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CHAPTER 1 PERFORMANCE APPRAISAL A. Definition Performance appraisal can be defined as a human resource activity that is used to determine the extent to which an employee is performing his job effectively. Performance is said to be a result of employees efforts abilities and role perception. Performance appraisal is the process of determining and communicating to an employee how he or she is performing the job and, ideally, establishing plan of improvement. Other terms of performance appraisal include: performance review, personnel rating, merit rating, performance evaluation, employee appraisal and employee evaluation. B. Purposes of performance appraisal 1.To provide information towards strength and weakness of employees in their job performance. 2.To provide data for management for judging future job assignments, promotions and compensation. 3.To provide information to help maintain an equitable and competitive pay structure 4.To supply general information on training needs for the organization or departments 5.To improve motivation by increased understanding of goals, the means of attaining the goals and the rewards associated with achievement. 6.To improve performance by developing strength and dealing with weakness. 7. To provide legally defensible reason for promotions, transfer, reward and discharges. E. PERFORMANCE APPRAISAL METHODS I. Graphic rating scale method This method is the simplest and the most popular technique for appraising performance. A graphic rating scale lists traits (factors) such as quality of work, job knowledge, attendance, accuracy of work and cooperativeness. And a range of performance values from unsatisfactory to outstanding is obtained for each factor. You rate each subordinate by circling o checking the score that best describes his/he performance for each factor. You then total the assigned values for the traits. II. Alternation ranking method This method involves ranking employees from best to worst on a factor or factors traits. Since it is usually easier to distinguish between the worst and best employees, an alternation ranking method is most popular. First, list all subordinates to be rated, an then cross out the names of any not well enough to rank. Then indicate the employee who is the highest on the characteristics being measured and also the one who is the lowest. Chose the next highest and the next lowest till all employees have been ranked. III. Paired comparison method This method helps to make the ranking more precise. For every factor (quality of work, quantity of work etc.), you pair and compare every subordinate with every other subordinate. Example, suppose a rater is to evaluate six employees. The name of these employees isclisted on the left side of a shit of paper. The evaluator then compares the first employee with the second employee on a chosen performance criterion, such as quality of work. If he/she believes the first employee has produced more work than the second employee a check mark is placed by the first employees name. The rater then compares the first 1|Page

SHAH CLASSES employee with the third, fourth, fifth and sixth employee on the same performance criteria, placing a check mark by the name of the employee who produced the highest result in each paired comparison. The process is repeated until each employee has been compared to every other employee on all of the chosen performance criteria. The employee with the most check mark is considered to be the best performer. Likewise, the employee with the fewest check marks is taken as the least performer. One major problem with the paired comparison method is that it becomes too wide especially when comparing more than five or six employees. IV. Critical incident method With this method the supervisor keeps a log of positive and negative examples (critical incidents) of a subordinates work related behavior. Every six months or so, supervisors and subordinates meet to discuss the latters performance, using the incidents as examples. V. Management by objective (MBO) MBO requires the manager and workers set specific measurable goals and then periodically discuss the employees progress towards these goals through out the implementation process the term MBO generally refers to a compressive, organization wide goal setting and appraisal program consisting of six steps, which include: _ Set organizational goals _ Set departmental goals _ Discuss the goals with the workers _ Define expected results _ Performance review _ provide feedback VI. Essay appraisal It is performance evaluation method in which the rater prepares a written statement describing the individuals strength, weakness and past performance. There are criticisms about the accuracy and relevance of this method. This is mainly because comparing essays written by the same or different raters is difficult since skilled writes can paint better picture of an employee than unskilled writers. VII. Checklist method This is performance evaluation method in which the rater answers with a yes or no, a series of questions about the behavior of the employee being rated. VIII. Work standards It is a method, which involves setting a standard or an expected level of out put and then comparing each employees level of performance to the standard. This approach is most frequently used for production employees. IX. Multi-rater assessment (or 360 degree feedback) This is one of most recently popular method of evaluation. With this method managers, peers, customers, supplies or collogues are asked to complete questionnaires about the employee being assessed. The person under evaluation also completes a questionnaire. The HR department provides the result to the employee, who intern gets to see how his/her opinion differs from those of the group participating in the assessment. 2|Page

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X. Computerized and web based performance evaluation. owadays several relatively inexpensive performance appraisal software programs are on the market. These programs generally enable managers to keep notes on subordinates during the year and then to electronically rate employees on a series of performance factors. The programs finally generate written text to support each part of the evaluation

NEED/USES OF PERFORMANCE APPRAISAL Meaning: Performance appraisal is a process of evaluating work performance of employees. The purpose of appraisal is to individual and organizational effectiveness. Definition: - Performance appraisal is the systematic description of an employees job relevant strengths and weaknesses. Defined be (Wayne Cascio) BENEFITS/USES OF PERFORMANCE APPRAISAL 1. Performance Feedback: Performance appraisal provides performance feedback to the employees. Employees can come to know about their job related strength and weaknesses. Such feedback enables the employees to correct their weaknesses and improve on their strength. 2. Training and Development: - Performance appraisal information may be used to determine whether an employee or a group of employees requires additional training and development. Deficiencies in performance may be attributable to inadequate knowledge or skills. Accordingly, the organization may decide to provide additional training to the employees. 3. Motivation: - Performance appraisal facilitates motivation of the employees. The high performing employees are given higher ratings in Performance appraisal. They may be rewarded with monetary and non-monetary incentives. 4. Promotion: - Performance appraisal gives management a means of identifying employees for promotion. Past appraisal together with other background data enables management to select persons for promotion more intelligently. 5. Transfers: - Performance appraisal is useful in effecting transfer decisions of employees. Effective transfer of employees is possible through the reports of Performance appraisal. 6. Human Resource Planning: - The appraisal process aids in human resource planning. Accurate appraisal data regarding employees may provide management with important information to base decisions for future employment. Without the knowledge of who is capable of being promoted, transferred and terminated; management is at a severe disadvantage with respect to framing various future employment plans. 3|Page

SHAH CLASSES 7. Management-Labour Relations: - Performance appraisal helps to maintain good labour relations between the management and the labour. This is because Performance appraisal creates an healthy atmosphere in the organization. The effective employees are motivated to perform more effectively and the ineffective employees are encouraged to do away with their weakness or limitations. 8. Documentary Evidence: - Performance appraisal reports can be used as important documentary evidence in case of disciplinary action taken against some ineffective employees. This is especially true in case of unionized organization. 9. Effective Communication: - Appraisal interviews and reports can be effective means of communication to the employee and can result in improved performance. 10. Career Development: - Performance appraisal enables managers to coach, counsel and assists employees in their career development.

CHAPTER 2

Promotion Promotion means an improvement in pay, prestige, position and responsibilities of an employee within his/her organization. A mere shifting of an employee to a different job which has better working hours, better location and more pleasant working conditions does not constitute promotion. The new job is a promotion for the employee when it carries increased responsibility and enhanced pay. Purposes of Promotion To motivate employees to higher productivity To attract and retain the services of qualified and competent employees To recognize and reward the efficiency of an employee To increase the effectiveness of the employee and of the organization. To fill up higher vacancies from within the organization To build loyalty, morale, and sense of belongingness in the employee To impress upon others that opportunities are available to them too in the organization, if the perform well. Types of Promotion A promotion involves an increase in status, responsibilities and pay. But in certain cases only the pay increases and the other elements remain stagnant. In other cases, the status only increases without a corresponding increase in pay or responsibilities. Depending on which elements increase and which remain stagnant, promotions may be classified into the following types. i. Horizontal Promotion

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SHAH CLASSES This type of promotion involves an increase in responsibilities and pay, and a change in designation. But the employee concerned does not transgress (go beyond the limit) the job classification. For e.g. lower division clerk will be promoted to upper division clerk. In this case there is no change in the nature of the job. ii. Vertical Promotion

This type of promotion results in greater responsibility, prestige and pay, together with a change in the nature of the job. iii. Dry Promotion

Dry promotions are sometimes given in lieu of increases in remuneration. Designations are different but no change in responsibilities. The promotee may be given one or two annual increments. B. Transfers A transfer involves a change in the job (accompanied by a change in the place of the job) of an employee without a change in responsibilities or remuneration. It differs from a promotion in that the later involves a change in which a significant increase in responsibility, status, and income occurs, but all these elements are stagnant in the former. Another difference is that transfers are regular and frequent, but promotions are infrequent, if not irregular.

Reasons for Transfer The reasons for transfers vary from organization to organization, and from individual to individual within an organization. Broadly speaking, the following are the reasons for transfer: 1) Workers are transferred from the surplus department to another department or plant where there is a shortage of staff. 2)Removal of the incompatibilities between the workers and his or her boss and between one worker and another worker. 3)Correction of faulty initial placement of an employee. 4) A change has taken place in the interests and capacity of an individual, necessitating his or her transfer to a different job. 5) Over a period of time, the productivity of an employee may decline because of the monotony of his or her job. To break this monotony, the employee is transferred. 6) The climate may be unsatisfactory for an employees health. He or she may request a transfer to a different place where his or her health will not be affected by its climate. 7)Family related issues cause transfers, especially among female employees. When they got married, the female employees want to join their husbands and this fact necessitates transfers or resignations. Types of transfers Broadly speaking, transfers may be classified into three types: 1) Those designed to enhance training and development 2) Those making possible adjustment to varying volumes of work within the firm 3) Those designed to remedy the problems of poor placement 5|Page

SHAH CLASSES Specifically, transfers may be production, replacement, versatility, shift and remedial. i. Production transfers A shortage or surplus of the labor force is common in different departments in a plant or several plants in an organization. Surplus employees in a department have to be laid-off, unless they are transferred to another department. Transfers affected to avoid such imminentlay-offs are called production transfers. ii. Replacement Transfers Replacement transfers, too, are intended to avoid imminent lay-offs, particularly, of senior employees. A junior employee may be replaced by a senior employee to avoid laying off the later. A replacement transfer program is used when all the operations are declining and is designed to retain long-service employees as long as possible. iii. Versatility transfer Versatility transfers are affected to make employees versatile and competent in more than one skill. Versatile options are valuable assets during rush periods and periods when work is dull. Versatile transfers may be used as a preparation for production or replacement transfer. iv. Shift transfers Generally speaking, industrial establishments operate more than one shift. Transfers between shifts are common, such transfers being made mostly on a rotation basis. Transfers may be effected on special requests from employees. v. Remedial Transfer Remedial transfers are affected at the request of employees and are, therefore, called personal transfers. It takes place because the initial placement of an employee may have been faulty or the worker may not get along with his or here supervisor or with other workers in the department. He or she may be getting too old in his or her regular job, or the type of job or working conditions may not be well-adapted to his or her present health or accident record. If the job is repetitive, the worker may stagnate and would benefit by transfer to a different kind of work. C. Separations When a person joins an organization, the main aim is to work and develop oneself but that does not necessarily mean that the person will continue working with that organization only. Besides that there can be various other reasons that may force an individual to leave the organization. Separation refers to employee leaving the organization. It means end of service with the organization. It is called negative recruitment. Exit simply put means separation from the organization. It may take the form of retirement, either compulsory or voluntary, resignation, dismissal, lay-off or retrenchment. Though it is end of relationship of an organization with an employee but it can give important guidelines to an organization about the way it works and what change may be required. Separations are painful to both the parties and should, therefore be administered carefully. There may be many causes of separation/employee exit. Broadly these causes can be classified under the following headings Avoidable causes and Non avoidable causes/unavoidable causes. Employees preferences or incompetence or poor health could be considered as unavoidable causes. Such clear-cut demarcation is not possible in the case of avoidable causes. Avoidable causes can be on personal reasons like incompatibility with peers or superiors, lack of interest or aptitude of the given job, perceived fears and apprehensions about ones own career prospects, change of technology, change of product mix, production volume, poor working conditions, etc 6|Page

SHAH CLASSES Lay-offs A lay-off is a temporary separation of the employee from his or her employer at the instance of the latter without any prejudice to the former. In other words, it refers to separation of employees for an indefinite period due to reasons, much beyond the control of employer. It is intended to reduce financial burden of organization. It may be for a definite period on the expiry of which the employee will be recalled by the employer for duty. It may be occasioned by one of the following reasons: Shortage of raw materials; accumulation of stocks; breakdown machinery and for any other reason. As the employees are laid off at the instance of the employee, they have to be paid compensation for the period they are laid off. The basis for the lay-off may be merit or seniority. If merit is the basis, employees with unsatisfactory performance are laid of first. If seniority is used as the basis of lay off, then the employees with the shortest period of service will be first laid off and the older employees are retained as long as conditions permit. The basis for recalling the employees as soon as the lay-off is lifted needs to be made clear. Naturally key employees must be the first to be recalled. Top management has to decide who are to be laid down. By and large last in first out (LIFO) principle is used; when they are recalled and reemployed, last out first in (LOFI) principle is used. Resignations A resignation refers to the termination of employment at the instance of the employee. This is a manner of separation taken up by the employee. An employee resigns when he or she secures a better job elsewhere, or when an employee suffers form ill health, and for other reasons. The administration of separation caused by resignation is very simple because the employee himself/herself is responsible for it. However, such process by employee can be in either of the following two ways - Voluntary resignation and Induced resignation. In voluntary resignation, the employee seeks separation from the organization due to reasons\ of personal nature like lack of promotional opportunities, chances of better employment elsewhere, health reasons, reasons of dissatisfaction of job etc. On the other hand, induced resignation implies avoiding termination on grounds of discipline. Meaning the individual may be induced or persuaded to leave due to any other serious charges brought against him/her, and the proceedings of which might result in conviction and termination of service. Dismissal or discharge Dismissal is the termination of services as a punishment for some major offences done by the employee. Such punishment is awarded through a judicial or quasi-judicial process in which ample opportunity is given to the employee who has been accused to defend him/her, call witnesses in defending his/her case, etc. A dismissal needs to be supported by just and sufficient reason. Principle of natural justice is applied in such proceedings and also in the award of punishment. In case the reason of discharge is attributed to incompetence, poor health or those due to organizational reasons, the employee must be given adequate notice and must be properly explained the reasons of discharge. The following reasons lead to the dismissal of an employee: Excessive absenteeism; Serious misconduct; False statement of qualification at the time of employment and Theft of companys property. Suspension When any serious charge is brought to light against an employee, and a prime-facie case is made out against him, it is normally a practice to suspend the employee, during the period of investigation. These are done mostly for the purpose of preventing the employee from tampering with the documents or influence the witness by making use of his opportunity and power, which such employment provides. During the suspension period, he is paid a reduced amount of salary, which is called 7|Page

SHAH CLASSES subsistence allowance. Depending on the results of the enquiry, at the end, he is either reestablished if found not guilty or discharged or dismissed if found guilty of charges. If henis re -established, the areas of pay and allowances during period of suspension are paid to him and his service seniority is restored. Retrenchment It refers to the termination of the services of employees because of the replacement of labour by machines or the closure of a department due to continuing lack of demand for the products manufactured in that particular department of the organization. In other words, it is the termination of the services of an employee, permanently due to any reason, which is economical but not discipline. It is acceptable if it can be proved, that retrenchment alone can save the company. This may happen due to change of technology, competition, high-rise of cost of production, mounting losses etc. On retrenchment, employee is entitled for gratuity in addition to some compensation. The general principle for retrenchment is last in first out (LIFO). Retrenchment differs from lay-off in that, in the latter, the employee continues to be in the employment of the organization and is sure to be recalled after the end of the period of layoff. But in retrenchment the employee is sent home for good, and his or her connections with the company are severed immediately. Retrenchment differs from dismissal as well. An employee is dismissed because of his or her own fault. On the other hand, retrenchment is forced on both the employer and the employees. Moreover, retrenchment involves the termination of the services of several employees. But dismissal generally involves the termination of the service of one or two employees.

Retirement Here there are two ways in which retirement can take place. i.Compulsory retirement schemes This type of separation method applies to persons working in an organization who have reached a particular age. Currently most employers fix their compulsory retirement ages at between 60 and 65. ii.Voluntary Retirement Scheme (VRS) VRS is yet another type of separation. Beginning in the early 1980s, companies both in public sector and in private sector have been sending home surplus labor for good, not strictly by retrenchment, but by a novel scheme called the VRS, also known as the Golden Hand Shake Plan. Handsome compensations are paid to those workers who opt to leave. Management prefers pay hefty sums and reduces staff strength than retaining surplus labour and continuing to pay them idle wages. Further, VRS is perceived as a painless and timesaving method of trimming staff strength, easing out unproductive older workers and other dead wood. Unions, too, can not object as the schemes are voluntary.

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CHAPTER 3
ELEMENTS FOR COMPENSATION AND INCENTIVES? Meaning: - compensation refers to the money and other benefits given to an employee for his services to the organization. Definition: -Compensation includes direct cash payment, indirect payments in the form of employee benefits and incentives to motivate employees to strive for higher levels of productivity. Defined by.. (Wayne Cascio) Elements:1. Salaries and Wages: -Wage or salary is an important element in the compensation plan. Wage is the remuneration paid to blue-collar or factory workers and salary is the remuneration paid to white-collar or office employees including management employees. Wages and salaries are normally paid at fixed intervals of time, preferably monthly. The wages and salaries depend on several factors such as: 1. Value of the employee to the organization. 2. Ability to pay by the employer. 3. Skills of the employee. 4. Cost of living. Market rates. 5. Minimum wages fixed by Govt. and so on. 2. Bonus: - it refers to extra payment over and above salary given to an employee as an incentive. The employees must be given adequate rate of bonus. Normally bonus is paid once in a year. Bonus does motivate the employees to a certain extent to perform better. 3. Incentives: - The organization may provide additional payment to the employees apart from wages and bonus. The incentives are normally linked to increase in productivity. The incentives may be given on individual basis especially at management level and on group basis. 4. Special Incentives: - The Company may provide special individual incentives. Such incentives are to be given to deserving employees for giving valuable suggestions, or for special efforts on the part of the employees. 5. Fringe Benefits: -Permanent or long term employees get extra incentives in the form of fringe benefits. The fringe benefits normally include vacation pay, insurance, pension, provident fund and gratuity. Fringe benefits may also include canteen facilities, transport facilities, recreation, etc. 6. Perquisites: - Perquisites are the incentives, which are normally paid to management employees. The purpose of perquisites is to perk up the performance of the managers. These include club membership, company car, paid holiday and so on. 7. Gain Sharing: - A gain sharing plan establishes a historical base period of organizational performance, measures improvements and shares the gains with employees on the basis of some formula. The company focuses on areas like inventory levels, labour hours per unit of product, usage of materials and supplies and quality of finished goods. 8. Retention Bonus: - Management may resort to retention bonus to retain competent employees. Nowadays, retention bonus is used at all levels in the organization. The need for retention bonus arises when employees think of quitting the job due to organizational changes on account of merger, acquisition and such other corporate changes. 9. Employee Stock Option Scheme Plan: -Under this scheme company offers certain shares from the new issue to the whole time directors, officers or employees of the company. The company offers the shares at a pre-determined price which is usually less than the price offered to general public. The ESOS must be approved by passing a special resolution in the general meeting. This scheme is open to all permanent employees. However, the option granted to employee is non-transferable 9|Page

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10. Profit Sharing: - Profit sharing is a system that distributes to employees some portion of the profits of business either immediately or deferred until later profit sharing is based on the mutual interest of both employee and employer. Here the employee becomes interested in the economic success of the company because he stands to gain from it. This fosters team-work.

FACTORS AFFECTING COMPENSATION DECISIONS A. EXTERNAL FACTORS 1. Government: government rules, regulations, executives orders, and laws have their influence on an organizations compensation policy. Every government provides laws for compensation in areas like, minimum wage rate, equal pay provision to avoid pay differentials based on sex in jobs requiring substantially equal skill, effort, responsibility, and working conditions .etc 2. Cost of living: cost of living as measured in terms of consumer price index may affect the organizations compensation policy as it tries to adjust its employees earnings to the rate of inflation. This process is called cost of living adjustment (COLA). As per the policy of the organization, compensation could be adjusted. 3. Comparable wage rate: t he wage pattern in the industry and community could have an impact on the compensation policies and practices of organizations. Comparing wages and salary rates in a given areas may help in ensuring that the organization is offering a salary that is not substantially higher or lower than those paid by others in the same area. Comparison could also be done based on occupation to provide a comparable pay to similar occupations around the country. In order to insure that comparable level of payment is offered to employees, organizations conduct salary and wage survey on other companies to avoid costly mistakes. These could also be done to offer comparable benefit packages to employees 4. Market condition: Regardless other factors involved, the supply and demand relationships in the labor market will determine the wage and salary level in organization. 5. Unions influences: union and labor relations laws also influence pay plan design. Historically, the wage rate has been the main issue in collective bargaining. However, union also negotiate other pay related issues, including time off with pay, income security (for those in industries with periodic lay offs), cost of living adjustments, and benefits like health care. B. INTERNAL FACTORS 1The size and age of the organization: It is argued that large and new organizations tends to pay higher wages compared to small and old ones 2The labor budget (resource allocation strategy) 3Managerial philosophy and strategy .As top level management has the final say on pay level decisions, their views and strategies affect payment decisions

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