GULU UNIVERSITY FACULTY OF BUSINESS & DEVELOPMENT STUDIES

DEPARTMENT OF ACCOUNTING AND FINANCE BUSINESS & ECONOMIC

ENVIRONMENT 2025

THE HUMAN RESOURCE FUNCTION

This topic covers the following:

• Meaning and evolution of Human Resource management

• Human Resource Planning, Recruitment, Selection, Training, and Development.

• Motivation and Performance Appraisal
An overview of Human Resource Management (HRM)

Any organization will exist to either make a profit or offer a service or goods. This is achieved by
using the factors of production, namely:

➢ Labor (Human resources)

➢ Land

➢ Capital

➢ Entrepreneurship

Of all these, Labor/HR is the most important since all the others depend on it.

Human resource management refers to the way of ensuring that the employees of a company are
used in such a way that the employer obtains the greatest possible benefit from their abilities &
the employees obtain both material & psychological rewards from their work

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Evolution of HRM

Pre-Industrial era

• Agricultural activities

• Small businesses

• Close working relationships

Industrialization era

• immigration was high

• employment “problem”

• labor was viewed as lazy and irresponsible

• drive system

• goal was to get as much productivity as humanly possible

World War I

• Created a need for training of replacements

• There was Concern about turnover

1917-18: 1st formal personnel department created to deal with tight labor market, high turnover,
waste and inefficiency, widespread strikes, union growth, government intervention, takeovers
1920s

• 1920s positive personnel policies

• Teams & Cooperation

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• HR used to “win” worker cooperation through ensuring job security, benefits, etc.

1930s: Industrial Relations

• National Labor Relations Act

• Rise of industrial organizing

• Union growth

1940s: World War II

• High labor demand - creation of fringe benefits

• Wage-Price Controls

• High strike period followed the war

1930’-50’s:

“Human Relations” recognizes that there are psychological and social influences to worker
satisfaction, cooperation, performance; first focus on groups (not teams).

1960s & 1970s: Legislative Era

• Civil Rights Act of 1964

• Other Employment Laws followed: Pension Reform, Pregnancy Discrimination Act, Age
Discrimination Act, Disabilities Act etc

• Concern shifted to dealing with regulation

• 1960s: Work design, rather than communication and cooperation in groups, is the key to
increasing worker motivation. Small work group design leads to greater employee effort,

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 group work provides opportunities for “self-actualization”; work is more interesting and
fulfilling.

• 1970’s: Quality of Work Life (QWL): emphasis on the value of human resources. PM
becomes HR.

• 1990’s-Present: TQM, re-engineering, globalization, strategic HR, new technologies,

diversity, contingency models, holistic approaches to HR. HRM models include “high
involvement”, “high commitment”, “high performance work system”, “innovative work
practices”. HR becomes HRM.

Objectives of HRM

The primary objective of HRM is to ensure availability of right people for right jobs at right
time so as to effectively achieve organizational goals.

Sub objectives to achieve this primary objective are

➢ To help the organization to achieve its goal effectively and efficiently by providing competent
and motivated employees.

➢ To utilize the available human resources effectively.

➢ To increase employees job satisfaction & self-actualization.

➢ To develop and maintain the quality of work life (QWL)

➢ To establish and maintain cordial relations between employees and management.

➢ To reconcile individual/group goals with organizational goals.

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HUMAN RESOURCE PLANNING

Human Resource planning is defined as the process of forecasting or projecting the human
resource needs of the organization both within present and future time consideration. It is taken
as a process of getting the right number of qualified people into the right job at the right time
within the organization system. In other words, it is a system marching the supply and demand
internally and externally in a given time.

The objective of human resource planning is to ensure the best fit between employees and jobs
while avoiding manpower shortages or surpluses.

Human resources planning process

The four key steps of the human resources planning process are analyzing present labor supply,
forecasting labor demand, balancing projected labor demand with supply and supporting
organizational goals as explained below.

Analyzing Present Conditions of Labor Supply

The first step of human resource planning is to identify the company's strengths and weaknesses
in the current labor pool. This is when a company performs a comprehensive audit of the skills,
demographics, qualifications, experience and compensation of every worker. HR then has to
determine if these statistics fit in line with the company's goals.

Forecasting Demand

In undertaking forecasting, HR managers may examine market trends, industry analyses and

technological improvements to try to come up with ways to meet the company's goals.
Forecasting possible retirements is also one major facet that needs to be considered when
businesses assess future staffing levels.

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Striking a Balance

The next step involves striking a balance between supply and demand. At this point, HR creates a
gap analysis that lays out specific needs to narrow the supply of the company's labor versus
future demand.
Integrating the Plan

The overall goal of HR planning is to have the optimal number of staff to make the most money

for the company. Because the goals and strategies of the company change over time, human
resource planning is a regular occurrence. The answers to these questions let HR determine how
to proceed, which is the final phase of the human resources planning process. HR must now take
practical steps to integrate its plan with the rest of the company. The department needs a budget,
the ability to implement the plan and a collaborative effort with all departments to make the plan
happen.
RECRUITMENT

The management function of employment involves hiring personnel required to work in the
organization and this is determined through man power planning or Human Resource Planning.
The personnel officer therefore identifies various sources of recruitment a way of filling
vacancies which exist in the Organization.

Edwin B. Fillipo defines recruitment as a process of searching for prospective employees through
encouraging them to apply for different positions which exist in the organization. Recruitment is
therefore taken as an activity of getting interested applicants to apply for jobs which exist in the
organization and the overall objective of recruitment is attracting desired personnel to serve in
the organization.

Steps/Processes in Recruitment

Recruitment as a process involves many steps, which include the following;

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i). Identifying the different sources of labor supply. These sources must be valid enough to
provide competent labor force to satisfy the employment needs of the organization.

ii). Assessing the validity of different sources of Labor supply. This involves evaluating
different sources through which human resources can be brought in the organization. The
evaluation process of recruitment should be comprehensive enough to cover all the sources of
recruitment.

iii). Choosing the most suitable source and this involves making conscious decision /choice
from the available alternatives. Due consideration must be taken in choosing only the most
credible source of recruitment for the organization.

iv). Inviting applications from prospective candidates for the vacant posts in the
organization. This can be through internal or external sources of recruitment provided it can fill
the available positions in the organizations.

Sources of Recruitment

There are various sources of recruitment but all these can be grouped into two different sources;

• a. Internal sources of recruitment (From within the organization)

• b. External sources of recruitment (From outside the organization).

Internal sources of Recruitment

Internal recruitment refers to filling of job vacancies in the organization through internal rotation
of the personnel within the organization. This rotation involves transfer, promotion and demotion
of the personnel and as such internal recruitment does not require addition of work force from
outside the organization.
Transfer relates to shifting of an employee from one job to another or from one work station to
another but with similar status, responsibilities and pay/benefits.
Promotion however relates to shifting of an employee to a position carrying higher
responsibilities, status and pay/benefits.

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Demotion relates to reduction of employees work responsibilities, work status, ranks and
pay/benefits. However, demotion is rarely used as rotation measure but it sometimes applied as

punishment for misdeeds of an employee or inability of an employee to perform at a higher

position in the organization.

Merits/Benefits of Internal Recruitment

➢ It motivates the employees to improve on their work performance because of the

increased work

➢ responsibilities, work status, rank and pay/benefits. This however is applicable only to
promotion as a rotation measure in Human Resource.

➢ It also creates a sense of job security to the employees in the organization. This comes
mostly after

➢ promotion and transfer because it reflects trust in the employee by the management. The
employees will therefore rest assured that they will serve the organization for a long time.

➢ Internal recruitment promotes better relationship between the management and the
employee’s in

➢ the organization. This therefore creates industrial peace and stability because of the
prevailing
➢ ➢ harmony in the organization.
➢ This source of recruitment reduces high staff turnover since different positions in the
organizations are filled by those already within the system. This is mostly applicable to
promotion which is a great motivation factor for the employees.

➢ Internal recruitment is also a cheaper method of acquiring desired personnel in the ranks
of the organization. This is because the employees transferred or promoted are already
part

of the staffing system in the organization. Their recruitment therefore may not require
additional cost other than salary increment.

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Demerits of Internal Recruitment

➢ Internal recruitment reduces the scope of fresh talents and outside experience to facilitate
organizational responsibilities. This is because of the set condition of employing those already
within the staffing system of the organization.

➢ This source of recruitment may also encourage favoritism and nepotism in the organization.

This is because promotion, transfer and demotion may be undertaken with bias, malice and favor
on certain candidates in the organization.

➢ Internal recruitment may also hamper the spirit of competition among the employees. This is
due to the fact that employees do not participate in making decision concerning promotion,
transfer and demotion. They cannot therefore compete favorably since the whole process is
undertaken by the management.

➢ Internal recruitment may also increase on jealousy and sabotage hence less productivity in the
organization. This is most especially when promotion and transfers are not undertaken
transparently.

External Sources of Recruitment

Many suitable candidates are not available from the internal recruitment source and this propels
organizations to use external source of recruitment for various positions in the organization.

External recruitment is a process of filling vacancies that exist in the organization through
attracting outside candidates to apply for jobs most especially at the lower ranks or entry level. It
is also used to replace staffs who have left the organization for various reasons.

The sources of external recruitment include the following

Recruitment at the gate. This is a method of direct recruitment by placing a notice at the
organization gate and specifying the details of the jobs available in the organization. This system
is normally used to fill position of casual nature in the organization and tends to be very

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temporary. This may be suitable for recruiting unskilled/semi-skilled temporary workers and
volunteers/trainees who may be interested to undertake work related training in the organization.

Advertisement. The usual practice for external recruitment is to advertise for particular jobs
which exist in the organization. This method is mostly associated with large organizations which
may require senior or experienced staff to take work responsibilities in the organization.
Advertisement for job positions may be published in the newspapers, trade journals or
periodicals of management associations. Job advertisement may also be done through electronic
media like television, radio and internet.

Job advertisement should include job description, job requirements detailing the qualifications
required, experience needed, responsibilities to be undertaken, description of the organization
placing the advertisement and the work location where the prospective employees will be based.

Employment Exchange Program. This refers to a network employment exchange in the

country where different organizations inter-change workers with each other for purpose of
experience, quality assurance and attracting fresh talents. This exchange program should be
based on clear understanding between these organizations so as to reduce conflict between them.

This employment exchange program is most suitable for academic institutions, security
organizations and journalism.

Educational Institutions. The source of personnel under educational institutions relates to

campus/college recruitment of new graduates from the universities, colleges or any other
academic institutions. This method requires employees to maintain close contact with the
educational institutions and the students are selected during the course of their studies. In
developed countries specialized professionals like engineers, doctors, legal practitioners,
management specialists, surgeons and pharmacists are recruited using this method.

Casual call method of recruitment. This is where an employee is appointed for meeting short
term demand of human resource in the organization. Employees under this method are recruited
through referrals from a knowledgeable staff of the organization or any other person of influence
who may be aware of a potential candidate to fill a missing gap in the organization. However,

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this method is only applicable for jobs at entry level which may not require high commitment or
skills and experience from such a candidate.

Labour Contractors/Human Resource Firms. Recruitment may also take place through the
human resource firms. These firms recruit employees for the organizations at a fee agreed upon
by both the organization and the firm undertaking the recruitment. This method is much
preferred in a situation where there are many vacancies to be filled and it is also highly
recommended for new organizations which may not have valid structures for the employees
‘recruitment. In Uganda, notable examples of Human Resource firms include Price water house
coopers, Deloitte and Touch, Akilli Uganda Limited, Future Option and Dama Consults.

Unsolicited Applicants. Unsolicited applicants are those persons after attaining a certain
qualification drop their application for employment in a given organization. When jobs suitable
for these applicants are available, they are considered for employment on the basis of the
documents they have delivered to the organization. This method is however recommended for
jobs at the entry level in the organization.

Merits/Benefits of External Recruitment.

➢ External recruitment provides avenue for appointment of employees who are not accustomed
to the negative culture of the organization. This is the best method of recruiting people who
are not

➢ brain washed by the negative forces within the organization.

➢ External recruitment provides wider scope for potential employees and this enables the
organization to choose qualified personnel to take up work responsibilities which exist in the
organization.

➢ External recruitment promotes good corporate image of the organization because of the
consideration accorded to the prospective employees outside the organization.

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Demerits

➢ It is expensive

➢ Bad behavior may be recommitted since interview may fail to measure character

➢ It is time consuming

➢ It lowers productivity in the short run

➢ Demoralize existing staff

SELECTION

This is the process of choosing the best person for a particular job in the organization. It is taken
as a process of offering jobs to one or more candidates from among those who have applied for
the job in the organization. The purpose of selection is to ascertain the degree of qualities and
abilities of a prospective employees in terms of job requirements or what a particular job
demands. Steps in Selection

i). Receiving application or work samples

The application or work sample received after advertisement constitutes the first step and this is
where preliminary information about a certain candidate will be derived. It provides the basis
whether particular candidates should be considered for selection or out rightly rejected.

ii). Examine the application or work sample

All those who have applied for a job in the organization may not be suitable for it thus proper
examination of application or work sample is made to select the candidates who meet the
minimum

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qualification set so that they are called for the preliminary interview. The applicants who do not
meet the minimum requirements for the job should therefore out rightly be rejected and
communicated to.

iii). Preliminary interview

This is the first occasion for the applicants to come into contact with the company officials or the

management. During preliminary interview the employer tries to find out if the candidate is
physically and mentally fit for the job and some rejections are also made at this stage.
Preliminary interview should however be precise, courteous, perceptive and informal in general.
Under preliminary interview, candidates are simply asked about their qualifications, interest, age,
experience and other information relating to residential status.

iv). Selection Tests

This is conducted to measure the ability and skills of a candidate in terms of job requirements or
specification. It is broadly classified in to proficiency test, aptitude/skill test, dexterity or quotient
tests etc. All these are necessary in determining the work capability of a candidate in meeting the
job requirements.

v). Checking of References

A candidate applying for a job is generally required to give some referees or names of persons to
whom inquiries on qualifications, experience and general character will be made. Employers
normally make investigations by consulting the referees mentioned with the view of
understanding the candidates past employment records, performance, experience, strength and
weaknesses as well as his or her general conduct in life. This is meant to safeguard against hiring
wrong character for work in the organization.

vi). Employment Interview

It should be noted that every prospective candidate selected for this interview by one or more
persons for qualities such as motivation, intelligence, smartness and the overall attitude of the

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candidates. This interview is simply meant to confirm the person’s ability already shown during
selection test.
vii) Medical Examination

This is a process of health evaluation where a candidate is checked to find out his or her fitness
for the job. Although medical examination is an assessment criterion for selection, it should not
be used as a tool for rejecting a given candidate. Therefore, after medical examination, the
selected candidate is taken through orientation and there after deployed or posted in a given
position for work in the organization.

Methods of Selection

Application Blank/Form/ Letter/Curriculum Vitae.

This is the most common selection method which involves the prospective employee filling up
forms or submitting his or her Curriculum Vitae to the organization. This is a standard system

which request information from job applicants about their career development or experience,
education level or qualification, interest and general background. Application form or
Curriculum Vitae is used as a filter to eliminate other candidates and retain others for further
considerations. A good application blank must request only that information which are valid and
fair in respect to the specific job.

The use of Tests

There are different types of tests that can be used depending on the nature of the job and the
expertise or skills required. There is proficiency test which measures the candidates’ familiarity
with a given assignment in the organization, aptitude or skill test which measures the candidates’
ability or level of skills in undertaking a given work assignment in the organization and there is
also, dexterity test which measures the level of intelligence and memory of a particular candidate
for the job in the organization. There are other tests like personality test and physical fitness tests
which measure the person’s character or personality and physical fitness respectively. All these
types of tests can be used in selection singularly or in combination with each other.

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Interview

This is the most common selection technique and in its simplest form, interview is a formal
interaction between the applicant and the panel representing the organization. Interview may also
be relatively structured to cover fundamental issues like intelligence, experience, communication
skills, ability, attitude and even the general appearance of a given candidate.

However, for the interview to be successful in selecting the best candidate, the following
conditions must be met;
➢ First and foremost, interview should focus on knowledge, skills, ability and other
characteristics

➢ necessary for the job.

➢ It must also establish proper rating criteria which should be applied uniformly to all the
candidates being interviewed for a job in the organization.

➢ Interview should also be conducted under a relaxed atmosphere or physical environment. It

should be free from noise and should not instill fear in the candidates and for this reason,
interview should begin with general information and proceed later to more specific issues
concerning a given job in the organization.

➢ Interview should also be based on questions which were organized on the basis of the job
description. This is to ensure that questions asked are relevant to what the candidates will
undertake as their job assignment in the organization.

➢ Interview should also be based on the principle of meritocracy or equal opportunity for all the
candidates short listed for the job. It is important to note that interview will be irrelevant if
certain candidates are already favored by those conducting the interview on behalf of the
organization.

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Advantages of interview

Interview provides easier avenue for comparison of different candidates who participated in the
interview process. This will provide the best chance to select the right candidates for the job in
the organization.
Interview also provides opportunity to analyze a given candidate first hand. This is because it
provides rooms for probing and making necessary clarification.
Interview also gives room for the candidates to ask questions concerning the organization or the
jobs they will take in the organization. However, candidates must take care not to ask questions
that may impact negatively on their side.
It enables close examination and observation of a particular candidate’s behavior,
communication skills, attitude and even the dressing code. These aspects are also taken into
consideration in the final selection.

Disadvantages of using interview as a selection method

Interview is subject to bias as it depends on subjective judgment of the panelists. This is because
an interview may also over concentrate on a small disadvantage in denying a particular candidate

the job or over concentrate on small strength of a candidate which enables he or she to get a
given job.

It may not be poorly structured hence unable to get clear opinion from the candidate and this
affects the choice of the candidate who finally takes the job in the organization. These is due to
the fact that the questions asked are generally not straight forward and not clear for which no
appropriate answer can be given so as to judge whether a particular candidate is qualified or not
for the job in the organization.

Interview also tends to favor candidates who are more eloquent or fluent in speech yet they may
not necessarily be the most suitable candidate for the job. There is a general assumption that
those who speak with eloquence are more knowledgeable than those who are not. This personal
trait or characteristic may not apply in all jobs yet interview concentrates very much on the
ability to speak well.

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The Reference Check

It is a selection method used to screen outside job applicants and sometimes it is known as
background recommendation and it provides basic information regarding qualification,
character/integrity, ability or work capacity and any other information necessary for the job.
However, the use of reference check or background information can only be meaningful if the
person providing it had adequate opportunity to observe the candidates and be able to assess his
or her weaknesses and strength in relation to the job to be undertaken in the organization. This
should be undertaken with absolute honesty otherwise there will be little value of background
information in selection process.

Assessment Centers

Assessment Centers are specifically designed examination unit used to select managerial
employees to undertake work responsibilities in the management of the organization. Under the
assessment centers technique, prospective employees spend a considerable period under going
different examination related to the work they will be undertaking once they are recruited to
work in the organization.

Graphology Analysis Method of Selection.

This method originated from Europe and was most dominant in Italy and Germany. The heretical
basis of graphology is that an individual work capability and conduct can be seen from the style
and the nature of his hand writing. However, this graphology method does not have empirical
evidence to show that hand writing is connected to individual capability.

This method however is used in modern times for certain work responsibilities which require
neat hand writing like cashiers or bank tellers and to some extent teaching profession most
especially at elementary level.

Therefore, all these methods can be used singularly or in combination with each other in as far as
selection of personnel in the organization is concerned.

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HUMAN RESOURCE TRAINING AND DEVELOPMENT

Having selected the best suitable personnel for various activities in the organization, the
management should make necessary arrangement for their training and development. This is
because the fact that efficiency in the organization depends directly on the capability of its
personnel. This capability is enhanced depending on the type of training they have received from
the organization.

Training is the act of increasing the knowledge and skills of an employee for undertaking a
particular job in the organization. The basic purpose of training is to bring about change in
knowledge, skills and behavior of an employee. This fundamental objective can be accomplished
with improved knowledge, skill and attitude which help employees to know facts, policies,
procedures and regulations pertaining to their jobs.

Benefits of Training

To Employers

Better performance due to improved skills and knowledge hence expertise in undertaking key
assignments in the organization.
Reduce costs of production since training teaches workers to make economical use of materials.
This decrease the organization cost of operation in terms of materials to be used by the
employees in undertaking their assignment.

Training also ensures less supervision. Proper human resource training and development increase
the span of management because trained workers need less supervision as they work efficiently
towards realizing organizational goals. This therefore reduces the need for close supervision
since they are able to realize set objectives with minimal supervision from the management.

Long term stability with emphasis on flexibility in the organization. The availability of trained
workers ensures long term stability in the organization because each worker is able to undertake
various activities and this gives great support where workers are needed to undertake new
responsibility.

Good human resource relation/ interpersonal relation in the organization can also be achieved

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through training. This is due to the feeling that they are cared for by the organization and this
leads to improved relation among employees as well as the management/employer.

Training also promotes uniformity of procedures in undertaking work responsibilities in the

organization. This therefore leads to standardization of work responsibilities leading to efficient
realization of set objectives.

To Employees

Advancement in career. Training helps employees to advance their career as it provides new
knowledge and skills necessary for their undertaking in the organization.

Increased productivity of the employees. Training helps to improve performance of workers

which leads to increase wages / salary. This also promotes the economic welfare of the
employees working in the organization.

Training also promotes safety in undertaking work responsibility in the organization. Trained
workers are less prone to accidents as they know the use of various safety devices. This is most
especially in industrial production or any other mechanical work related assignment.

Training further promotes high morale of the employees. Trained employees have greater job
satisfaction as they understand their job well. This helps to increase their morale in undertaking
responsibility in the organization.

Opportunity for promotion is also enhanced due to improved skills acquired through different
training program undertaken by employees. This therefore increases their prospects for
promotion to higher positions in organization.

Increased mobility; trained workers can move from one job to another or even from one
organization to another in a bid to advance their careers. This is related to high demand for
specialized professionals who acquire their skills through training.

Types of Training

The most common types of training cited in human resource management are; a)
Induction training

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b) Refresher training/ retraining

c) Training for promotion

d) Apprenticeship training

e) Internship training.

Training Policies in an Organization

Much as training is considered to be the most important component of career development in an

organization, there is need to put in place appropriate conditions/policies which should guide the
organization in implementing the requirements for training. Therefore, the major policy issues or
conditions which must be considered in organizational training include the following;

The first policy issue concerns the objective of the training. It is very important that the
intention of conducting the training must be very clear and this should also be made known to all
the employees in the organization. This is because, unclear objectives affect the way the training
should be conducted which in turn affects selection of employees to benefit from such training.

Another policy issue in undertaking organizational training relates to consideration of equity.

This is noted as a condition to be fulfilled in designing training policy of the organization so as to
address imbalance which may derail the objective of undertaking the training.

There is also need to consider the issue of transparency in designing the training programme of
the organization. Therefore, available opportunities for training should be made known to all the
employees in the organization so as to give room for healthy competition of candidates to be
selected to participate in the training.

In designing the training policy of the organization, there is also need to consider the cost
element attached to the training program. It is highly recommended that all training programs
in the organization must be based on approved cost which the organization is actually able and
willing to pay. This will safeguard the organization from incurring high training cost beyond the
capacity of the organization.

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Another policy issue to be considered in the training programme of the organization is the need
for retention of the employees after acquiring the training. It is very important that that all
those employees who have benefitted from the training support offered by the organization
should first serve for agreed period of time before considering the option of resigning from the
rank of the organization. To guarantee fulfilment of this condition, the organization should put in
place the requirement for bonding which will promote the retention of such trained employees in
the service of the organization.

There is also need to consider the benefit of such training to both the organization and the
employees who are to participate in the training. It is very important for the organization to
put in place policy guidelines to first determine the importance of the training program in their
organization and this will safeguard the employees and the organization at large from
undertaking training programs which are insignificant in nature.

The capacity of the employee in successfully undertaking and completing the training must
also be considered when designing the training program in the organization. This is basically to
ensure that the employees recommended for the training are able to complete the training and use
the new skills for the development of the organization. When this is taken into consideration,
then it will mitigate the risk of wasting scarce resources in training employees who do not have
the capacity to successfully complete the training.

There is also need to consider the periodic framework of undertaking the organizational
training. It is very important that the organization spells out the time frame an employee should
undertake in completing a given training. The time frame should be realistic enough enable the
employee successfully complete the required training for the benefits of the organization and the
individual employees. This will therefore reduce chances of employees undertaking longer
period of time in completing a specified training.

COMPENSATION (WAGE AND SALARY)

There has been a lot of debate on what constitute a good reward system which should be
considered by organizations when compensating their employees. Byars L.L and Rue. L (2006)
simply looks at compensation as a reward system designed to pay for the labor and efforts of the

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employees in the organization. It also noted that compensation can be in terms of a wage or a
salary depending on the nature of the employment a person is undertaking in the organization.

A salary is therefore defined as a fixed reward to labor which does not change because of time or
piece of work done. The employees under salary system have clearly defined hierarchy of
earnings based on factors like seniority, qualification, performance and experience.

However, a wage is a reward to labor as a factor of production for the specific service rendered
to the organization. Wage earners are paid simply for the work they have done and not for any
personal characteristics or potential/quality they bring in the organization.

System/means of Compensation.

There are various means by which an organization can determine the pay of their employees but
the most recognized systems are the following;
Time Rate System.

This is a system of payment which considers the time spent in undertaking a given work
responsibility. Therefore, the final amount of money an employee receives as his/her pay is
determined on the basis of time which may be hourly, daily, weekly and monthly. This system
does not consider the amount of work done as the principle element of measure is the time spent
on the job.

Piece Rate System

This is a pay system which considers the amount of work undertaken by an employee and this
will be the basis of payment. Under this system, the principle element of measure is actually the
quantity of the work an employee has done for the organization. An employee is therefore paid a
fixed amount of money depending on the work done regardless of time spent in undertaking the
assignment.

Bonus Pay System.

This actually refers to payment over and above the agreed rate of payment due to extra efforts of

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an employee in undertaking work assignment in the organization. This system applies to both
piece rate and time rate since it considers extra payment for any extra efforts an employee has
committed

in undertaking work responsibilities and this may come in terms of over time payment for time
rate system and extra load payment for piece rate system. The overall objective of introducing
bonus pay is to motivate the employees to put extra efforts when it is absolutely required by the
organization.

Rational for Compensation in an Organization

There are several reasons for the organizations to pay their employees salary or wages. The most
notable ones include the following;
Salary and wages serve as a reward for the labor of an employee in the organization. This is
because the employees devote their time, skills and the overall career in the employment and all
these must be rewarded for continuity of labor in the organization.

There is also need to motivate the employees to work with great commitment in the service of
the organization. It has been recognized by several management scholars that good payment
system is the best system of motivation for all categories of employees and as such organizations
pay employees to meet the objective of extrinsic motivation.

Organizations also pay salary/wages as a basis of maintaining good corporate image which
will enhance higher attractiveness of potential employees to work in the organization. This is
simply because of the contentment of those already in the employment of the organization due to
the payment they receive as reward for their labor. It should also be noted that poor pay system
affects the image of the organization because of constant conflict due to pay related factors.

Compensation is also undertaken because of the welfare consideration of the employees

working

in the organization. It should be recognized that employees work full time in the organization and
it is only logical that they derive their livelihood/basic welfare from their labor in the
organization.

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Another reason for payment of wages/salary is to gain desirable actions from those in the
employment of the organization. It is important to note that employees are able to follow rules
and show commitment to the organization because of the expectation of reward that comes in
form of payment and therefore non-payment of the reward leads to noncompliance to rules. This
is the reason why organizations with poor pay system experience a lot of indiscipline cases and
less commitment from their employees.

There is also the need to fulfil legal condition of employment which is legislated by the national

government. Compensation is a legal requirement of employment and as such no individual or

organization should employ any person without meeting the statutory requirement of
compensating for his/her labor in the organization.

Principles/Theories of Compensation

In the management of compensation system, there are several theories/principles which must be
considered to ensure efficiency in the compensation structure. These principles are summarized
as shown below.
The first principle relates to standard of living theory which emphasized that salary/wages
should be adequate to meet the welfare of those in the employment. This principle therefore
emphasized that the payment to labor as a factor of production must be adequate to meet
appropriate standard of living under what is known as living wage. This is to ensure the survival
of such employees in the society.

There is also the principle of immediacy which emphasized that salary/wages should be paid
promptly to avoid anxiety on the part of the employees. Therefore, salary/wages should be paid

within the agreed period of payment which can be daily, weekly, monthly or when the
assignment is completed. Therefore, compensation should not be in areas as it demoralizes the
employees in the organization.

Another principle relates to fairness and equity in the compensation system. This principle
explains the fact that all employees with uniform employment qualities undertaking similar work

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responsibilities should be paid uniform salary which will reflect equity or fairness in the
compensation system.

Flexibility is another principle of compensation which emphasized the need for the payment to
consider the prevailing economic situation. Another component of flexibility relates to the
prospect of increased earnings due to extra efforts under bonus pay and this will be the reward
for extra efforts from the labor of an employee in the organization.

Determinants of Compensation in an Organization.

There are many factors which are considered as determinants of compensation and they are also
summarized as shown below;
The skill/knowledge of the employees is the first determinant which is categorized as
knowledge/skills based compensation determinant.

The training requirements of the job in terms of length, difficulty and the cost also influence the
final pay for such professionals in formal employment.

Trade unions through collective bargaining also determine the wage/salary of the organization.

The government wage/salary legislation is also a great determinant of compensation. This is

most especially on the consideration of fixing minimum wage in the country.

The cost of living is another determining factor of labor reward and this is based on the
prevailing economic conditions in the country.

The labor supply for a particular job in the organization is also another determinant. The

higher the supply, the lower the pay and vice versa. The nature of the job to be undertaken by an
employee is another great determinant and this is in terms of the difficulty, risks and the skills
required.

The capacity of the organization to pay a particular wage/salary structure is also a great
determinant.

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The prevailing wage/salary payment to a particular profession is also another determinant in
that there is always payment structure for different categories of work in different organizations.

The geographical location for a particular job is also a determinant in wage/salary payment in
that jobs in hard to reach areas tend to have higher pay compared to those in areas of good social
amenities.

Determinant Variables in Compensation

On the basis of the above determinant factor values, compensation determinants are always
grouped under a defining variables which include;
• Skills/Knowledge based variables

• Legislative based variables

• Risk based variables

• Productivity/Profitability based variables

• Supply-Demand based Variables

• Seniority based variables

• Competitive/Benchmarking based variables

Wage Administration System

The modern system of wage administration is on the basis of Wage Administration Database
which focuses on detailed entry of specific values. The wage administration requires compliance
to policy on deductions and timeliness in the pay schedules as well as contribution scheme.

Challenges of managing effective Compensation System.

Several organizations face a lot of challenges in managing their compensation system. These
challenges can also be summarized as below;

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The most severe challenge in managing compensation is corruption and in Uganda this is most
prevalent in public sector. This is in terms of embezzlement of salary/wage funds by key persons
in management and also creation of non-existent staff on the pay roll, a phenomenon commonly
known as “ghost workers”. In Uganda, this was cited in the salary system of police, the army,
Local Government and primary teachers.

There is also poor records management on the status of employment of different personnel in
the organization. Such poor records management affects determinant of qualification and work
efforts of the personnel in the formal employment of the organization. Therefore, poor
information management in most organizations affects processing future benefits like gratuity
and pensions for workers retiring from the organization.

There is also the challenge of limited funds in both private and public organizations and this
specifically affects the principle of adequacy and flexibility in compensation system. In Uganda,

it is noted that humanitarian agencies and international diplomatic agencies are the ones with
capacity for higher compensation which considers flexibility and adequacy. The salary structure

in government is poorly streamlined with others in similar employment earning much higher than
the rest of civil servants.

There is also poor technology in managing compensation in the organization. It is important to

note that effective compensation system requires efficient technology which can be used to
update required information of each employee on the assignments accomplished, the
qualification, the skills level and the nature of the job one is undertaking in comparison with
others. Therefore, the absence of the required technology affects determination of required
compensation for a particular employee.

PERFORMANCE APPRAISAL OR MERIT RATING

Performance Appraisal is a systematic evaluation of the personality and performance of each

employee by his or her immediate supervisor in the organization. Scott and Spriegal looked at
performance appraisal or merit rating as the process of evaluating employees’ performance in
relation to the objectives of the organization. In the word of Professor Yoder Dale, Performance

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Appraisal refers to all formal procedures used to evaluate personality, contributions and the
potentials of each employee in the organization. Therefore, performance appraisal is a formal
progrem in the organization concerned with not only the contribution of members who are part of
the organization but also aims at determining the potentials of individual employee in the
organization.

Objectives/Importance of Performance Appraisal.

Performance Appraisal helps in unifying the rating procedures so that all employees are rated
on the same quality of measures. This is due to the fact that there is always an established system
of rating the employees of a given Organization.

It is also important to note that Performance Appraisal plays a crucial role in determining the
need for training program of employees in the organization. This is because, the result of
Performance Appraisal establishes the level of skills, ability, knowledge and attitude of each
employee for a given job assignment in the Organization.

Performance Appraisal is also important in staff motivation because the employees,

performance

is known and this will be the basis for one to improve or maintain his standard of work in the
Organization.

Another important reason for conducting Performance Appraisal is to maintain record of each
employee performance in order to determine wages or salary, transfer, promotion, demotion or
even dismissal from the Organization.
Annual Performance Appraisal enables the management to monitor the standard of work in the
organization. This is because it is based on standard measurement of what should be achieved by
each employee in the Organization.
Performance appraisal also promotes staff commitment to organizational goals/ objectives
and this is due to fear of scoring lower marks after appraisal. This promotes productivity in the
organization which comes after result of staff commitment. This however, can only be achieved
when employees have trust in the Performance Appraisal system used in the organization.

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Guiding principles in Performance Appraisal/Merit Rating

An effective Performance Appraisal system should function under the following principles;

Performance Appraisal should be conducted by the employee’s immediate supervisor. This is

because the immediate supervisor knows the capability, weaknesses and attitude of each
employee under him or her. This principle is emphasized as a system of promoting authentic
evaluation of employees’ performance in the organization.

The supervisor conducting the Performance Appraisal should have skills and enthusiasm in the
overall evaluation of employee’s performance in the organization. This principle is necessary in
getting the true value of employees’ contribution to organizational goals.
The supervisor should have a clear understanding of the significance and the value of a given

Performance Appraisal and this is intended to promote supervisor’s objectivity during the
Performance Appraisal. A clear understanding of this value is made easier when the supervisor
has the virtue of impartiality/honesty.

Another important principle of Performance Appraisal relates to the interval in which it should

be undertaken. The recommended frequency of Performance Appraisal should be either be twice

a year or annually. A time interval between Performance Appraisal should not be too short like
weekly or monthly and should not be too long like after every five years. This is intended to give
true value of employee’s contribution to the organization.
Performance Appraisal principle also emphasizes that all employees in a given department
should be appraised/evaluated at the same time. This is to provide equal situation for
evaluation without others being evaluated in good or difficult situations.

Performance Appraisal should be participatory in nature and it is therefore recommended that

both the appraiser and the employee being evaluated should participate in the Performance
Appraisal process. This is intended to reduce on malice/bias by the supervisor as the employee

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will be able to ascertain the value attached to his performance. Because of this principle, it is
advisable that employee discusses the result of the Performance Appraisal with the supervisor
before submitting to the management.

Performance Appraisal should be properly checked to make sure that the evaluation was
thorough. This is majorly considered to reduce on error or omission on performance Appraisal
result. Therefore, the personnel department should make final checking before presentation to
management.

Methods of Performance Appraisal/ Merit Rating.

There are several methods used in Performance Appraisal but the most popular ones include the
following;
Rating Method

Under this method, all employees working in a group are ranked against one another i.e. if
there are fifty workers in the organization, the most efficient employee is rated number one and
the least efficient is rated number fifty. Therefore, all employees in the organization may be
rated as number one, two, three, four, five etc. This method is quite simple but the individual
contribution may not be evaluated and this is not recommended for big organizations with large
numbers of employees

Paired Comparison Method

This method is used where every employee is compared with every other employee in the
organization to decide who is a better worker in achieving objective of the organization. The
number of times one employee is compared helps in yielding the order of an employee i.e. if
there are three employees (XYZ), the performance of X is compared with Y and Z. This
comparison is tabulated to get the most efficient and least efficient worker in the organization.
This method is simple but not recommended for big organization.

Grading method or grading system

Under this system, certain values of workers which determine the achievements in reference to

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organizational objectives are evaluated and the workers are assigned grade according to
judgment of evaluation. This value may consider time keeping, interpersonal relations,
employee’s skills and ability to undertake the work. The grade can be categorized as poor from
(0-25), Fair (26-50), Good (51-75) and Excellent from (76-100). This is a highly recommended
method of Performance Appraisal in most organization.

Forced distribution method

This is a rating system where employees are rated for overall performance based on the
presumption that all employees can be divided into five general categories i.e.
outstanding/excellent, above average, average, below average and poor. This method is not
based on specific value and may be useful in appraising employees without specific value to
measure.

Check list method

Under this method, the appraiser does not evaluate the performance of employee but simply
reports about him/her and the final rating is done by the personnel office. Under this system, the
appraiser is presented with a number of questions in the form of checklist relating to employee
and his or her behavior. The appraiser then checks to indicate if the answer to the questions about
an employee is negative or positive/no or yes. The examples of these questions are;

• Is the attendance of this employee satisfactory? Yes, or No

• Is he interested in the job? Yes, or No

• Is he loyal to his bosses? Yes, or No

• Does he/she follow instructions? Yes, or No

• Does he possess the necessary skills for the job? Yes, or No

• Is he or she a team player with good interpersonal skills? Yes, or No

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 All these answers to the questions are meant to rate the contribution of employees to the
achievement of organization goals.

Free essay method

Under this system, the appraiser writes a report on employee basing on his assessment. This
simply highlights the strength and weaknesses the employee has in relation to the job. The essay
also recommends for the improvement of employee performance. Though this method is widely
used, it suffers from bias of dislike and liking of an employee.

Why Performance Appraisal may fail to realize its objectives

• Performance Appraisal is always left to the skills and enthusiasm of a supervisor.

Therefore, in the absence of all these, the measure of employees’ contribution will not be valid.

• Performance Appraisal is also affected by bias most especially malice and favoritism. It
should be noted that Performance Appraisal can only work well under impartiality arrangement
where employees are judged on merit.

• However, most Performance Appraisals are not conducted on merit which leads to wrong
value of the contribution of the employees.

• Performance Appraisal is also expensive in terms of logistics and time. It therefore favors
only large organization with proper structures and system of appraisal.

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