trade unions are forum to react to capitalism exploitation and bring social revolution

• Trade unions make employees (labour) position more strong in capitalistic society

• All strikes are legitimate, fair and political

• Regard state interventions through legislation is to protect the owners

Fig 10.1 The Approaches to industrial relations.

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 10.8. Impact of The Legal Environment
The legal environment is a major consideration of strategic managers because of the potential
exposure to liability, plant location concerns, productivity influences, and other impacts on cost
structures. In future, strategic managers may need to become more proactive in the design of
legislation so that the laudable social goals can be obtained simultaneously with organizational
growth and efficiency.

THE LABOUR LEGISLATIONS IN ETHIOPIA

Employment law governs the rights and duties between employers and workers. Also referred to
as labor law, these rules are primarily designed to keep workers safe and make sure they are
treated fairly, although laws are in place to protect employers’ interests as well. Employment
laws of Ethiopia are based mainly on the constitution, legislation, proclamation, administrative
rules, and court opinions. A particular employment relationship may also be governed by
contract.
Labour rights in the Constitution
The Constitution of Ethiopia contains a full chapter (Chapter 3) on fundamental rights and
freedoms. The fundamental rights have been grouped under the headings, “Human Rights” and
“Democratic Rights”. The Constitution guarantees rights and freedoms, inter alia equality before
the law, equal protection under the law, freedom of speech and expression, freedom of religion,
belief and opinion, freedom of assembly and association, freedom of person, freedom against
jeopardy and ex post facto laws, the right to property.

Among these fundamental rights, a whole range of general principles of labour rights are firmly
anchored in the constitution. The constitution provides for principles such as the right of the
security of the person (Article 16 of the Constitution), the prohibition against inhuman treatment
and the abolishment of slavery and servitude (Article 18 (2)) and forced and compulsory labour
(Article 18 (3) and (4) of the Constitution). General Freedom of Association is laid down in the
Constitution (Article 31, “for any cause or purpose”), and specified in Article 42, “Rights of
Labour”, which reads: “Factory and service sector employees, peasants, agricultural workers,
other rural workers, government employees below a certain level of responsibility and the nature
of whose employment so requires, shall have the right to form associations for the purpose of

144
improving their economic and employment conditions. This right shall include the right to form
trade union and other associations, and to negotiate with their employers and other organizations
affecting their interests”. The Right to Strike is explicitly mentioned in Article 42 (1) b) of the
Constitution. This article, in its paragraph 2, also lays down the right to reasonable limitation of
working hours, to rest, to paid leave and to healthy and safe working environment.

Article 35 of the Constitution deals with the rights of women, such as equality with men (Article
35(1)), in particular in employment, promotion, pay and the transfer of pension entitlements
(Article 35(7), and 42 (1) d)). The Constitution grants the right to maternity leave with full pay,
as well as prenatal leave with full pay, in accordance with the provisions of the law (Article
35(4) a) and b)).

Pursuant to Article 36 on the rights of children, “every child has the right not to be subject to
exploitative practices, neither to be required not permitted to perform work which may be
hazardous or harmful to his or her education, health or well-being”.

Labour Regulation
 The Evolution of Labour Law in Ethiopia

Talking about Labour Law in Ethiopia means to basically review the history of the last 40-50
years. Present-day labour law, as a specialized law designed to protect employees' welfare, only
came into existence as a result of the modern industrial development and with the rise of the
status of the employee as wage earner. Ethiopia's process of modernization and industrialization
– in contrast with other African countries with a history of colonization - continued slowly but
surely since the times of Menelik II ( emperor of Ethiopia from 1889–1913) , and was only
interrupted by the Italian invasion in 1935 and the following tumults of World War II.
Nevertheless, only the post war years allowed the further development of individual and social
rights in line with the attempt to economical development.

At the very beginning, the workers' movement in Ethiopia was rather corporative, taking the
form of the traditional Ethiopian organizations, such as “ekub” and “edir”, local self-help
societies that provide services and mutual aid and protection of the interest of their members.
One of the first workers' organization with the pattern of a modern trade union was the “Franco-
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Ethiopian Railway Company Workers' Association”, founded in 1947. But it was not before
1961 that the first union was registered under the Civil Code (Civil Code Proclamation, No.
165/1960).

In 1963 the first formal labour law (on collective labour relations) was established with the
“Labour Relations Proclamation No. 210/1963”. This proclamation recognized the rights of
associations of employers and workers, as well as a system of collective bargaining, and it set up
machinery for the settlement of trade disputes – the Labour Relation Board. Consecutively, in
1963 the “Federation of Employers of Ethiopia”, and in 1964 the “Confederation of Ethiopian
Labour Unions” – CELU, were founded.

However, individual labour relations were treated exclusively like any other service contract
according to the regulations of the Civil Code.

During the Dergue period (1974-91) as part of the socialist order of state and society, labour law
was based on the public ownership of the means of production and was subject to central
planning and central management. The Labour Proclamation No. 64 of 1975 superseded the
imperial Labour Relations Proclamation, and contained almost all provisions of a socialist labour
law. There was no autonomy with regard to the conclusion of collective agreements as a form of
independent control over working life exercised by freely constituted trade unions. There were
no employers' organizations, and no contractual freedom between employer and employee.;

Until recently, the main source of labour law, the Labour Proclamation, Proclamation No.
42/1993, was developed in the post-socialist time, marking the overcoming of the centralized
state-economy towards a market oriented, pluralistic society.

 The New Labour Law

Ethiopia was criticized for several years by the ILO Committee of Experts, which noted serious
discrepancies between the national legislation and the Freedom of Association and Protection of
the Right to Organise Convention, 1948 (No. 87). It was partly in response to the observations
made by the House of People's Representatives adopted Labour Proclamation No. 377/2003,
effective since 26 February 2004. This text repealed Labour Proclamation No. 42/1993 (as
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amended by Proclamation 88/1994). It has become the principal source of labour law in Ethiopia.
So far the Committee of Experts has not published its comments on the new law.

The new statute represents an important tool for unions and employers to participate in all labour
matters. The innovation concerns the right of workers, without distinction whatsoever, to form
organizations of their own choosing and the right of these organizations to organize their
activities without interference by the public authorities and not to be dissolved by administrative
authority (Article 114 (1), (2) and (7)).

Labour Proclamation 377/2003 amends the previous Labour Proclamation on the following
points:

 It defines “managerial employees” in Article 3 (2) c);

 It introduces an obligation of employers to maintain records;

 It tightens the legal procedure by setting several new deadlines;

 It introduces a clear ban for compulsory HIV/AIDS testing (Article 14 (2) d);

 It strengthens the workers' position in case of termination (Article 27 (2) and (3);

 It clarifies regulations on severance pay and compensation, disablement payment and

dependants benefits (Arts. 39, 40, 109, 110);

 It creates the full guarantee of freedom of association by abolishing trade union

monopoly (Article 114), provided that the number of members of the union is not less
than ten;

 It recommends regulations on trade union property to be included into the constitution of

workers' organizations (Article 117 (12) (new));

 It clarifies the cancellation of a union to be effective only after a court decision (new
Article 120 (1));

 It introduces a simpler system of collective bargaining and labour dispute settlement,

with specified time limits to speed up the resolution of conflict (Articles 130 (2), 142 (3),
143 and 151);
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  It intends to improve the efficiency of the Labour Relation Boards (Articles 145, 1474
(4), 149 (6), 150, 153 and 154);

 It restricts the definition of “essential services” (Article 136 (2)), excluding railway and
inter-urban bus services, filling stations and banks, thereby entitling workers or
employers of these undertakings to the right to strike or lockout.

 Other sources of labour regulation

 The major sources of labour law are federal regulations, above all the new Labour Proclamation
No. 377/2003, some collective agreements, work statutes and some government's ordinances, for
instance in the field of occupational Safety and Health regulations. However, as Article 3 (2) of
the Labour Proclamation excludes certain groups of workers from the application of the
Proclamation, the following Acts may be considered, too:

 The Civil Code (Civil Code Proclamation, No. 165/1960), title XVI, “Contracts for the
Performance of Services”, specifically Articles 2515 to 2639, which contain regulations on
general employment contracts, specific forms of employment, such as for domestic servants .

 Proclamation No. 260/1984 and the regulations issued by the Ministry of Education for the
employees of public schools, as amended by Proclamation No. 217/2000 .

 The Central Personnel Agency and Public Servants Order of 1961 (as amended by Order No.
28/1962) and the Public Service Regulations No. 1/1962 (contemporarily under review), which
apply to all public servants and state employees.

10.9. The Collective Bargaining Process and The Importance of Trade

Union
This unit describes the meaning of collective bargaining, the collective bargaining process and
the importance of trade union in industrial relations management.

MEANING OF COLLECTIVE BARGAINING

Collective Bargaining is the process of negotiating wages and other conditions of employment in
an organization. It consists of negotiations between an employer and a group of employees that
determine the conditions of employment. Often employees are represented in the bargaining by a
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union or other labor organization. The result of collective bargaining procedure is called the
collective bargaining agreement (CBA). Collective agreements may be in the form of procedural
agreements or substantive agreements. Procedural agreements deal with the relationship between
workers and management and the procedures to be adopted for resolving individual or group
disputes.

This will normally include procedures in respect of individual grievances, disputes and
discipline. Frequently, procedural agreements are put into the company rule book which provides
information on the overall terms and conditions of employment and codes of behavior. A
substantive agreement deals with specific issues such as basic pay, overtime premiums, bonus
arrangements, holiday entitlements, hours of work, etc. In many companies, agreements have a
fixed time scale and a collective bargaining process will review the procedural agreement when
negotiations take place on pay and conditions of employment.

Scope of Collective Bargaining

In general, Collective bargaining is the process whereby workers organize collectively and
bargain with employers regarding the workplace. In a broad sense, it is the coming together of
workers to negotiate their employment. The following illustrates the scope of collective
bargaining :

 Wages fixation, increments and bonus

 payment Hours of work and overtime

 Terms and conditions of work, safety,

 welfare and health care Grievance

 procedure labour productivity, labour

 standard and modernization Union

 Management relations including workers participation

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 Benefits of Collective bargaining to to management

 Workers have a voice and an outlet in the collective bargaining process that reduces
uncertainty and instability in the workplace.

 Workers are often more motivated following collective bargaining as they have
participated in the process and the outcome.

 Collective bargaining aids in labour market flexibility by helping workers to understand

and accept the need for modernization and restructuring.

Benefits of collective bargaining to management

 Collective bargaining provides workers with a collective voice which may be more effective than
dealing with managers one by one.

 Collective bargaining helps ensure adequate wages and working conditions and helps workers to
receive a fair distribution of gains that might result from the introduction of new technology.

THE COLLECTIVE BARGAINING PROCESS

The collective bargaining process comprises of five core steps::

1. Prepare: This phase involves composition of a negotiation team. The negotiation team
should consist of representatives of both the parties with adequate knowledge and skills
for negotiation. In this phase both the employer's representatives and the union examine
their own situation in order to develop the issues that they believe will be most important.
The first thing to be done is to determine whether there is actually any reason to negotiate
at all. A correct understanding of the main issues to be covered and intimate knowledge of
operations, working conditions, production norms and other relevant conditions is
required.

2. Discuss: Here, the parties decide the ground rules that will guide the negotiations. A
process well begun is half done and this is no less true in case of collective bargaining. An
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 environment of mutual trust and understanding is also created so that the collective
bargaining agreement would be reached.

3. Propose: This phase involves the initial opening statements and the possible options that
exist to resolve them. In a word, this phase could be described as 'brainstorming'. The
exchange of messages takes place and opinion of both the parties is sought.

4. Bargain: negotiations are easy if a problem solving attitude is adopted. This stage
comprises the time when 'what ifs' and 'supposals' are set forth and the drafting of
agreements take place

5. Settlement: Once the parties are through with the bargaining process, a consensual
agreement is reached upon wherein both the parties agree to a common decision regarding
the problem or the issue. This stage is described as consisting of effective joint
implementation of the agreement through shared visions, strategic planning and
negotiated change.

10.10. Trade Union

After completing this section, you will be able to tell the meaning of trade unions and explain the
features of trade unions

WHAT IS A TRADE UNION: MEANING AND FEATURES

Trade union is an organization of employees formed on a continuous basis for the purpose of
securing diverse range of benefits. It is a continuous association of wage earners for the purpose
of maintaining and improving the conditions of their working lives.

A trade union, whether temporary or permanent, formed primarily for the purpose of regulating
the relations between workmen and employers or between workmen and workmen, or between
employers and employers, or for imposing restrictive condition on the conduct of any trade or
business, and includes any federation of two or more trade unions.

This definition is very exhaustive as it includes associations of both the workers and employers
and the federations of their associations. Here, the relationships that have been talked about are
both temporary and permanent. This means it applies to temporary workers (or contractual
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employees) as well. Then this definition, primarily, talks about three relationships. They are the
relationships between the:

 workmen and workmen,

 workmen and employers, and

 Employers and employers.

Thus, a trade union can be seen as a group of employees in a particular sector, whose aim is to
negotiate with employers over pay, job security, working hours, etc, using the collective power
of its members. In general, a union is there to represent the interests of its members, and may
even engage in political activity where legislation affects their members. Trade unions are
voluntary associations formed for the pursuit of protecting the common interests of its members
and also promote welfare. They protect the economic, political and social interests of their
members.

FEATURES OF TRADE UNIONS

The following points explain the most common features or characteristics of trade unions.

 It is an association either of employers or employees or of independent workers. They

may consist of :-

o Employers’ association (eg., Employer’s Federation of India, Indian paper mill

association, etc.)

o General labor unions

o Friendly societies

o Unions of intellectual labor (eg, All India Teachers Association)

 It is formed on a continuous basis. It is a permanent body and not a casual or temporary

one. They persist throughout the year.

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  It is formed to protect and promote all kinds of interests –economic, political and social-
of its members. The dominant interest with which a union is concerned is, however,
economic.

 It achieves its objectives through collective action and group effort. Negotiations and
collective bargaining are the tools for accomplishing objectives.

 Trade unions have shown remarkable progress since their inception; moreover, the
character of trade unions has also been changing. In spite of only focusing on the
economic benefits of workers, the trade unions are also working towards raising the
status of labors as a part of industry.

10.11. Industrial Disputes

Industrial disputes are conflicts, disorder or unrest arising between workers and employers on
any ground. Such disputes finally result in strikes, lockouts and mass refusal of employees to
work in the organization until the dispute is resolved. So it can be concluded that Industrial
Disputes harm both parties employees and employers and are always against the interest of both
employees and the employers. After studying this unit, you should be able to explain the
meaning and concept of industrial disputes and describe the methods of handling industrial
disputes

MEANING AND DEFINITION OF iNDUSTRIAL disputes

 WHAT IS INDUSTRIAL DISPUTE?

An industrial dispute may be defined as a conflict or difference of opinion between management

and workers on the terms of employment. It is a disagreement between an employer and
employees' representative; usually a trade union, over pay and other working conditions and can
result in industrial actions. When an industrial dispute occurs, both the parties, that is the
management and the workmen, try to pressurize each other. The management may resort to
lockouts while the workers may resort to strikes or picketing.

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An industrial dispute in defined as any dispute or difference between employers and employers,
or between employers and workmen, or between workmen and which is connected with the
employment or non-employment or the terms of employment or with the conditions of labor, of
any person.

This definition includes all the aspects of a dispute. It, not only includes the disagreement
between employees and employers, but also emphasizes the difference of opinion between
worker and worker. The disputes generally arise on account of poor wage structure or poor
working conditions. This disagreement or difference could be on any matter concerning the
workers individually or collectively. It must be connected with employment or non-employment
or with the conditions of labor.

From the point of view of the employer, an industrial dispute resulting in stoppage of work
means a stoppage of production. This results in increase in the average cost of production since
fixed expenses continue to be incurred. It also leads to a fall in sales and the rate of turnover,
leading to a fall in profits. The employer may also be liable to compensate his customers with
whom he may have contracted for regular supply. Apart from the immediate economic effects,
loss of prestige and credit, alienation of the labor force, and other non-economic, psychological
and social consequences may also arise. Loss due to destruction of property, personal injury and
physical intimidation or inconvenience also arises.

For the employee, an industrial dispute entails loss of income. The regular income by way of
wages and allowance ceases, and great hardship may be caused to the worker and his family.
Employees also suffer from personal injury if they indulge into strikes n picketing; and the
psychological and physical consequences of forced idleness. The threat of loss of employment in
case of failure to settle the dispute advantageously, or the threat of reprisal action by employers
also exists.

Prolonged stoppages of work have also an adverse effect on the national productivity, national
income. They cause wastage of national resources. Hatred may be generated resulting in political
unrest and disrupting amicable social/industrial relations or community attitudes.
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 ANALYSIS OF INDUSTRIAL DISPUTE DEFINITION

From the definition it may be concluded that an Industrial Dispute means a conflict or unrest or
dispute or any sort of difference between employees and employers which may relate with the
employment or the terms of employment or working conditions.

For a dispute to become Industrial Dispute there must be a dispute difference between:
(1) Employers and employees (2) Employers and workmen, and (3) Workmen and workmen. It
is connected with the employment or terms of employment or with the conditions of labour.

The term Industrial Disputes has been interpreted differently in different situations by courts. So
the court has assigned some principles for judging the natures of Industrial Dispute, these
principles are as follows:

1. The dispute must affect large number of workmen

2. The dispute should be taken up by the Industry Union

3. The parties involved in dispute must have direct interest

4. The consulted demand must become grievance

5. Workmen can raise Industrial Dispute himself

MECHANISMS TO HANDLE INDUSTRIAL DISPUTES

 MEDIATION AND CONCILIATION AS METHODS OF ADDRESSING INDUSTRIAL
DISPUTES

Mediation and conciliation are commonly applied industrial dispute handling mechanisms.
Mediation is the concept of making peace between aggravated parties. It is an ancient practice,
and is carried out by a peace-maker. Mediation comes into play when two or more parties come
together to discuss their differences and settle their differences. Mediation has been used among
people, nations, litigants, labor and government, etc. A mediator, who is an outsider, may be

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 present for settlement of disputes. The mediator's role is to assist the parties in their negotiations.
Whereas, conciliation is generally the process of encouraging the aggravated parties to come
together for mediation. In industrial relations however, the distinctions between the terms
'mediation' and 'conciliation' are negligible. Therefore, conciliation may be defined as the
services of a third party that are used in a dispute as a means of helping the disputing parties to
reduce the extent of their differences and to arrive at a settlement or mutually agreed solution.
Conciliation tends to bring a speedy solution to industrial disagreements, hence, avoiding
unnecessary strikes and lock-outs.

 ROLE OF A CONCILIATOR

A conciliator's function is to define a series of steps toward settlement of differences between the
parties seeking reconciliation. A conciliator may open a series of options, attitudes, and offer
alternative possibilities of settlement. The roles of a conciliator are summarized below:

a) Discussion Leader: A conciliator encourages a clear and friendly communication, creates a safe
environment, and discourages any bias or antagonism between the parties.

b) Safety Valve: A conciliator may be placed between the aggravated parties and may take on
collateral damage without damaging the atmosphere of conciliatory meetings.

c) Communication link: A conciliator may serve as an important communication link between the
aggravated parties.

d) An innovator: A conciliator may offer new suggestions and priorities, and provide the parties
different views to the solution.

e) A sounding board: A conciliator may step in between any heated arguments taking place during
the conciliatory process.

f) Protector: A conciliator may be a protector of the parties while preparing the parties for a
collective bargaining position during separate meetings.

g) A stimulator: A conciliator may motivate the parties to a peaceful solution by supporting good
arguments from opposing sides.

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h) An advisor: A conciliator ensures that misunderstandings don't occur between the parties, and
that room is open only to responsible discussions.

i) A face saver: A conciliator may get the defeated party a form of accommodating settlement,
which, in reality, holds on real value. This is done in order to mask the loss of face or prestige of
the losing party.

j) Promoter of collective bargaining: A conciliator promotes collective bargaining and development

of a mutual understanding between the parties.

10.12. Review Questions

1. What is strategic industrial relations management? Explain its meaning and importance.

2. Discuss the objectives of industrial relations.

3. Discuss the collective bargaining process?

4. What are the main roles of a trade union?

5. Explain the types of industrial disputes and the approaches to handle them

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UNIT 11: DIVERSITY MANAGEMENT AND HARASSMENT

11.1. Introduction
The concept of diversity management, which is originally developed in the USA, is
implemented in a variety of national contexts with diverse results. The aim of diversity
efforts is to change the organizational culture in such a way that it becomes an open,
welcome and supportive environment for all people. It is a voluntary organizational
program designed to create greater inclusion of all individuals into formal organizational
programs.

In view of this, this unit presents issues that relate to workforce diversity management: prospects
and challenges of diversity management, work force empowerment, equal employment
opportunity, harassment and its consequences in the work place and remedies to address
diversity and harassment related problems. Accordingly, this unit primarily focuses on providing
an overview of workforce diversity, explaining the concept of Workforce Empowerment and
Equal Employment opportunity, and describing issues that relate to harassment in the workplace.

11.2. Unit Objectives

After successfully completing this unit, you will be able to:

 Explain the meaning of workplace diversity management,

 Identify and discuss types and guidelines for workplace diversity management

 Explain the challenges and prospects of workplace diversity management

 Discuss and understand workforce empowerment and equal employment opportunity

 Discuss the various forms of workplace harassment, its effects and remedies to
address such problems

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 11.3. Overview of Workforce Diversity Management
This specific section highlights the meaning and concept of workforce diversity management,
describes the guidelines for effective diversity management, explains the types of workforce
diversity management, and it also presents prospects and challenges of workforce diversity
management

In response to the growing diversity in the workforce around the world, many companies have
instituted specific policies and programs to enhance recruitment, inclusion, promotion, and
retention of employees who are different from the privileged echelons of society. Just as the
privileged groups may vary from one country to the next (e.g., urban men of Han descent in
China,White men in the United States, or Protestant men in Northern Ireland), so too do the
disadvantaged groups (e.g., the lower castes in India, North African immigrants in France, or
women in Korea). Although equal rights legislation and affirmative/positive action policies have
helped disadvantaged groups obtain access to a variety of jobs not previously open to them, it is
their exclusion from circles of influence in work organizations that has kept them from fully
contributing to and benefiting from their involvement in the workplace. Diversity management
policies and programs are designed to create a welcoming organizational environment to those
groups that, in the past and through the present, have not had access to employment, in general,
and to more lucrative jobs, in particular.

The term diversity management originated in North America but has slowly taken hold in other
regions and countries of the world. Diversity management refers to the voluntary organizational
actions that are designed to create greater inclusion of employees from various backgrounds into
the formal and informal organizational structures through deliberate policies and programs.

HR diversity practices have broadened beyond affirmative action (AA) and equal employment
opportunity (EEO) staffing efforts. Additional best practices include establishing a visible
Diversity Advisory Committee, conducting mandatory training, and targeting communications to
different affinity group members. Most ideas of workforce diversity management are linked to

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the greater representation of women and minorities in the employment relationship and its
management.

Diversity is an inclusive term based on recognizing all kinds of difference. It is about ‘valuing
everyone as an individual’. It recognizes that people from different backgrounds can bring fresh
ideas and perceptions, which can make the work done more efficient and products and services
better.. Diversity is an inclusive concept that covers all kinds of difference that go beyond the
traditional understanding of what equal opportunity is about.

11.4. General Diversity Management Guidelines

The basic concept of managing diversity accepts that the workforce consists of a diverse
population of people. The diversity consists of visible and non-visible differences which will
include factors such as sex, age, background, race, disability, personality and work style. It is
founded on the premise that harnessing these differences will create a productive environment in
which everybody feels valued, where their talents are being fully utilized and in which
organizational goals are met.

Managing diversity is about ensuring that all people maximize their potential and their
contribution to the organization. It means valuing diversity, that is, valuing the differences
between people and the different qualities they bring to their jobs which can lead to the
development of a more rewarding and productive environment. The following are the most most
successful initiatives adopted by organizations who are pursuing diversity policies:

1. Introducing equal rights and benefits for part-time workers (compared with fulltime workers);

2. Allowing flexibility in uniform/dress requirements;

3. Allowing time off for caring for dependants beyond that required by law, eg extended
maternity/paternity leave;

4. Benefits provided for employees’ partners are equally available to same-sex and different-sex
partners;

5. Buying specialized equipment, eg braille keyboards;

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6. Employing helpers/signers for those who need them;

7. Training trainers in equal opportunities;

8. Eliminating age criteria from selection decisions;

9. Providing assistance with child care;

10. Allowing staff to take career breaks.

11.5. Types of Diversity Management

With the globalizing economy and the increase in multinational corporations, diversity
management no longer refers solely to the heterogeneity of the workforce within one nation but
often refers also to the workforce composition across nations. Accordingly, two types of work
force diversity approaches: International Diversity Management and Cross-national diversity
management.

The first type, international diversity management, refers to managing a diverse workforce of
citizens or immigrants within a single national organizational context. An example would be a
German company instituting policies and training programs for its employees to improve
sensitivity and provide employment opportunities to members of minority groups and recent
immigrants in its workforce.

The second type, cross-national diversity management, refers to managing a workforce

composed of citizens and immigrants in different countries (e.g., a Korean company with
branches in Japan, China, and Malaysia establishing diversity policies and trainings that will be
applicable in its headquarters and also in its subsidiaries in these countries). Each of these types
of diversity management presents different challenges and dilemmas, and each requires a
different set of policies and programs. In addition to practicing within the laws and social norms
of its home country, cross-national diversity management requires employers to take into
consideration the legislative and cultural context in other countries, depending on where their
workforce resides. For example, a company based in South Africa has to abide by the South
African equal rights legislation, which compels it to treat men and women equally. If

the same company has a branch in Saudi Arabia, however, it will have to treat its employees
according to the laws of that country, which are inspired by the shari’ah and follow the Islamic
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 tradition of prescribed gender roles. In South Korea, as another example, the cultural norms
dictate that married women with young children leave their careers and devote their time to their
families. Therefore, while a U.S. company is likely to provide training and promotion
opportunities to young women (in compliance with antidiscrimination legislation), its Korean
subsidiary may view such policies as a waste of time, considering the Korean cultural norms.

11.6. Challenges and Prospects of Workforce Diversity Management

The challenge of diversity is not simply to have it but to create conditions in which its potential
to be a performance barrier is minimized and its potential to enhance performance is maximized.
Diversity management refers not only to those groups that have been discriminated against or
that are different from the dominant or privileged groups, but to the mixture of differences,
similarities and tensions that can exist among the elements of the pluralistic mixture, that is
diversity management is dealing with the collective mixture of all workers, not just the recent
additions to the organizational workforce.

Further, diversity management can create a competitive advantage in areas such as marketing,
problem solving, and resource acquisition. Therefore, diversity management is not the sole
domain of the human resource function in the organization (as has been the case with affirmative
or positive action initiatives) primarily aimed at compliance with legal requirements. It is a
systematic organization-wide effort based on the premise that for organizations to survive and
thrive there is an inherent value in diversity.

 MOSAIC- the Way forward for effective Diversity Management

They use the acronym MOSAIC to describe the characteristics of a diversity oriented
organization:

Mission and values that are strong and positive as well as where effective successful diversity
management is a necessary long-term goal.

Objective and fair processes exist within the organization and these are audited regularly to
ensure that power does not sit within informal networks, and no one group of employees
dominates at any level.

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Skilled workforces who are aware of the effects of biases and prejudices on their decision
making, and managers who manage the diversity effectively while stressing excellence in
individual and team performance.

Active flexibility means that the diversity-oriented organization will display increasing
flexibility, not only in its working patterns but also in its practices, policies and procedures.

Individual focus – organizations must guard against averaging out group differences or
similarities by creating segregated groups.

Culture that empowers achieved through openness, engendering trust between all individuals
through an absence of prejudice and discrimination.

Thus, another key to successful SHRM in today’s business environment is embracing diversity.
In past decades, “diversity” meant avoiding discrimination against women and minorities in
hiring. Today, diversity goes far beyond this limited definition; diversity management involves
actively appreciating and using the differing perspectives and ideas that individuals bring to the
workplace. Diversity is an invaluable contributor to innovation and problem-solving success. T
he more diverse the group in terms of expertise, gender, age, and background, the more ability
the group has to avoid the problems of groupthink. Diversity helps company teams to come up
with more creative and effective solutions. Teams whose members have complementary skills
are often more successful because members can see one another’s blind spots. Members will be
more inclined to make different kinds of mistakes, which means that they’ll be able to catch and
correct those mistakes.

11.7. Workforce Empowerment and Equal Employment Opportunity

This section helps the readers understand the basic concepts of workforce empowerment and
the ideals behind Equal Employment Opportunity (EEO)

WORKFORCE EMPOWEREMENT

Workforce empowerment is an aspect of strategic human resource management in developing

employees’ potential as it can be used to generate positive feelings in employees. In fact, the
empowerment literature lacks a set of well accepted and consistently applied definitions of the
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 important elements in the empowerment process. The definitions of empowerment itself vary
widely across scholars. Some studies define empowerment as intrinsic task motivation, and
others defined it in terms of job structure- the transfer of power and or authority and /or job
support structures such as the sharing of resources and information. And still others has
described empowerment as dependent on management or leadership actions and human
resources practices such as training programs, or reward systems. However, mostly
empowerment is taken as the process of creating a local work environment within a broader
organizational context that will provide both an opportunity to exercise one’s full range of
authority.

EQUAL EMPLOYMENT OPPORTUNITY (EEO)

The equal opportunity policy should spell out the organization’s determination to give equal
opportunities to all, irrespective of sex, race, creed, disability, age or marital status. The policy
should also deal with the extent to which the organization wants to take ‘affirmative action’ to
redress imbalances between numbers employed according to sex or race, or to differences in the
levels of qualifications and skills they have achieved. The policy could be set out as follows:

1. We are an equal opportunity employer. This means that we do not permit direct or indirect
discrimination against any employee on the grounds of race, nationality, sex, sexual orientation,
disability, religion, marital status or age.

2. Direct discrimination takes place when a person is treated less favorably than others are, or
would be, treated in similar circumstances.

3. Indirect discrimination takes place when, whether intentionally or not, a condition Is applied that
adversely affects a considerable proportion of people of one race, nationality, sex, sexual
orientation, religion or marital status, those with disabilities, or older employees.

4. The firm will ensure that equal opportunity principles are applied in all its HR policies, and in
particular to the procedures relating to the recruitment, training, development and promotion of
its employees.

5. Where appropriate and where permissible under the relevant legislation and codes of practice,
employees of under-represented groups will be given positive training and encouragement to
achieve equal opportunity.
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 To get the EEO policy areas into action the following are the key steps :

1. The recruitment process:

o have accurate, up-to-date job descriptions which are not sex biased;

o avoid over-inflated job criteria in person specifications;

o check that job requirements are really necessary to the job and are not reflections of traditional
biased practices;

o guard against sex/race stereotyping in advertisements and recruitment literature.

2. The interview – to reduce interview bias:

o provide training to all who conduct selection interviews;

o ensure that only trained interviewers conduct preliminary interviews;

o avoid discriminatory questions, although interviews can discuss with applicants any domestic or
personal circumstances which might have an adverse effect on job performance as long as this is
done without making assumptions based on the sex of the applicant.

3. Training:

o check that women and men have equal opportunities to participate in training and development
programmes;

o take late entrants into training schemes;

o ensure that selection criteria for training do not discriminate against women;

o Consider using positive training provisions for women and ethnic minorities.

4. Promotion:

o improve performance review procedures to minimize bias;

o avoid perpetuating the effects of past discriminatory practices in selection for

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o promotion;

o Do not presume that women or minorities do not want promotion.

11.8. Harassment in the Work Place

This section presents harassment related issues in the work place. In light of this, it describes
basic ideas behind workplace harassment. In doing so the text provides the meaning of sexual
harassment and its types, its effects of sexual harassment; as well as the remedies to address
diversity management and harassment problems in an organization

HARRASMENT IN THE WORKPLACE

It is unlawful to harass a person (an applicant or employee) because of that person’s sex.
Harassment can include “sexual harassment” or unwelcome sexual advances, requests for sexual
favors, and other verbal or physical harassment of a sexual nature. Harassment does not have to
be of a sexual nature, however, and can include offensive remarks about a person’s sex. For
example, it is illegal to harass a woman by making offensive comments about women in general.
Both victim and the harasser can be either a woman or a man, and the victim and harasser can be
the same sex.

Although the law doesn’t prohibit simple teasing, offhand comments, or isolated incidents that
are not very serious, harassment is illegal when it is so frequent or severe that it creates a hostile
or offensive work environment or when it results in an adverse employment decision (such as the
victim being fired or demoted). The harasser can be the victim's supervisor, a supervisor in
another area, a co-worker, or someone who is not an employee of the employer, such as a client
or customer.

 Sexual Harassment

Sexual harassment involves Unwelcome sexual advances, requests for sexual favors, and other
verbal or physical conduct of a sexual nature when:

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o Submission to such conduct is made either explicitly or implicitly a term or condition of an
individual's employment, or

o •Submission to or rejection of such conduct by an individual is used as a basis for employment

decisions affecting such individual, or

o Such conduct has the purpose or effect of unreasonably interfering with an individual’s work
performance or creating an intimidating, hostile, or offensive working environment.

Unwelcome Behavior is the critical word. Unwelcome does not mean "involuntary." A victim
may consent or agree to certain conduct and actively participate in it even though it is offensive
and objectionable. Therefore, sexual conduct is unwelcome whenever the person subjected to it
considers it unwelcome. Whether the person in fact welcomed a request for a date, sex oriented
comment, or joke depends on all the circumstances.

The following are the most common forms of sexual harassment

o Actual or attempted rape or sexual assault. o Cat calls.

o Unwanted pressure for sexual favors. o Sexual comments.

o Unwanted deliberate touching, leaning over, o Turning work discussions to sexual topics.
cornering, or pinching. o Sexual innuendos or stories.
o Unwanted sexual looks or gestures. o Asking about sexual fantasies, preferences,
o Unwanted letters, telephone calls, or or history.
materials of a sexual nature o Personal questions about social or sexual
o Unwanted pressure for dates. life.

o Unwanted sexual teasing, jokes , remarks, or o Sexual comments about a person's clothing,
questions. anatomy, or looks.

o Referring to an adult as a girl, hunk, doll, o Kissing sounds, howling, and smacking lips.
babe, or honey. o Telling lies or spreading rumors about a
o Whistling at someone. person's personal sex life.
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o Neck massage.

o Touching an employee's clothing, hair, or

body.

o Giving personal gifts.

o Hanging around a person.

o Hugging, kissing, patting, or stroking.

o Touching or rubbing oneself sexually

around another person.

o Standing close or brushing up against a

person.

o Looking a person up and down (elevator

eyes).

o Staring at someone.

o Sexually suggestive signals.

o Facial expressions, winking, throwing

kisses, or licking lips.

o Making sexual gestures with hands or

through body movements.

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 EFFECTS OF SEXUAL HARRASEMENT
Sexual harassment at work can have very serious consequences both for the harassed individual
as well as for other working women who experience it secondhand. The consequences to the
individual employee can be many and serious. In many cases the harassed woman risks losing
her job or the chance for a promotion if she refuses to give in to the sexual demands of someone
in authority. In other situations, the unwelcome sexual conduct of co-workers makes the
working conditions hostile and unpleasant- putting indirect pressure on her to leave the job.
Sometimes, the employee is so traumatized by the harassment that she suffers serious emotional
and physical consequences—and very often, becomes unable to perform her job properly.

According to recent data compiled by Equal Rights Advocates in the U.S. alone , 90 to 95% of
sexually harassed women suffer from some debilitating stress reaction, including anxiety,
depression, headaches, sleep disorders, weight loss or gain, nausea, lowered self-esteem and
sexual dysfunction.

The consequences to working women as a group are no less serious. Sexual harassment has a
cumulative, demoralizing effect that discourages women from asserting themselves within the
workplace, while among men it reinforces stereotypes of women employees as sex objects.
Severe or pervasive sexual harassment in certain types of businesses creates a hostile or
intimidating environment that causes women to leave their jobs and look elsewhere for work or
discourages them from seeking those jobs in the first place.

The effect on the morale of all employees can also be serious. Both men and women in a
workplace can find their work disrupted by sexual harassment even if they are not directly
involved. Sexual harassment can have a demoralizing effect on everyone within range of it, and
it often negatively impacts company productivity on the whole. The points below summarize
some of the potential effects a victim may experience.

o Anxiety, frustration, depression, sleeplessness and/or nightmares, difficulty

concentrating, headaches, fatigue, shame and or guilt, feeling powerless, helpless or out of

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 control, feeling angry towards the harasser, loss of confidence and self-esteem, withdrawal and
isolation, suicidal thoughts or attempts

o Retaliation from the harasser, or colleagues/friends of the harasser, should the victim
complain or file a grievance (retaliation can involve revenge along with more sexual harassment,
and can involve stalking the complainant)

o Having to drop courses, or change academic plans; it may impact grade performance

o Increased absenteeism to avoid harassment, or because of illness from the stress

o Having one’s personal life held up for public scrutiny – the victim becomes the
“accused,” and their dress, lifestyle, and private life will often come under attack. (Note: this
rarely occurs for the perpetrator.)

o Being objectified and humiliated by scrutiny and gossip

o Becoming publicly sexualized

o Defamation of character and reputation

o Stress impacting relationships with significant others, sometimes resulting in the demise
of the relationship; equally, stress on peer relationships and relationships with colleagues

o Impact on references/recommendations

o Loss of career

11.9. Remedies to Address Diversity and Harassment Issues

 REMEDIES TO DIVERSITY ISSUES

A policy on managing diversity recognizes that there are differences among employees and that
these differences, if properly managed, will enable work to be done more efficiently and
effectively. It does not focus exclusively on issues of discrimination, but instead concentrates on
recognizing the differences between people. After all, the concept of managing diversity ‘is
founded on the premise that harnessing these differences will create a productive environment in
which everyone will feel valued, where their talents are fully utilized, and in which
organizational goals are met’. Managing diversity is a concept that recognizes the benefits to be

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 gained from differences. It differs from equal opportunity, which aims to legislate against
discrimination, assumes that people should be assimilated into the organization, and often relies
on affirmative action. A management of diversity policy could:

o acknowledge cultural and individual differences in the workplace;

o state that the organization values the different qualities people bring to their jobs;

o emphasize the need to eliminate bias in such areas as selection, promotion,

o performance assessment, pay and learning opportunities;

o Focus attention on individual differences rather than group differences.

 REMEDIES TO SEXUAL HARASSMENT

With respect to prevention of sexual harassment, organizations have to develop and apply strict
policy. The sexual harassment policy should state that:

1. Sexual harassment will not be tolerated.

2. Employees subjected to sexual harassment will be given advice, support and counselling as
required.

3. Every attempt will be made to resolve the problem informally with the person complained
against.

4. Assistance will be given to the employee to complain formally if informal discussions fail.

5. A special process will be available for hearing complaints about sexual harassment. This will
provide for employees to bring their complaint to someone of their own sex if they so wish.

6. Complaints will be handled sensitively and with due respect for the rights of both the
complainant and the accused.

7. Sexual harassment is regarded as gross industrial misconduct and, if proved, makes the
individual liable for instant dismissal. Less severe penalties may be reserved for minor cases but
there will always be a warning that repetition will result in dismissal.

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 Moreover, legal remedies may also be considered. Of course, the legal remedies for sexual
harassment vary from country to country according to the form of legal protection available to
victims of harassment (for example, whether sexual harassment is addressed through laws
prohibiting discrimination, through labor laws, criminal laws or civil laws (tort laws). All
countries that prohibit sexual harassment, however, have complaint mechanisms, separate from
internal reporting processes, which allow victims to seek a legal [Link] countries that have
laws specifically prohibiting sexual harassment as a form of discrimination, the purpose of the
legislation is to prevent the conduct, and where it has not been prevented, to remedy the
consequences of discrimination.

The purpose of a remedy is to, as far as possible, put the person in the place he or she would
have been if the discrimination had not existed. When discrimination was a significant factor in
the case, the victim is generally entitled to compensation for the consequences of the
discriminatory action.

Depending on the severity of sexual harassment complaints and findings of the investigator,
remedial actions for sexual harassment may include the following.

 Where the person lost an employment opportunity

o hiring the person for the job or opportunity lost;

o providing the person with the opportunity which was missed to the extent possible;

o Providing financial compensation for the lost opportunity.

 Where the person has lost wages

Lost wages may be awarded if the harassment was a significant factor affecting the employer's
decision to terminate employment or the victim's decision to quit. In this case, compensation
would be for:

o all or part of the lost wages or salary;

o lost pension or other benefits;

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o lost raises, overtime, shift bonuses, or higher rates of pay which should have been earned by
promotion, etc.;

o any lost wages or benefits which can reasonably be linked to the act of sexual harassment.

 Expenses

As a general rule, all expenses attributable to the enforcement of the person's rights are
recoverable. Examples of such expenses include:

o medical expenses, such as psychological care

o travel expenses for attending physician

o preparation of reports and costs of experts' attendance at a tribunal

o travel costs to attend hearing

o wages and/or tips lost as result of attendance at hearing

o in exceptional circumstances, compensation for future costs which are reasonably likely to be
incurred, such as future psychological counseling

 Compensation for injury to dignity, feelings, or self-respect

Victims of harassment often feel hurt, humiliated, and degraded. The more intimate and
personal the nature of the harassment, the more injury to emotional well-being would be
expected. Some of the factors which are considered in determining the amount of compensation
for injury to feelings in a complaint of harassment include:

o the nature of the harassment; e.g. was it verbal or physical

o degree of aggressiveness/physical contact of the harassment

o ongoing nature; the duration of the harassment

o frequency of the harassment

o vulnerability of the victim

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o the psychological impact of the harassment on the victim

11.10. Review Questions

1. Explain the meaning of workplace diversity management.

2. Identify and explain the types and guidelines for workplace diversity management.

3. What are the challenges and prospects of workplace diversity management

4. Explain the concept of workforce empowerment.

5. Describe the concept of equal employment opportunity.

6. What are the major forms of workplace harassment?

7. What are the effects and remedies to address problems of workplace harassment?

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 UNIT 12: MANAGING EMPLOYEE DISCIPLINE AAND
SEPARATION
12.1. Introduction
Managing for employees discipline and separation are aspects of the human resource
management procedures that set out set out the ways in which certain actions concerning people
should be carried out by the management or individual managers. In effect they constitute a
formalized approach to dealing with specific matters of policy and practice. Such procedures
state what must be done as well as spelling out how to do it. It is desirable to have the key HRM
procedures written down to ensure that HR policies are applied consistently and in accordance
with both legal requirements and ethical considerations. The existence of a written and well-
publicized procedure ensures that everyone knows precisely what steps need to be taken when
dealing with certain significant and possibly recurring employment issues including disciplinary
and separation matters. Accordingly, this unit presents two main issues: managing for employees
discipline and managing separation.

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 12.2. Unit Objectives
After successfully completing this unit, you will be able to:

 Explain the idea behind managing for discipline and managing for employees separation,

 Identify and discuss the phases of a disciplinary process,

 Explain the disciplinary action guidelines,

 Discuss and understand disciplinary procedures,

 Discuss the various forms of employees separation

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 12.3. Overview of Managing for Employee Discipline
One of the main areas where procedures are required is those concerned with handling
grievances and disciplinary issues. Discipline is a procedure that corrects or punishes a
subordinate because a rule or procedure has been violated. Most contracts agreed by
management and unionized organization provide management with the right to discipline
workers following set disciplinary procedures. Incompetence, misconduct, and violation of
contracts are some of the areas likely to initiate a disciplinary action. The most common types of
disciplinary actions include oral reprimand, written reprimand, loss of privileges, fines, layoff,
demotion, suspension, and dismissal.

A fair discipline process is based on three prerequisites- rules and regulations, a system of
progressive penalties, and an appeals process.

 Rules and regulations: A clear definition of rules and regulations should be set to help
employees know beforehand what is expected of them while working in that
organization. Some areas where rules and regulations apply included theft, destruction of
company property, drinking on the job, insubordination, etc.

 A system of progressive penalties: Penalties may range from oral warning to written
warning to suspension from the job to discharge. The higher and more frequent the
offence is, the more severe the penalty becomes.

 Appeals Process: In order to ensure the disciplinary action is fair and equitable, there has
to be an appeal process.

12.4. The Discipline Process and Disciplinary Action Guidelines and

Procedures
 Disciplinary Process

The steps in disciplinary process may vary from organization to organization. However, most
disciplinary process may involve the following steps.

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 1. Establishing work and behavior rules.

2. Communicating these rules to employees

3. Establishing effective assessment mechanisms (performance appraisal or observation)

4. Collecting full information on the case and deciding on the type of penalty. (Usually
based on set policies and procedures)

5. Administering punishment or motivating change.

6. Following-up the case.

 Disciplinary Action Guidelines

The following guidelines are suggested in taking or before taking disciplinary action.

1. Discipline action should be applied consistently i.e. similar incidents should get similar
treatment.

2. The employee should be adequately warned of the consequences of his/her alleged

misconduct.

3. Disciplinary action should be taken in private.

4. Penalty should always carry with it constructive element. The employee should be told
clearly the reasons for the action to be taken.

5. Disciplinary action should be taken promptly in order for the employee to understand
clearly the relationship between the penalty and the offensive act.

6. As much as possible, disciplinary action should be applied by the immediate supervisor.

7. After taking the disciplinary action, an attempt should be made to assume a normal
attitude toward the employee.

 Illustration of Disciplinary Procedures

Disciplinary procedures set out the stages through which any disciplinary action should proceed.
An example is given below.

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Disciplinary procedure (Phase 1)

POLICY

It is the policy of the company that if disciplinary action has to be taken against employees it
should:

be undertaken only in cases where good reason and clear evidence exist;
be appropriate to the nature of the offence that has been committed;
be demonstrably fair and consistent with previous action in similar circumstances;
take place only when employees are aware of the standards that are expected of them or the
rules with which they are required to conform;
allow employees the right to be represented by a representative or colleague during any formal
proceedings;
allow employees the right to know exactly what charges are being made against them and to
respond to those charges;
allow employees the right of appeal against any disciplinary action.

RULES

The company is responsible for ensuring that up-to-date rules are published and available to all
employees.

PROCEDURE

The procedure is carried out in the following stages:

1. Informal warning. A verbal or informal warning is given to the employee in the first instance
or instances of minor offences. The warning is administered by the employee’s immediate team

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leader or manager.

2. Formal warning. A written formal warning is given to the employee in the first instance of
more serious offences or after repeated instances of minor offences. The warning is administered
by the employee’s immediate team leader or manager – it states the exact nature of the offence
and indicates any

future disciplinary action which will be taken against the employee if the offence is repeated
within a specified time limit. A copy of the written warning is placed in the employee’s
personnel record file but is destroyed 12 months after the date on which it was given, if the
intervening service has been satisfactory. The employee is required to read and sign the formal
warning and has the right to appeal to higher management if he or she thinks the warning is
unjustified. The HR manager should be asked to advise on the text of the written warning.

3. Further disciplinary action. If, despite previous warnings, an employee still fails to reach the
required standards in a reasonable period of time, it may become necessary to consider further
disciplinary action. The action taken may be up to three days’ suspension without pay, or
dismissal. In either case the departmental manager should discuss the matter with the personnel
manager before taking action. Staff below the rank of departmental manager may only
recommend disciplinary action to higher management, except when their manager is not present
(for example, on night-shift), when they may suspend the employee for up to one day pending an
inquiry on the following day. Disciplinary action should not be confirmed until the appeal
procedure has been carried out.

Disciplinary procedure (Phase 2)

SUMMARY DISMISSAL

An employee may be summarily dismissed (ie given instant dismissal without notice) only in the
event of gross misconduct, as defined in company rules. Only departmental managers and above
can recommend summary dismissal, and the action should not be finalized until the case has

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 been discussed with the HR manager and the appeal procedure has been carried out. To enable
this review to take place, employees should be suspended pending further investigation, which
must take place within 24 hours.

APPEALS

In all circumstances, an employee may appeal against suspension, dismissal with notice, or
summary dismissal. The appeal is conducted by a member of management who is more senior
than the manager who initially administered the disciplinary action. The HR manager should also
be present at the hearing. If he or she wishes, the employee may be represented at the appeal by a
fellow employee of his or her own choice. Appeal against summary dismissal or suspension
should be heard immediately. Appeals against dismissal with notice should be held within two
days. No disciplinary action that is subject to appeal is confirmed until the outcome of the
appeal. If an appeal against dismissal (but not suspension) is rejected at this level, the employee
has the right to appeal to the chief executive. The head of HR and, if required, the employee’s
representative should be present at this appeal.

12.5. Managing for Separation

Managing for separation is also one of the major issues in the field of human resource
management. There are four basic ways that the total number of employees can be reduced
including: Attrition, Early retirement, Layoffs, and Terminations

 Attrition: is the normal separation of people from an organization as a result of resignation,

retirement, or death. It is initiated by the individual worker and not by the company. In most
organizations, the key component of attrition is resignation, which is a voluntary separation.
Although attrition is a slow way to reduce the employment base in an organization, it presents
the fewest problems. Voluntary departures simply create vacancy that is not filled, and the
staffing level declines without anyone being forced out of a job. Human resource planning
enables organizations to rely more heavily on attrition than on layoffs because this planning
process attempts to project future employment need. When those projections indicate that a

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 surplus of employees is likely, the human resource department can recommend an
employment freeze, which curtails future hiring. The employment level then begins to
decline as people voluntarily leave the organization. When there is sufficient lead-time,
attrition can reduce or even eliminate the projected surplus.

 Early retirement: a special form of attrition used to reduce staffing levels and to create internal
job openings. Early retirement plans are designed to encourage long-service workers to retire
before the traditional retirement age.

If the employer is anxious to reduce the number of senior workers, the early retirement
provisions may be supplemented so that there is no reduction in retirement benefits. The
advantage of this form of reduction of employees is that it can start a chain reaction of
promotions for several layers of junior workers and the employer's labor costs may decline
when senior workers, who tend to be the highest paid employees, retire. However, there are
some disadvantages such as encouraging early retirements can be financially expensive and it
also may result in many employees leaving, especially the key ones.

 Layoffs: a condition where by employees are forced to leave the organization temporarily or
permanently. A temporary lay-off may last only a few weeks if, for example, its purpose is to
adjust inventory levels or to allow a retool for a new product. If caused by a business cycle, the
layoff may last many months or years. However, if layoff occurs because of restructuring, such
as down-sizing or mergers and acquisitions, the “temporary” layoff may become permanent. It
usually results in payment of severance pay, as well as unemployment compensation.

o Identifying employees for layoffs

Seniority and merit are the two criteria most commonly applied in layoff decisions. Seniority
based criteria is best supported by unions since it protects the most senior employees of
organization irrespective of job assignments.

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 Using seniority as the only criterion may mean that recently hired minorities and women are laid
off first. The last-hired, first-laid-off policy pits minority rights against seniority rights.

Merit based criteria is mostly used in nonunion situations. It is a situation where poor
performers are subject to layoff while best performers are retained. This form of layoff decision
may pose some problems: Merit is far more subjective than seniority both conceptually and as it
is usually measured, and many companies fail to keep adequate records to support claims of poor
performance, let along the inability to perform whatever work may remain once layoffs occur.
Thus, the best approach would be the use of both merit and seniority to identify three groups of
employees a protected group, including those with critical skills who have satisfactory or better
performance records, a dispensable group, consisting of those with unsatisfactory performance
records, or a swing group, which contains all other employees arrayed in order of seniority in
their departments.

 Termination: a broad term that encompasses the permanent separation from the organization
for any reason. Usually this term implies that the person was fired as a form of discipline. It is
used that the last resort in reducing surplus employees. As seen above, when people are
discharged for business or economic reasons, it is commonly, although not always, called a
layoff. Sometimes, however, the employer needs to let go some employees for business
reasons or other and has no plans to rehire them. Rather than being laid off, those people are
simply terminated. When termination is not the fault of the employee, he or she may receive
severance pay and outplacement assistance.

Severance Pay in money is often equal to one or more week’s salary –that is given to
employees who are being permanently separated. Many organizations give severance pay only
to those employees terminated involuntarily and who have been performing satisfactorily. For
example, if a factory is going to close or operations are to move to another state, employees
who are terminated may be given an extra week’s salary for each year they have worked for

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the company. It is unlikely that someone who is being fired for poor performance or for other
disciplinary reasons will receive severance pay or outplacement assistance.

Outplacement assistance includes those efforts made by the employer directly or indirectly
through a private firm to help the recently separated worker find a job. Not only do such efforts
help the former employee, but they also assure the remaining employees of management’s
commitment to their welfare if a further reduction in force is necessary.

12.6. Review Questions

1. Discuss the phases of a disciplinary process.

2. Explain the disciplinary action guidelines.

3. Discuss the common forms of disciplinary procedures.

4. Discuss the various forms of employees separation.

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 UNIT 13: PERFORMANCE MANAGEMENT

13.1. Introduction
Performance management processes have become prominent in recent years as means of
providing a more integrated and continuous approach to the management of performance than
was provided by previous isolated and often inadequate merit rating or performance appraisal
schemes. Performance management is based on the principle of management by agreement or
contract rather than management by command. It emphasizes development and the initiation of
self-managed learning plans as well as the integration of individual and corporate objectives. It
can, in fact, play a major role in providing for an integrated and coherent range of human
resource management processes which are mutually supportive and contribute as a whole to
improving organizational effectiveness.

Accordingly, this unit presents overview and aims of performance management, the comparison
between performance management vs. Performance appraisals, describes the appraisal process,
methods and problems and explains the idea of employee counselling.

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 13.2. Unit Objectives
After successfully completing this unit, you will be able to:

1. Explain the meaning of performance management,

2. Identify and discuss the aims of performance management,

3. Explain the difference between performance management and performance appraisals,

4. Discuss and understand the appraisal process

5. Describe methods of appraisals and problems in appraisal,

6. Understand strategic performance management tools, and

7. Discuss the idea of employee counseling.

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 13.3. Overview and Aims of Performance Management
This section forwards the meaning and concept of performance management, as well as the aims
of performance management,

 DEFINITION

Performance management can be defined as a systematic process for improving organizational

performance by developing the performance of individuals and teams. It is a means of getting
better results by understanding and managing performance within an agreed framework of
planned goals, standards and competency requirements. Processes exist for establishing shared
understanding about what is to be achieved, and for managing and developing people in a way
that increases the probability that it will be achieved in the short and longer term. It focuses
people on doing the right things by clarifying their goals. It is owned and driven by line
management.

 AIMS OF PERFORMANCE MANAGEMENT

The overall aim of performance management is to establish a high performance culture in which
individuals and teams take responsibility for the continuous improvement of business processes
and for their own skills and contributions within a framework provided by effective leadership.
Specifically, performance management is about aligning individual objectives to organizational
objectives and ensuring that individuals uphold corporate core values. It provides for
expectations to be defined and agreed in terms of role responsibilities and accountabilities
(expected to do), skills (expected to have) and behaviours (expected to be). The aim is to develop
the capacity of people to meet and exceed expectations and to achieve their full potential to the
benefit of themselves and the organization. Importantly, performance management is concerned
with ensuring that the support and guidance people need to develop and improve are readily
available. The following are the aims of performance management:

 Empowering, motivating and rewarding employees to do their best.

 Focusing employee’s tasks on the right things and doing them right. Aligning everyone’s
individual goals to the goals of the organization.

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 Proactively managing and resourcing performance against agreed accountabilities and
objectives.

 The process and behaviors by which managers manage the performance of their people to
deliver a high-achieving organization.

 Maximizing the potential of individuals and teams to benefit themselves and the
organization, focusing on achievement of their objectives.

13.4. Characteristics of Performance Management

Performance management is a planned process of which the primary elements are agreement,
measurement, feedback, positive reinforcement and dialogue. It is concerned with measuring
outputs in the shape of delivered performance compared with expectations expressed as
objectives. In this respect, it focuses on targets, standards and performance measures or
indicators. It is based on the agreement of role requirements, objectives and performance
improvement and personal development plans. It provides the setting for ongoing dialogues
about performance that involves the joint and continuing review of achievements against
objectives, requirements and plans. But it is also concerned with inputs and values. The inputs
are the knowledge, skills and behaviours required to produce the expected results.
Developmental needs are identified by defining these requirements and assessing the extent to
which the expected levels of performance have been achieved through the effective use of

knowledge and skills and through appropriate behaviour that upholds core values.

Performance management is a continuous and flexible process, which involves managers and
those whom they manage acting as partners within a framework that sets out how they can best
work together to achieve the required results. It is based on the principle of management by
contract and agreement rather than management by command. It relies on consensus and co-
operation rather than control or coercion.

Performance management focuses on future performance planning and improvement rather than
on retrospective performance appraisal. It functions as a continuous and evolutionary process, in
which performance improves over time. It provides the basis for regular and frequent dialogues

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between managers and individuals about performance and development needs. It is mainly
concerned with individual performance but it can also be applied to teams. The emphasis is on
development, although performance management is an important part of the reward system
through the provision of feedback and recognition and the identification of opportunities for
growth. It may be associated with performance or contribution-related pay, but its developmental
aspects are much more important.

13.5. The Comparison between Performance Management and

Performance Appraisal
It is sometimes assumed that performance appraisal is the same thing as performance
management. But there are significant differences. Performance appraisal can be defined as the
formal assessment and rating of individuals by their managers at, usually, an annual review
meeting. In contrast, performance management is a continuous and much wider, more
comprehensive and more natural process of management that clarifies mutual expectations,
emphasizes the support role of managers who are expected to act as coaches rather than judges,
and focuses on the future. Performance appraisal has been discredited because too often it has
been operated as a top-down and largely bureaucratic system owned by the HR department rather
than by line managers. It has been perceived by many as solely a means of exercising managerial
control.

Performance appraisal tended to be backward looking, concentrating on what had gone wrong,
rather than looking forward to future development needs. Performance appraisal schemes existed
in isolation. There was little or no link between them and the needs of the business. Line
managers have frequently rejected performance appraisal schemes as being time-consuming and
irrelevant. Employees have resented the superficial nature with which appraisals have been
conducted by managers who lack the skills required, tend to be biased and are simply going
through the motions. Performance appraisal too often degenerated into ‘a dishonest annual
ritual’. The differences between them) are set out in Table 13.1 below.

Performance Appraisal Performance Management

Top-down assessment Joint process through dialogue

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 Annual appraising meeting Continuous review with one or more formal
reviews

Use of ratings Ratings less common

Monolithic system Flexible process

Focus on quantified objectives Focus on values and behavious as well as

objectives

Often linked to pay Less likely to be a direct link to pay

Bureaucratic-complex paperwork Documentation kept to a minimum

Owned by the HR department Owned by line managers.

Table 13.1 Performance appraisal compared with performance management

13.6. Meaning and Uses of Performance Appraisal

 Definition of performance appraisal

Performance Appraisal is a formal system of periodic review and evaluation of an individual’s

job performance. It also involves communicating to an employee how he or she is performing the
job.

 Related concepts

The following terms are useful terminologies in the study of performance appraisals.

 Performance: It is the degree of accomplishment of the tasks that make-up an individual’s

job. It is a result of three elements:

 Effort: Refers to the amount of energy (physical and/or mental) used by an individual in
performing a task.

 Abilities: Personal characteristics used in performing the task (skills, knowledge, behavior,
attitude, etc.)

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  Role perception: refer to the direction(s) in which individuals believe they should channel
their efforts on their jobs. i.e. their own way of understanding their job.

If a person is weak in either of these elements, performance is likely to be very low. Beyond
these factors, other environmental factors may have an indirect impact on performance level.
Such factors may include lack of time, inadequate work facilities, equipment, restrictive policies,
lack of cooperation from other, type of supervision, etc. Such performance obstacles may affect
any one of the performance direct element. Thus, management should provide employees with
adequate working conditions and a supportive environment to eliminate or minimize
performance obstacles

 Uses of Performance Appraisal

The following are some of the uses of performance appraisals.

o To create and maintain a satisfactory level of performance

o To identify employees’ needs for training and thus contribute to their growth and
development

o To facilitate fair and equitable compensations based on performance

o To facilitate selection test validation, i.e, employees rating on performance evaluation

may be used as the variables against which test score are measured.

o It provides essential data for assessing employees’ potential for promotion and also
for making administrative decision relating to salary increment, terminations,
demotions, etc .

o It helps in encouraging performance among employees. Result of performance

appraisal is communicated to indicate how they’re doing and suggesting needed
changes in behavior, attitude, skills or knowledge. It gives clear indication of what is
expected of employees.

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 13.7. The Performance Appraisal Process
There are certain steps that need to be followed in the appraisal process. The following are the
common phases in appraisals.

a. Establishing Performance Standards: Performance standards are established based on job

description and specification. The standard should be clear and incorporate all factors.

b. Communicating standards to employees: Inform these standards to all the employees

including appraisers.

c. Measuring actual employees’ performance: As per the evaluation method used in the
organization and instructions given for appraisal, evaluate actual performance of employees
through observation, interview, records, and reports.

d. Evaluating factors affecting performance: Finding out the influence of various internal and
external factors that may have an effect on performance. Such factors may include inadequate
work facilities, equipments, restrictive policies, lack of cooperation from others, type of
supervision, working conditions, etc.

e. Comparison of actual performance with set standards: Comparing actual performance with
standards set and finding out if there is any deviation.

f. Discussing the appraisal with the employee: This is a very challenging step in the appraisal
process as it involves presenting accurate appraisal to the employee and have the person accept
the appraisal in a constructive manner.

g. Initiating necessary corrective actions: This includes guiding, counseling, coaching and
directing the employee or making arrangements for training and development of the employee in
order to ensure improved performance. It could also involve making suggestions for some
changes to be made in the standard, job analysis, or other internal or external factors to facilitate
effective performance of employees.

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 13.8. Performance Appraisal Methods
The usual performance appraisal methods include:
a. Goal Setting

b. The essay method

c. Critical Incident Appraisal Method

d. Checklist appraisal method

e. Graphic Rating Scale method

f. Forced-Choice Rating

The details of each method are given as follows:

a) Goal Setting or Management by Objective (MBO): It involves measuring and evaluating an
employee’s performance based on the work objectives set by both the employee and the
supervisor. MBO focuses attention on anticipatively set goals that are tangible, verifiable, and
measurable. The emphasis is on what must be accomplished rather than how it is to be
accomplished. The basic process involves:

 Setting objectives of performance

 Developing action plans

 Allowing employees to implement the plans

 Measuring objective achievements

 Taking corrective action, if necessary

 Establishing new objectives for the future

For this process to work effectively, the following requirements need to be met.

 Objectives should be quantifiable

 Active participation of employees

 Conduct appraisal interview with the employee

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  Supervisors should keep communication channel open throughout the appraisal period, i.e.,
to discuss progress and to modify objectives when necessary.

b) The Essay Method: In this method, the appraiser is expected to describe an employee’s
performance in written narrative form. It focuses on issues such as strengths and weakness, job
knowledge, communication skills, quantity and quality of work, potentials of the employee for
promotion, training, etc. Although this method is simple since it does not require complex form,
the fact that it is not structured may have an impact on the length and content of the essay.
Consequently, it makes it difficult to make comparison of results with other employees’
performance.

c) Critical Incident Appraisal Method: It requires the rater to write down critical or key
behaviors of an employee that make a difference between satisfactory and unsatisfactory job
performance. For example, recording exceptional good or poor performances. This method
focuses more on the behavior of employees on their jobs (performance) than traits (personality).
Thus, it is more job-related than other methods. However, this method has drawbacks since it
requires continuous and close supervision from the rater to record critical events on the
employee’s performance. Also, the concept of critical incident may be interpreted differently by
different people making it difficult to compare evaluation results of two or more people.

d) Checklist appraisal method: The rater uses a list of behavioral descriptions required to do a job
and put a check mark against those behaviors that apply to the employee. In a simple checklist
method, the rater is asked to provide yes and no answer to the list of behaviors.

Example: Does the employee volunteer to help other employees?

Does the employee approach customers promptly?

Does the employee complete assignments on time?

Does the employee accept constructive suggestion? Etc.

If some of the listed behaviors are more relevant to the job than others, it is possible to use a
weighted checklist method that attaches a weight to each item and thus permitting the
development of a more accurate rating score. Although this method minimizes bias, it is time
consuming and costly to assemble the questions for each job category.

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e) Graphic Rating Scale method: It is a system that lists a number of traits and a range of
performance for each of these traits. The employee is then rated by identifying the score that best
describes his or her level of performance for each trait. The list might include such factors as
quantity and quality of work, job knowledge, cooperation, attendance, accuracy of work, etc. It is
one of the simplest and popular methods of appraising performance since it is less time
consuming to develop and administer. It permits quantitative analysis and comparison. The
major drawback to these scales is their subjectivity and low reliability. Moreover, the descriptive
words often used in such scales may have different meaning to different raters.

Example: Quality of work: accuracy, skill and completeness of work

Consistently Occasionally Consistently Sometimes Consistently

Unsatisfactory unsatisfactory Satisfactory Superior Superior

f) Forced-Choice Rating: It requires the rater to rank a set of statements describing how an
employee carries out the duties and responsibilities of a job. The rater ranks the statement that
describes most the employee as the first choice and works his/her way to the least descriptive
statement. In this method, raters usually are not aware of the weights attached to each of these
descriptions thus leaves little room for bias. However, raters find this method to be very difficult
to choose from the list of statements especially if they feel that two or more of the traits describe
the employee equally.

Example: Patient with slow learners

Lectures with confidence

Keeps interest and attention of class

Describes the objective of each class

There may be an instruction to the rate the above description from 1-4 starting from the item that
best describes the person to the item that least describes the person. Raters may not have
knowledge of the weights attached to each of the description. Therefore, there is little room for
bias.
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 13.9. Strategic Performance Management Tools
Strategic performance management is a business function where business owners and managers
develop activities or tasks to gauge the overall effectiveness and efficiency of their company.
This process often involves taking a detailed look at the company and setting specific goals or
objectives for divisions, departments, managers, and employees. Owners and managers will set
goals or objectives for business processes, gathering information to measure performance and
making changes to correct issues or improve the company’s performance.

While many different performance management tools exist in the business environment, owners
and managers may decide to develop their own measuring process. This section presents two of
the famous strategic performance management tools, namely Balanced score card (BSC) and key
performance indicators (KPI)

a. The Balanced Scorecard

Traditional financial reporting systems provide an indication of how a firm has performed in the
past, but offer little information about how it might perform in the future. For example, a firm
might reduce its level of customer service in order to boost current earnings, but then future
earnings might be negatively impacted due to reduced customer satisfaction.

To deal with this problem, Robert Kaplan and David Norton developed the Balanced Scorecard,
a performance measurement system that considers not only financial measures, but also
customer, business process, and learning measures. That is the balance scorecard is a strategic
performance management system where owners and managers outline their financial, business
process, customer, and learning or growth perspectives. This typically involves a more
qualitative process where owners and managers assess the information in order to develop
strategies to improve output and performance.

The balanced scorecard translates the organization's strategy into four perspectives, with a
balance between the following:

 between internal and external measures

 between objective measures and subjective measures
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 between performance results and the drivers of future results
 The Balanced Scorecard goes beyond standard financial measures to include the following
additional perspectives: the customer perspective, the internal process perspective, and the
learning and growth perspective.

 Financial perspective - includes measures such as operating income, return on capital

employed, and economic value added.

 Customer perspective - includes measures such as customer satisfaction, customer

retention, and market share in target segments.

 Business process perspective - includes measures such as cost, throughput, and quality.
These are for business processes such as procurement, production, and order fulfillment.

 Learning & growth perspective - includes measures such as employee satisfaction,

employee retention, skill sets, etc.

These four realms are not simply a collection of independent perspectives. Rather, there is a
logical connection between them - learning and growth lead to better business processes, which
in turn lead to increased value to the customer, which finally leads to improved financial
performance.

Objectives, Measures, Targets, and Initiatives

Each perspective of the Balanced Scorecard includes objectives, measures of those objectives,
target values of those measures, and initiatives, defined as follows:

 Objectives - major objectives to be achieved, for example, profitable growth.

 Measures - the observable parameters that will be used to measure progress toward reaching
the objective. For example, the objective of profitable growth might be measured by growth
in net margin.

 Targets - the specific target values for the measures, for example, +2% growth in net margin.

 Initiatives - action programs to be initiated in order to meet the objective.

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b. Key Performance Indicators
Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an
organization define and measure progress toward organizational goals. Once an organization has
analyzed its mission, identified all its stakeholders, and defined its goals, it needs a way to
measure progress toward those goals. Key Performance Indicators are those measurements. Key
Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect the
critical success factors of an organization. They will differ depending on the organization.

Examples:

 A business may have as one of its Key Performance Indicators the percentage of its income that
comes from return customers.

 A school may focus its Key Performance Indicators on graduation rates of its students

 A Customer Service Department may have as one of its Key Performance Indicators, in line with
overall company KPIs, percentage of customer calls answered in the first minute.

 A Key Performance Indicator for a social service organization might be number of clients
assisted during the year.

In other words, A key performance indicator (KPI) is a business metric used to evaluate factors
that are crucial to the success of an organization. KPIs differ per organization; business KPIs
may be net revenue or a customer loyalty metric. That is a KPI is a measurement which
evaluates how a company executes its strategic vision. The term strategic vision refers to how an
interactive strategy is integrated into a company’s strategy as a whole. It is important that
everyone involved in the company strategy agrees on what the strategy represents and how its
variations are interpreted.

Whatever Key Performance Indicators are selected, they must reflect the organization's goals,
they must be key to its success, and they must be quantifiable (measurable). Key Performance
Indicators usually are long-term considerations. The definition of what they are and how they are
measured do not change often. The goals for a particular Key Performance Indicator may change
as the organization's goals change, or as it gets closer to achieving a goal.

Key Performance Indicators Reflect The Organizational Goals

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An organization that has as one of its goals "to be the most profitable company in our industry"
will have Key Performance Indicators that measure profit and related fiscal measures. "Pre-tax
Profit" and "Shareholder Equity" will be among them. However, "Percent of Profit Contributed
to Community Causes" probably will not be one of its Key Performance Indicators. On the other
hand, a school is not concerned with making a profit, so its Key Performance Indicators will be
different. KPIs like "Graduation Rate" and "Success In Finding Employment After Graduation",
though different, accurately reflect the schools mission and goals.

Key Performance Indicators Must Be Quantifiable

If a Key Performance Indicator is going to be of any value, there must be a way to accurately
define and measure it. "Generate More Repeat Customers" is useless as a KPI without some way
to distinguish between new and repeat customers. "Be The Most Popular Company" won't work
as a KPI because there is no way to measure the company's popularity or compare it to others

13.10. Problems in Performance Appraisal

The most common problems seen in performance appraisal include the following:

a) Lack of Objectivity: Some traits used for evaluating performance are difficult to measure
and thus lack objectivity. These factors may include loyalty, attitude, personality, etc.

b) Halo Error: raters may perceive one factor as having significant importance and give a good
or back overall rating to an employee based on this one factor.

c) Leniency: rating consistently higher than the expected norm or average.

d) Strictness: being unduly critical of employees performance and thus result in consistently
lower rating than the expected norm.

e) Central tendency: Consistently rating employees near the average. In such cases, it would
be very difficult to differentiate good performers from poor performers.

f) Recent Behavior bias: raters basing their evaluation on the employees’ recent behavior.
This may not be a representative of the overall performance of the employee throughout the
evaluation period.

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g) Personal bias: raters having biases related employees’ personal characteristics, race religion,
gender, or age.

13.11. Employee Counseling

An important element of every supervisor’s job responsibilities involves helping employees
surmount work related problems. Supporting workers in identifying problems and developing
contingency plans for dealing with these difficulties is essential.

It is true that employees bring a variety of skills, knowledge, and abilities to the work place. The
job of managers is to assist the workforce in managing these various attributes so that the
workers can make productive contributions to the organization. In reality, it happens that along
with their various work traits, employees bring a host of unique personal problems to the work
place. Some employees may have family difficulties; others may suffer from alcoholism, or a
variety of physical or psychological ailments. All these personnel difficulties have the potential
to interfere with workers’ abilities to satisfactorily perform their jobs.

Troubled employees are characterized by productivity decline, absenteeism increases,

ignoring/disobeying company policies, procedures, and rules etc. When these signs are noticed,
intervention is usually necessary. Managers need to initially try to aid employees through
counselling. Work related problems are usually dealt with at the supervisory level, and if needed,
with the assistance of the human resource department.

Employee counselling is also regarded as a major activity in the promotion of employee

development. Counselling sessions are held in organizations for the purpose of handling
grievances, dealing with discipline matters, improving performance, disseminating information
about benefits, policies and procedures, and helping employees in career development and
retirement planning. Human resource managers also frequently find themselves settling disputes
and clarifying communication difficulties. In fact, besides the formal counselling sessions,
managers routinely conduct informal counselling to help and encourage their workers

If counseling fails to address the problems, disciplinary procedures will be taken. These
disciplinary procedures are meant to foster positive behaviour through formalized systems that
comprises of oral and written warnings, suspensions, and ultimately discharge. By and large, the

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major role of counseling is to help employees recognize problems and seek appropriate
assistance.

13.12. Review Questions

1. Explain the difference between performance appraisal and performance management,

2. Describe methods of appraisals and problems in appraisal,

3. Describe KPI and BSC as strategic performance management tools. Explain the
disciplinary action guidelines.

4. Discuss and understand the appraisal process

5. What is employee counseling and what is its role in the employment relationship?

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UNIT 14: OVERVIEW OF STRATEGIC HUMAN RESOURCE
MANAGEMENT
14.1. Introduction
Strategic Human Resource Management (SHRM) has been, and remains, one of the most
powerful and influential ideas to have emerged in the field of business and management during
the past twenty-five years. Policy makers at government level have drawn upon the idea in order
to promote ‘high performance workplaces’ and ‘human capital management’. Within business
Corporations, the idea that the way in which people are managed could be one of, if not the most
crucial factor in the whole array of competitiveness-inducing variables, has become a widely
accepted proposition during this period. Nonetheless, still there are changing global trends as
well as challenges that the field of SHRM has to face and be proactive. Thus, this module
presents the future global SHRM trends and challenges for SHRM.

Accordingly, this unit comprises of two main issues; the future Global SHRM trends and the
challenges for SHRM

14.2. Unit Objectives

After successfully completing this unit, you will be able to:

 Explain the changing trends in SHRM,

 Identify variables that will engender a different perspective to SHRM,

 Explain the challenges of SHRM from the viewpoints of the changing future workforce
and changing nature of work

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 14.3. Future Global SHRM Trends
Recent studies show that there are changing circumstances in the business world that strategic
human resource management should lend itself to accommodate those changes. The changing
nature of work and the worker include the following:

 Demographic shifts pose conflicting challenges

An ageing population is very apparent throughout the developed world, raising concerns that the
remaining working population will not be able to bear the strain of increased expenditure on
elderly care and pensions. Governments have responded to this reality through immigration and
by raising the pensionable age. Meanwhile, much of the developing world is confronting a very
different demographic challenge, and is seeking to devise the appropriate education systems to
prepare an overwhelmingly young population for the workplace.

 Young populations neither in education nor employment will elevate concerns of a lost
generation and the potential for social and political unrest in the near future

Many commentators have argued that mass youth unemployment was a contributing catalyst for
the recent social and political turmoil in the Middle East and Southern Europe. Similar concerns
will arise throughout the world whenever there is insufficient supply of employment
opportunities to meet the demand of young populations. With a very significant proportion of the
youth population unemployed or underemployed, the future workforce may be negatively
impacted and lead to a shrinking labour-force participation.

 Burgeoning workplace diversity requires sophisticated managerial response

Diversity is on the rise throughout the organizational world, not just along gender, generational
and cultural lines, but in companies’ working arrangements with employees. Longer life spans
are likely to result in employees staying in the workplace until a later age. Meanwhile, expert
opinion and workplace surveys continue to show that Generation Y or millennials, the cohort of
employees who have entered the workplace in recent years, are restless and difficult to retain.
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 Women are poised to enter the workplace in the developing world in vast numbers, posing
disparate challenges for companies that have to date failed to find a way to utilize female
potential fully. And a substantial proportion of these women will form a part of a growing army
of temporary and part-time workers, many of whom are not physically present in the workplace.
Such a surge in workplace diversity will necessitate a multi-layered, carefully thought out,
managerial approach as companies strive to get the most out of their people in a highly
competitive environment.

 Disconnect between educational standards and organizational demand

Educational authorities are battling to remold their systems according to the needs of the modern
economy. The expansion in tertiary education in the developing world is rapid. China and India
alone will account for 40 percent of young people with a tertiary education in all G20 and OECD
countries by the year 2020. However, doubts persist about the quality of graduates in certain
regions and countries. Technical and engineering skills, and the soft skills that facilitate
integration into the workforce, are both deemed in short supply. Major companies are turning to
rigorous internal training systems to bridge the gap between education and the demands of
the modern workplace. Governments, meanwhile, are moving to relax immigration requirements
for the highly skilled.

 Services sector on the rise globally at the expense of agriculture and industry

With incomes rising in both the developed and developing world, demand for basic services,
healthcare and education increases, resulting in the expansion of the services sector and the
declining importance of industry and agriculture. In the developing world, the growth in the
services sector has been dramatic. The proportion of jobs contributed by the services sector in
China, for example, has almost doubled in the last two decades. In the developed world, the
employment share of the services sector has also been on an upward curve, although
moving more gradually from a much higher base.

 Technology transforms workforce composition and culture

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 The proliferation of communication technology is slowly diminishing the proportion of
employees who work from a central company location. Remote working is on the rise,
particularly in the developing world, enabling companies to access a deeper pool of available
labor. Technology also allows companies to maintain contact with clients in distant lands,
permitting the global expansion they crave. However, the technology-dependent
crossborder teams that now permeate major companies throw up wholly new and complex
managerial challenges, such as how to exploit cultural differences for maximum economic
advantage, while avoiding potential discord and conflict.

 Wage expectations conflict with increased focus on shareholder value

While large increases in productivity have created substantial economic growth over the last few
decades, workers’ wages have not kept pace. Several factors explain this phenomenon.
Technological advances allow higher returns with a fewer number of workers; globalization has
allowed companies to look for cheaper labor elsewhere; and the focus on shareholder value has
led to pressure for higher profits. This pressure on wages is likely to continue, resulting in lower
expectations from workers and possibly to reduced expenditure by individuals on education.

 Inequality on the rise as technology decimates the mid-skilled tier

Technological advances have also automated many routine tasks formerly performed by mid-
skilled workers. At the same time, companies bemoan a shortage of highly skilled workers in
certain positions, such as technical workers and the senior executives entrusted with corporate
decision-making. With automation of jobs set to expand further as technology advances, and a
persistent skills deficit for specialized jobs, inequality is likely to increase, raising widespread
concerns about social and political stability.

 Companies balance pros and cons of investment in new regions of development

Companies in the developed world are constantly investigating where best to outsource their
operations. China’s steep rise in wages has made it a less obvious destination for the outsourcing
of production. It is likely that India and Brazil will further consolidate their already strong

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position over the next five years, with relatively new players, such as Vietnam and Indonesia,
also becoming more attractive. Central and Eastern Europe, meanwhile, is building its appeal as
an outsourcing destination, particularly for highly skilled work. HR managers will need to find
sufficiently reliable data and analytics about human-capital issues in new potential markets in
order to make sound strategic business decisions and minimize risk.

14.4. Challenges for SHRM

This section has two parts that explains the challenges for SHRM from the view points of (1) the
changing nature of the future workforce and (2) the changing nature of work itself.

CHALLENGES FOR SHRM: THE FUTURE WORKFORCE

Companies must navigate the choppy waters of a complex global economy, and position
themselves to attract and retain the workers they will need on this journey. From the view point
of SHRM, modern firms will face several challenges from both the future workforce and from
the changing nature of work itself. As a result, HR managers will need to get ahead of the game
by understanding these major future demographic, technological and societal shifts, and then
preparing themselves accordingly.

 The Nature of the worker

HR challenge: Adapting to a rapidly changing worker profile

Sweeping demographic changes across both the developed and developing world will place
greater pressure on both the government and private sector to initiate and implement creative
solutions to educate, integrate and retain a rapidly changing and diverse working population.

With hundreds of millions of women predicted to pour into the global workforce in the coming
years, and temporary and part-time workers a significant and seemingly permanent fixture,
companies need to adapt further to a new breed of employee. When you add the issues of a
multi-generational workforce and growing cultural diversity, it is no surprise that people
management is cited to be by far the most substantial challenge facing companies over the next
five to ten years.

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Ageing populations across the globe will continue to pose a challenge for businesses. On the one
hand, experienced employees are departing the workforce, leaving a leadership void. On the
other hand, many older workers, particularly those in the US and other industrialized countries,
plan to carry on working well past the traditional retirement age. Many will simply need
to continue earning, as social safety nets, pensions and other benefits will no longer be adequate
or available. But HR will need to establish more targeted incentive structures to keep less
committed older workers in the workforce. Companies will also need to
anticipate and assess which new skills and training older employees will require, particularly in
the realm of technology where they may feel less comfortable than many of their younger
colleagues.

Even if more baby boomers can be persuaded to stay around for longer, many companies will
feel vulnerable as they leave the workforce in droves over the next few years. Companies will
need to manage the successful transfer of experience and knowledge to younger generations at
the outset of their careers. If demand continues to outstrip supply for certain positions,
companies will also need to rethink how to hire junior workers into positions requiring more
tenure and experience, and determine what additional training will be necessary.

Preparing the world’s youth for the workplace will certainly present challenges. In countries with
high youth unemployment rates, there are increased concerns that many young people will leave
the workforce permanently, producing a lost generation. Meanwhile, the skills and education of
the millennials who remain in the workforce must always be relevant and attractive to
employers. As we see below, governments, companies and educational institutions will need to
create solutions that reform the educational system, and prepare the future workforce
for employment opportunities.

Besides, Companies have so far struggled to maximize the potential of women, who are
dramatically under-represented at the top of major companies. Perhaps most importantly,
companies will need to find a way to keep these high-potential women in the fold, committed
and interested, if and when they take a temporary break from full-time work due to
family commitments. Continued dialogue with mentors, and involving them in discrete, but

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strategically important, home-based projects with senior management access, may both help.
More broadly, HR will have to meet women’s demands for equal pay and promotions in addition
to customized benefits and perks like daycare, flexible hours, maternity leave and child
healthcare. With employee benefits, one size does not fit all. The incentive systems of the past no
longer satisfy all employees, especially with the labor force expanding to include a more varied
and international workforce.

HR challenge: Understanding the subtleties of workers’ qualifications

As the definition of work continues to evolve, the range of skills that employees need have not
necessarily been provided by traditional educational systems. Recent surveys indicated that
executives reported that the current disconnect between the skills fostered by education and those
they actually need will represent a very considerable obstacle in the coming years.

This makes it difficult for HR to assess applicants’ qualifications properly. To complicate

matters further, there is lack of standardization in education, especially in a global context.
As businesses expand and hire beyond borders, the need for HR to scrutinize job qualifications
carefully becomes ever more important. Major disparities exist between various regions
and institutions in individual countries, as well as between countries. The ability to understand
these differences will enable HR to make more informed hiring decisions. Through
collaboration with other functions of the organization, HR can increase its understanding of
qualifications and skill sets to ensure that hired employees are capable of executing their
functions.

Population decline, due to lower birth rates, along with stagnant educational reform, have
prompted many organizations to fear future skills shortages, particularly in certain roles. A 2012
Economist Intelligence Unit survey of senior executives throughout the world revealed that the
most problematic recruitment challenges, by a substantial margin, relate to technical/engineering
roles, and to the strategy and corporate-development function.

Strategic vision and the ability to handle complexity were cited to be the most difficult skills to
find among senior executives, presumably also the reason why strategic roles are deemed so

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 problematic to fill. Companies are clearly struggling to recruit those with the apparently rare
ability to guide them through an unpredictable and competitive external environment. For
positions lower down the organization, executives are particularly perturbed by a lack of soft
skills, such as creativity, adaptability and good interpersonal communication. Without these
skills, vast swathes of the graduate population in some emerging markets are deemed
unemployable.

How do companies overcome these twin shortages of technical and engineering skills on the one
hand and soft skills on the other? A multi-faceted approach is necessary, as companies take a
more proactive role in securing the qualifications they are looking for. First, companies will need
to foster a close relationship and dialogue with educational institutions and governments. This
collaboration could prove pivotal in equipping the future workforce with the necessary skills to
bridge the labor-market gap. Organizations can influence the material being taught through
redesigning curricula with policymakers, and developing creative education solutions. Indeed,
they may explore potential partnerships with universities to provide technical and vocational-
skills training, or continuous education opportunities. Another method of counteracting any
deficiencies in the educational system is to establish an efficient internal training and
development system.

 HR challenge: Retaining and engaging a changing workforce

As the demographic composition of the workforce changes, their motivations and expectations
evolve too. It is imperative that HR understands what is most valued by these workers. Is it
compensation, or prestige, or perhaps autonomy at work? In many cases, HR will have to adapt
their incentives, benefits policies, and retention strategies for workers that are not just driven by
financial compensation. It is not enough simply to recruit able staff. Companies have to make
sure that their people are committed, productive, and do not leave after a short period, incurring
substantial turnover costs and wasting all previous training invested in them. This will be no easy
task. Much of the workforce is not engaged in their work; “not engaged” indicating that they
lack motivation. Generation Y, as they are commonly known, are reputed to have
low organizational loyalty and are eager to make an impact. Even if these younger, skilled

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workers are committed, retaining them is a major challenge and HR will have to explore varied
retention techniques, adapted to the preferences of the relevant individual.

Motivational strategies for younger workers are particularly necessary in regions of the
world where there is intense competition for candidates with the right skills. Keeping salary costs
down to a commercially acceptable level will be a challenge. etaining the older workers who
wish to delay retirement over the coming years may be less of an issue. However, getting the
best out of them might be.

CHALLENGES FOR SHRM: THE CHANGING NATURE OF WORK

 The Nature of work
HR challenge: Aligning technology best practices to global management strategy

In the last 20 years, new communication technology, such as email, mobile phones and web and
videoconferencing has not only facilitated closer contact with clients in distant lands, it has
allowed multinational companies to form cross-border teams, where colleagues can
communicate with each other constantly, despite not being located in the same place. In short,
technology has enabled the international expansion that companies seek.

Saving on business travel and relocation costs for individual workers have been other major
benefits. Virtual teams also significantly enlarge the pool of available knowledge. Individual
team members can offer extensive experience with different markets and an understanding
of geographically disparate customer demands and sensitivities. An overwhelming majority of
executives in recent years agreed that a diverse workforce improves their company’s ability to
capture and retain a diverse client base. Culturally diverse virtual teams also stimulate innovation
and creativity. Groupthink—decision-making within a group, characterized by uncritical
conformity—is more likely within a team composed of people from the same background.

Technology’s evolving role in redefining what work means will require firms to come up with
new and innovative strategies to manage their increasingly mobile workforce. These strategies
will need to help mobile workers remain engaged and connected to the wider organization they
serve. An improved ICT infrastructure and increased usage in developing nations will certainly

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continue to expand the availability of local talent for recruiters and HR managers. However,
challenges will persist, as many potential labor-market participants will lack access or adequate
technological literacy. HR departments within major global firms will need to engage with local
governments, universities, community colleges and vocational schools to offer ongoing training
for all existing and new employees as technologies change.

With companies now engaging with a flexible and mobile workforce, performance measures will
have to be revamped. Once managers prioritize outcomes, and not just productivity or process,
new evaluation models will be necessary. HR will also need to assess the most effective methods
for managing and communicating with teleworkers, particularly across borders.

HR challenge: Managing the risks of a global operation

Despite their clear benefits and growing importance, managing remote, cross-border teams
presents management challenges that the corporate world is still learning to tackle. A 2009
Economist Intelligence Unit executive survey reported that one-third of virtual teams are thought
to be badly managed.

There are some obvious practical obstacles in running a virtual team. For example, all the
members must feel comfortable using all the various communication technologies. Time
differences can also complicate organization and co-ordination.

Human interaction may be less smooth without face-to-face communication. Natural

social bonds are more difficult to develop when people only meet virtually. This makes building
an environment of trust and cooperation more problematic, resulting in regular
misunderstandings. When disagreements do arise, the less frequent contact makes them harder to
resolve.

However, a 2009 Economist Intelligence Unit survey found that it is cultural and
linguistic differences that present by far the most pressing challenge for virtual-team
managers. Differences in culture appear in a broad range of attitudes and values, greatly
increasing the potential for a breakdown in team cohesiveness. Such differences span a wide
range of areas, including attitudes toward authority, teamwork and working hours. Cultural and
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linguistic misunderstandings, both internally and with prospective clients, can be very costly.
Many transnational companies admit that communication misunderstandings have stood in the
way of a major cross-border transaction, incurring significant losses for their company. The
failed 1998 merger of two car manufacturers, Germany’s Daimler-Benz AG and the American
Chrysler Corporation, provides a prominent illustration of the economic costs of cultural conflict.
Several commentators have suggested that Daimler’s formal and hierarchical structure
clashed irreconcilably with Chrysler’s more relaxed and less differential approach, resulting
in defections of key personnel and the eventual breakdown of the relationship.

Cross-border teamwork is so important to companies’ performance that it cannot be left to

individual managers to grapple with by themselves. They will need assistance and guidance on
how to approach a very different managerial challenge from those they have faced with
traditional co-located teams.

Adequate financial resources will need to be allocated to the IT infrastructure, which is such a
crucial element in the proper functioning of a virtual team. Leadership training in topics such as
the resolution of conflict, instilling purpose, and how to ensure mutual trust and clear
communication within a far-flung team are essential. Organizations also need to advise managers
on the selection of team members for a cross-border team, with a greater emphasis on the ability
to handle cultural differences than is necessary for traditional teams.

Over the next five to ten years, employers will need to implement more sophisticated recruitment
policies as the global talent pool expands and operating risks (geopolitical, legal and financial)
become more complex. They will also need to build a common work culture, encompassing
similar ethics and values, among people who hail from very different cultures.

HR will need to become better integrated into their firm’s overall risk-management and business-
continuity planning. Specifically, it will have to be more involved in assessing, and preparing
for, disruptive events, such as natural disasters, IT-system or operations outages, and
interruptions to increasingly global and complex supply chains. With regard to supply chains,
HR will have to be more attuned to corporate social-responsibility practices. As the number of
global suppliers and subcontractors increases along both the production and distribution chain,
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HR will need to understand and anticipate the types of risks (such as use of child labor, toxic or
substandard components, bribery or other illegal business practices) that could have a negative
impact on the firm’s brand and company image.

At the crossroads: Conflicting expectations of workers and the workplace

HR challenge: Hiring and retaining talent while lowering labor costs

Large labor-productivity gains over the past few decades have not been matched by comparable
wage gains. While both increased technology adoption and globalization contribute to this
phenomenon, companies’ increased focus on maximizing shareholders’ value has also been a
substantial factor. Furthermore, looser labor laws and decreased union rates have decreased
workers’ bargaining power. While this trend has been in existence for a while, pressure across
corporations to curb labor costs has only become more acute with the latest global financial
crisis.

Retention of talent will prove challenging, as employees feel that stellar performances are not
being rewarded appropriately. While their employers continue to have higher work expectations,
employees’ efforts are not necessarily translating into compensation they deem to be satisfactory.
This is creating a challenge for HR as turnover rates increase. Finding and hiring talent will not
prove any easier, as firms continue to decrease their labor investment. On a day-to-day basis,
workers may not be as motivated and engaged. HR will have to continue to explore retention
strategies and benefits models that focus on factors beyond financial compensation.

Companies may often prefer to have flexible arrangements with employees and avoid costly
employee benefits by hiring non-traditional workers. However, developing and engaging the
legions of part-time, temporary and freelance workers at all levels of the company is a growing
issue for companies. As we have seen, many part-time staff, and most temporary staff, would
rather be working on a more long-term footing. To complicate matters, temporary workers often
find themselves in “triangular arrangements,” where it is unclear whether their organizational
loyalties lie with temporary agencies or the hiring organization. The costs of less engaged staff
with lower organizational loyalty—poor customer service, less attention to quality, little

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commitment to the company, and higher levels of turnover—threaten to be more substantial than
the savings incurred by resorting to flexible employees.

Individual managers will, therefore, need overarching guidance on how to get the most out of
non-traditional staff. Making them feel part of the company, getting feedback from past workers
on how to improve the nontraditional working arrangement, and ensuring that the recruitment
process is equally rigorous for all staff, whatever the nature of their contract, may all form part of
any co-ordinated approach.

HR will find it difficult to reward high-performing part-time and flexible workers, and will have
to explore methods to offer benefits or incentives to retain them in the pipeline for future work.
Given that such contracts often specify work outcome, rather than the process itself, there is less
ongoing engagement between a manager and contractor. This makes it more difficult for
managers to review work using traditional performance-review systems.

HR challenge: Winning the war for talent

People migration, both cross-border and within countries, adds another layer of complexity to the
labor market. Governments play a big role in determining and controlling that flow of labor.
However, as organizations continue to expand globally and face skills shortages locally, many
require a more mobile workforce. Therefore, organizations and governments alike will seek to
understand and gather data on how migration patterns are affecting the composition of the labor
market, and how educational attainments and skill sets are shifting.

Governments are often torn between the need to import the necessary skills for the economy, and
populist pressure to curb immigration. But that pressure normally focuses on unskilled
immigrants, and the associated strains on public services and the benefits system. Many
companies are devoting more resources to lobbying for a relaxation of curbs on the most skilled
workers.

Where more stringent migration laws exist, HR may have a limited talent pool from which to
hire, often making it challenging to hire the right people. In countries with looser policies, HR

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will have to define hiring strategies and outreach programs to be able to tap into the larger
workforce pool.

As well as integrating different cultures and nationalities into their workforce, HR will have to
grasp the intricacies of migration legislation to ensure that its employees are allowed to
participate legally in the workforce. Getting acquainted and abiding by migration laws is not
only a costly process, often requiring the hiring of many lawyers and exorbitant visa fees, but
often a very complex one, with both policies and national sentiments continuing to fluctuate.

To incentivize employees to work overseas, HR needs to redefine mobility strategies and meet
deployment demands, including access to schooling and medical facilities, and comparable
standards of living to those experienced in their home country. Research shows that the inability
of an expat’s family to acclimatize to a new environment is the most frequent cause of the failure
of an employee assignment abroad. Companies will need to provide imaginative support to
spouses and children, as well as their employees, if they are serious about global mobility.

As businesses expand to countries with more politically unstable environments or with higher
levels of risk, businesses may find it difficult to find employees who are willing to move to these
locations. The proper security measures must be in place.

In summary, with major challenging predictions ahead, it is assumed that many things we
now take for granted about the modern-day workplace will soon diminish or disappear
completely. Savvy individuals will seek to stay ahead of the game before events overtake them,
acquiring the skills and experience that the companies of the future will need. To do this, they
will have to rely principally on their good sense and instinct. Major companies, however, have
no such excuse. They have the resources and the collective manpower to understand and even
fashion the future, and then modify their organizations accordingly.

So many fundamental issues—changes in the age, cultural and gender profile of workers,
flexible working, skills shortages, technological impact, and the decline of the job for life— now
confront the HR strategist. It has surely never been a more exciting or interesting time to be one.
People are the very lifeblood of a knowledge economy. And those people, along with their

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working routine and the nature of their jobs, are changing in front of our eyes. Will companies be
sufficiently alert and nimble to respond to this huge challenge?

14.5. Review Questions

1. What are the changing trends in SHRM?

2. Explain the contemporary variables that cause a different perspective to SHRM.

3. Explain the challenges of SHRM from the viewpoints of the changing future
workforce and changing nature of work

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