Unies se Compensation Meaning: Compensation is the total cash and non-cash payments that you give to an employee in ‘exchange for the work they do for your business, Compensation is the monetary benefit which is given to an employee or worker giving their services to an organization. Compensation includes components like salary, wages, bonuses etc. R. Wayne Mondy defines compensation as, “Compensation is the total of all rewards provided to employees in return for their services. The overall purposes of granting compensation are to attract, retain and motivate employees.” Gary Dessler opines, “Compensation means all forms of pay or rewards going to employees and arising from their employment.” ‘Terry Leap opines, “Compensation is a broad term pertaining to financial rewards received by persons through their employment relationship with an organisation.” Cascio states, “Compensation includes direct cash payments indirect payments in the form of employee benefits and incentives to motivate employee to strive for higher levels of productivity.” Compensation can also be defined as follows: 1. A system of rewards that can motivate the employees to perform. 2. A tool that is used to foster values and culture. 3. An instrument that enables an organization to achieve its objectives. Objectives of Compensation: 1. The compensation should be paid to each employee on the basis of their abilities and training. 2. Compensation should be in the form of package. 3. It should motivate the employees towards increasing productivity. 4, It should be capable of taking care of employees for safety and security needs also. 5. It shouild be flexible and clear. 6, It should not be excessive. 7. Compensation should be decided by the management as per the norms fixed by the legislations in consultation with the union, Factors Employee Co mn Tnternal factors: The internal factors exist within the organization and influences the pay structure of the company. These are as follows:ket — Labor Mar —_—- Going Rate — productivity | —— Gost of Li ness Strategy }— Job Evatuation and Performance Appraisal — Employee _—="Lapor Laws vompared to the Ability to Pay: The prosperous or big comy can pay higher compensation as ¢ ity to Pay: The prospe ig companies can pay hig! Ps cate up to the competing firms whereas the smaller companies can afford to maintain their pay st level of competing firm or sometimes even below the industry standards, Business Strategy: The organization’ strategy also influences the employee compensation. In case the company wants the skilled workers, so as to outshine the competitor, will offer more pay as compared to the others. Whereas, if the company wants to go smooth and is managing with the available workers, will give relatively less pay or equivalent to what others are paying. Job Evaluation and Performance Appraisal: The job evaluation helps to have a satisfactory differential pays for the different jobs. The performance Appraisal helps an employee to eam extra on the basis of his performance. Employee: The employee or a worker himself influences the compensation in one of the following ways. Performance: The better performance fetches more pay to the employee, and thus with the increased compensation, they get motivated and perform their job more efficiently. Experience: As the employee devote his years in the organization, expects to get an increased pay for his experience. Potential: The potential is worthless if it gets unnoticed. Therefore, companies do pay extra to the employees having better potential as compared to others. External Factors: The factors that exist out of the organization but do affect the employee compensation in one or the other way. These factors are as follows: Labor Market: The demand for and supply of labor also influences the employee compensation. The low wage is given, in case, the demand is less than the supply of labor. On the other hand, high pay is fixed, in case, the demand is more than the supply of labor. Going Rate: The compensation is decided on the basis of the rate that is prevailing in the industry, i.e. the amount the other firms are paying for the same kind of work. Productivity: The compensation increases with the increase in the production. Thus, to earn more, the workers need to work on their efficiencies, that can be improved by way of factors which are beyond their control. The introduction of new technology, new methods, better management techniques are some of the factors that may result in the better employee performance, thereby resulting in the enhanced productivity. Cost of Living: The cost of living index also influences the employee compensation, in a way, that with the increase or fall in the general price level and the consumer price index, the wage or salary is to be varied accordingly. Labor Unions: The powerful labor unions influence the compensation plan of the company. The labor unions are generally formed in the case, where the demand is more, and the labor supply is less or are involved in the dangerous work and, therefore, demands more money for endangering their lives. The non-unionized companies or factories enjoy more freedom with respect to the fixation of the compensation plan.fabor laws: There are several laws passed by the Government to safeguard the workers from the xploitation of employers. The payment of wages Act 1936, The Minimum wages act 1948, ‘The payment of Bonus Act 1965, Equal Remuneration Act 1976, Payment of Gratuity Act 1972 are some of the acts passed in the welfare of the labor, and all the employers must abide by these. Importance of compensation 1. It helps to determine fair, just and equitable pay for the workers. It tries to ensure that the paid fairly for their contributions to the organization. 2. A sound remuneration policy motivates the workers to work efficiently to achieve the speci standards. 3. Remuneration is the basis of happiness and satisfaction of the workforce. This helps in reducing labor turnover. 4. A sound, fair equitable remuneration policy helps to avoid conflict between the employer and the ‘employees and establishes a peaceful relation between them 5. Itimproves the morale and efficiency of the workers. Employee Compensation — 2 Popular Types ‘Type # 1. Direct Compensation: ‘Wages are direct compensation; paying wages is obligatory, and hence, is a standard practice in organizations. Competitive advantage can only come by paying a higher amount. There are many alternatives to direct compensation: i. Incentive Pay: A bonus paid on meeting specified performance objectives which are likely to inspire employees to set and achieve a higher performance level and is an excellent motivator to accomplish company goals. . Stock Options: ‘A tight to buy a part of the business which may be given to an employee to reward an excellent contribution to the company. An employee, who owns a share of the business, is far more likely to go an extra mile getting this indirect compensation. Bonuses: A gift given periodically or occasionally to reward exceptional performance or in special occasions. Giving bonuses show that an employer appreciates his/her employees and ensures that good performance or special events are rewarded so that employees repeat the performance, Some indirect compensation elements are required by law, such as, social security, and unemployment and disability payments. Other indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well. For example, a working mother may take a lower-payingSees eegg eggs gesagt eter gee gee vege gece er gee eee eo a t job with flexible hours or work from home. These facilities allow the employee to be home ya, her children get home from school. > € “ In a competitive business scenario and scarce labour market, pee aaa ees increasingly important. Businesses that cannot compete with high cas! t to employ. Smail individualized alternatives that meet the intrinsic needs of the people you acai aalleanntives businesses can gain competitive advantage by providing such creative comp which they can afford. Type # 2. Indirect Compensation: Some items are categorized as part of inditect compensation. A short list is provided for reference- i. Clothing ii, Cellular phones/pagers Child care iv. Company parties v. Farm produce/foods/meals vi. Flexible working schedules vii. Insurance (health, dental, eye) viii, Laundry service ix. Magazine and newspaper subscriptions x. Travel expenses xi, Old age care xii. Paid leave (sick/holiday/personal days) xiii. Retirement programs xiv. Subsidized housing xv. Subsidized utilities Xvi, Tickets to events (ball games, concerts, and other recreational events) xvii. Use of farm pastures and gardens xviii. Use of farm trucks and machinery. Employee Compensation — 7 Major Issues The major issues in compensation are equal pay, wage-rate compression and low salary budgets.Equal Pay: Generally, j performed predominantly by women are paid te gender dis 'ss than those done by men, This is mination. The issue of comparable worth, that is, male and female jobs that are dissimilar, but equal in terms of value or worth, should be compensated equally. goes beyond providing equal pay for jobs that involve the same duties for women as for men, The issue ie that jobs held by women are not compensated the same way 9s those held by men, even though both types of jobs may contribute equally to the success of the organization To set right the gender discrimination, wages should be equal for jobs that are almost similar in contributing to the organization's success. But present job evaluation techniques only help continuing the discrimination. 2. Wage-Rate Compression: Itis also known as delayering and banding. The primary different groups/clas Purpose of the pay differences among the S is to provide an incentive for employees to prepare for and accept more challenging and difficult jobs. But, this incentive of paying higher for more difficult jobs is reduced by wage-rate-compression, Wage-rate compression is the reduction of differences between job classes. It is done mostly to have internal pay-equity. The problem occurs when employees feel that the difference between their compensation and that of their colleagues in lower-rated jobs is too narrow, Wage-rate compression often occurs when organizations award pay adjustments for lower grades without providing similar awards for higher grades, Wage-rate compression can be reduced considerably by considering the following suggestions: (®) Giving higher compensation to higher-grade employees than Iéwer-grade employees (Gi) Emphasizing the need for pay-for-performance and rewarding only performers, (iii) Avoiding recruitment of employees on exorbitant salaries. (iv) Formulating the pay structure in such a way that there is vast difference in compensation between new comers and senior employees as well as between lower-grade employees and higher- grade employees. (v) Designing a mechanism to compensate adequately the employees who are adversely affected by pay compression, 3. Low Salary Budgets: ‘When the budgets are low, adequate compensation formula cannot be implemented. Consequent to cost-cutting strategy of companies, global competition for jobs, labour-saving technologies, and trend to use temporary and part-time employees has increased compensation is slowly getting reduced. Lower compensation may result in increased turnover and diminished employees’ output. 4. Effect of Inflatios Inflation significantly influences compensation formula, For example, if the inflation rate is 6%, the company that fails to increase its salary ranges over two-year period will be 12% behind itsoo” ee some allowance for inflation it mal 2 & inf eee W competitors. Hence, all organizations | compensation programmes. Gova ted employees may not know what exactly i lead to sation. Pay secrecy may veement can be built when the a few problems. i ay secrecy ie. Some organizations prefer to maintain pay seerey ise» eM others get. But it is not that easy-to maintain secrecy Tee distrust. A. good relationship between employees : ee compensation policy and formula are made known to all. defend the pay decisions. (i) When compensation is subjective, it is difficult for the management to ion’: ses wil e visible. ii) In case of any false decisions, the organization's weaknesses will becom: i i '-for-] formance there (iii) As management is required to explain in case of vast differences in pay-for-perf may be wage-rate compression which may discourage good performers. Open-pay policy may be adopted when performance can be measured objectively, ae measures can be developed for all the important components of a job and there is close associ: between effort and performance. 6. Problems with Job-Based Pay: Job-based pay structures have many potential limitations, { 1k may increase bureaucracy. People may refuse to do a task which is not included in the job description. (i) This encourages @ top-down decision making which may ignore the advantage of skills and knowledge at lower levels, (iil) The bureaucratic system may become a barrier for flexibility. ) This may not reward designed behaviours in a changing environment where expected behaviours change often. (*) People may concentrate only on promotion-seeking behaviours and refuse to accept lateral jobs. 7. Problems with Skill-Based Pay: Skill-based-pay structure also has some potential problems. (@ Though this plan will likely enhance acquisition of skills, the skills may not be used effectively resulting in higher labour cost but with little pay-off. Gi) Hf employees acquire all the skills quickly there may not be any reason for further ay growth, ii) tis difficult to describe and measure to assign monetary values for skills, (iv) Obtaining comparison data from other organizations is difficulternment Regulations: Government regulations which prohibit gender-and race-based differences make it difficult for organizations to implement pay-for-performance effectively. Similarly Minimum Wage Act, which stipulates that the organization must pay the minimum legally allowed pay, makes it difficult to implement pay-for-performance programme .«lequately as some pay must be paid whether an employee performs or not. Compensation Management Compensation management, also known as wage and salary administration, management, or reward management, compensation package. remuneration . is concerned with designing and implementing total Compensation Management refers to the establishment and implementation of sound policies, programmes and practices of employee compensation. Compensation management is the practice of the organization that involves as non-monetary rewards to the employees, job. Compensation management involves “ giving monetary as well in order to compensate for the time they allocate to their ‘maximizing the return on human capital.” Benefits of Compensation Management One of the most significant benefits associated with compensation management is that it helps the organization achieve employee satisfaction. A happy employee will be more productive, while contributing to the overall profit of the business. This makes employees realize that they are getting equal returns for the time and effort they are dedicating to the organization. The Practice of compensation management exerts a positive impact in the employees by influencing them to perform better and increasing their overall efficiency, This stabilizes the labor turnover rate as employees get compensated for their work at a competitive market rate. They do not feel the need of leaving the organization. It can then be concluded that compensation management helps increase the loyalty of the employees towards the organization. Compensation management is an important aspect of the job evaluation process. It augments the whole process by setting up standards for the company that are realistic as well as achievable, as far as the compensation practices of the organization are concerned, It is a practice which helps to improve the relationship of the company with the labor union, as it allows the compliance of different labor laws and acts. If the organization is following the . compensation practices same as that of the market, there will be no dispute to settle between them and the labor union. It helps the professional growth of employees, as their eff ney increases, when there is a reward nresent for achieving acomtain level duction. This alc wands that the 2 > o A ety ant ™ pe Ae PY ee ode hid “tl ecedhatos j Hh beet oy : : wih Ube fiaclier that of OW to taken ey dal 4ueee to Lhe Bah vhs het 2 vas a een dpensaticn packege deat ME! sill yea i> © 34 jon Management : ering tm Objectives of Com! nsatior th organization by offering fair age se fie sons tow! wed t and qualified pe’ Ps 1. To attract competent : 4 neenti ration. incentive. joys payin net : resent emple i aa pari Scan fair and equitable ee ete he organization. . a 4. Toi oduct ctivity and pre sh a device of internal check an flee el aie and to control cost through a 5, To minimise un-neces lishment of standard ce as faa and maintain good human relation ie re 6 rea payment of bonus. profit saving! oT TT oper system ee serge the mame ad fame ofthe company Mo Ty he employees §. To ensure prompt and regular payment of Wag n employer and employee through a Functions of Compensation Management (1) The Equity Function (2) The Welfare Function (3) The Motivation Function Retention Function. : . . a ba E se Function — It is the first and foremost important function of rea ensures that the employees are fairly paid and that their worth is appropriately compared. This function ensures that more difficult jobs are paid more and that they are fairly compensated in comparison to similar jobs in the market. ' ' (2) The Welfare Function — This function is to take care of their psychological and social need Cisfaction, The employees worry about the family, and the liability should be reduced and their self-esteem needs should be met to allow them to work without tension or unwanted stresses. (3) The Motivation Function — The moti ‘ational function is to encourage an employee to take further challenges, perform better and develop oneself for superior positions. This function, therefore, takes care of career plans and training and development activities. (4) The Retention Function — Today, human resources are being considered as a valuable asset to the organization and because of retaining and developing the knowledge bank, the retention of employees has become an important function of compensation management. Modern trends in compensation Compensation means the basic returns that an employee obtains from his/her work. Every organization offers a good compensation to attract and retain the ablest employees on the actual work floor. Compensation in present days to be studied is a need for achieving competent employees to bring effectiveness in day to day operation of the organization. It must be complete and at the satisfactory level of employees. Many studies have been taking place in recent few past years regarding compensation. Those current issues about compensation management are ‘Skill-based pay: ‘Compensation to employees is made on the basis of skills. Skill makes the persot perform the job. The basis of the job is moving away from job base to Sageees et Competency is a person's skills, knowledge, and behavior that enable performance. Job-based pay : considers the value of current job based on job ttle. Under this method, skilled, semi-skilled and unskilled employees are grouped and compensation is made to them affording to their competency.road banding: Reduced number of ranges of salary into a low number of the r: Generally, several grades are divided into three bands like clerical ‘managerial bands. It provides flexibility for employee's assignment range is called broad banding. bands, professional bands, and Comparable worth or pri g method: Pricing job 1s an equity pay. The brand of compensating employees is to be on the basis of the value of job which gets the certain price. The main objective of developing this trend is to overthrow the inequity between male and female with respect to their compensation. It avoids races and class discrimination to theit compensation. Under this method, the weight of each job is determined by considering its factors and certain value is given and on the basis of value, compensation is determined. Cafeteria approach: ‘The important current trend in compensating employees is cafeteria approach that consists of pay plus benefits and services. The employee picks benefits and services as per needs within the limit of the pay package. Variable pay plans Variable pay plans are also a current issue in compensation management. The use of variable pay system is increasing. This system is based on improving production and sharing of prosperity. Executive Compensation Executive compensation is the monetary and non-monetary benefits which are given to the senior management & executives of a company. Executive compensation includes salaries, perks, incentives, insurances etc. This includes high salaries for executive, insurances, company shares & other benefits. Executive compensation or executive pay is composed of the financial compensation and other non-financial awards received by an executive from their firm for their service to the organization. It is typically a mixture of salary, bonuses, shares of or call options on the company stock, benefits, and perquisites, ideally configured to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance, Components of Executive Compensation The executive's total compensation package consists of four main components basic salary, short- term incentives, long-term incentives and perquisites. A basie salary A basic salary this is regarded as a “fixed” element of pay and it does not normally vary in relation to company performance. Since salary establishes the executives basic standard of living, it is necessary for both high and low-performing firms to pay at the going market rates. Short-term incentives : ; Short-term incentives are generally awarded annually. Award opportunities reflect hierarchical position relationship in most cases with higher opportunities relative to salary for higher-level positions and vice versa.< b » the payment is baseq , © Long-term incentives where the pay ed oy, Long-term incentives generally refer to performance for a period beyond one year. ants or aw ards a eciation grants, restricted stock-price apprecial . ories-stock-Pr The chief grant types fall into three broad cates stock or cash grants and performanee-based rants. Benefits/Perquisites ‘The last component of an executive's total com benefits and perquisites. It is difficult to quantify benefits include company cars, club membership. spou i ob a wi jety of age consists of a wide variety ‘ack of reliability of data. These :commodation et pensation pack benefits due to ise travel, housing ac ‘Types of Executive Compensation : eG Thaw are many different forms of executive compensation, offering @ variety of performance incentives. Below are the most common forms: 1. Cash compensation ~ This is the sum of all standard cash a oe receives for the year. In the proxy statement, the company will HS! 1 (CEO), chief key member of the management team, such as the chief exec aed ), chief financial officer (CFO), legal counsel, director of sales and other divisional heads. — 2. Option grants — This is a list of all options granted to the executive; the information includes strike prices and expiration dates. Stock options, if used the right way, are a terrific way to inspire management to maximize shareholder value. However, there is a downside to options compensation. For example, management is awarded a significant options grant that is barely out of the money, meaning if the stock price goes up a little, management will be able to exercise options, convert them to common stock and sell the shares to reap a quick windfall, 3. Deferred compensation — This compensation is deferred until a later date, typically for tax purposes. However, changes in regulations have lessened the popularity of this type of compensation. 4. Long-term incentive plans (LTIPs)~ Long-term incentive _ plans encompass _all compensation tied to performance for tax purposes. Current tax laws favor pay-for- performance compensation. 5. Retirement packages — These are packages given to executives after they retire from the company. It is customary for some executives to receive health benefits upon retirement for years of service, or other reasonable perks. These are important to watch because they can contain so-called golden parachutes for corrupt executives or be payable regardless of whether the company meets its financial objectives or is even profitable. 6. Executive Perks — These are various other perks given to executives, including the use of a private jet, travel reimbursements, and other rewards. These are found in the footnotes. Perks paid out to executives at small companies should be subject to even greater scrutiny because this type of greed is more likely to bankrupt smaller companies or contribute to annual deficits. Incentive compensation Incentive compensation is a form of variable compensation in which a salesperson’s or other employees earnings are directly tied to the amount of product they sell, the success of their team, or the success of the organization as a whole. Incentive compensation management is the strategic use of incentives to drive better business outcomes and more closely align sales rep behavior with the goals of the organization. Definition:‘According to Milton L. Rock, incentives are defined as ‘variable rewards granted according to ariations in the achievement of specific results”. 2. According to K. N. Subramaniam, “incentive is system of payment emphasizing the point of motivation, that is, the imparting of incentives to workers for higher production and productivity’ 3. The National Commission of Labour defines incentive as follows: ‘wage incentives are extra financial motivation. They are designed to stimulate human effort by rewarding the person, over and above the time rated remuneration, for improvements in the present and targeted results’. Types of incentives: Incentives can be classified into three categorie 1. Financial incentives: Some extra cash is offered for extra efficiency. For example, profit sharing plan and group incentive plans. 2. Non-financial incentives: ‘When rewards or prizes are provided by the organization to motivate the employees it is known as non-financial incentives. 3. Monetary and non-monetary incentives: Many times, employees are rewarded with monetary and non-monetary incentives that include promotion, seniority, recognition for merits, or even designation as permanent employee. Advantages of incentive Plan: 1. Incentive plans motivate workers for higher efficiency and productivity. 2. Itcan improve the work-flow and work methods. 3. Incentive plans make employees hardworking and innovative. 4, When employees are dedicated, supervision costs can be reduced. 5. The National Commission on Labour says that under our conditions, wage incentives are the cheapest, quickest, and sure means of increasing productivity 6. Incentive plans help establish positive response in an organization. 7. It helps workers improve their standard of living. 8. The other benefits offered by incentive plans are reduced turnover, reduced absenteeism, and reduced lost time. advantages of Incentive PI 1. Incentive plans can lead to disputes among workers, since some earn more than others. 2. Hunger for money among the workers forces them to overwork, which may affect their heath, 3. Some workers may involve in malpractices in order to earn more money. 4. For enhanced incentives, they may sacrifice quality. 5. Italso leads to corruption by falsifying the production records. VWa o~™”™”™””—su—— _eefett—t— rsonnel- 6. Incentive plans can create tensions among different Pe! ive Scheme ‘Types of Incentive Schemes: Individual and Group Incentive is ategories: financial and non. The various types of incentives are classified into two eal pdbniieneegeesy rn financial. Here, we are concemed with financial incentives only. jual incentives and group incently. th are discussed now one by one. wre discussed now ed as individ s and gr ntives. Bot Incentive Scheme: Type # 1. Halsey Premium Plan: 1g91, it recognises individual This plan was introduced by F. A. Halsey, aan American engineer. in TB9 O iven wages at efficiency and pays bonus on the basis of lime saved. Under the method a WorK@t Tt the time rate for the time he actually worked and also paid a bonus ifhe can comp less than the time allotted to do the work. . : tage The bonus is paid at a fixed percentage of the time saved, usually 50%, (though the a re = varies from 30% to 70% of time saved). The remaining 50% of the time saved is shared by employer. Thus. Total Earnings = T.T. x H.R. + 50% (T.S. * H.R.) where, T.T. ime Taken H.R. = Hourly Rate T.S. = Time Saved ‘The main advantages of the method are: (3) The method is simple to operate and easy to understand, (ii) The slow workers are not penalised, as me wage is guaranteed. (ii) I provides incentives to more e jent workers. (iv) Worker's efficiency means reduction in cost per unit. (v) The benefit of time saved is shared between employer and employee equally. The main disadvantages of the method are: (i) Many employees organisations do not like to share the benefit of time saved equally. (ii) Attraction of bonus reduces the quality of work. (iii) Reduction of quality means chances of more wastage, spoilage, defective and break down etc. and more supervision cost, (iv) It is not so much attractive as in the ease of piece rate payments. (v) It offers less incentive to the workers as compared to other incentive plans. (vi) Ifthe time rate is not fixed properly, this may lead to a higher bonus.entive Scheme: Type # 2. Halsey-Weir Premium Scheme: We scheme was introduced by Weir Ltd. of Glasgow in about 1900. It is similar to Halsey Scheme ‘except that under this scheme the employee gets 3314% (often 30%) of the time saved as bonus and the remaining 674% goes to the employer ‘Thus: Total Farnings TT, » HAR, + 334% (T.S. pri I di : Ling workers” grievances/ dispute, ev hilosophy of settling We hari Neve 0 the ane ch more emphasis on mutual talk, sharing they give In the process changes in ali tual trust. a ling and tikely to occur which effect industrial relations, ie 10. Outcomes of IRs: eB A ‘, .d quality, services, man days lost, Outcomes of IRs are reflected in production both in quantity and quality, number of bipartite ten i ism rate, wastes, accident rate, productivity, labour turnover rate, absentee! negotiations, company’s image, growth, development ete. 11. Competency Development: : ‘tity. auiitudle and chaage: Healthy industrial relations help to develop workers” skill, knowledge, a fae, eae their attitudes, perception to enable them to participate in collaborative bargaining process effectively. 12. Issues in IRs: : . i iss -economic Industrial relations climate situation is greatly influenced by the issues-econemic, non a governed by service contract / terms and conditions of employment. Besides, the issues n ered under service rules viz., behavioural, and attitudinal issues influence IRs pattern. Industrial Relations — Importance of IR 1. The labours today are more educated and they are aware of their responsibilities and rights. Management has to deal with them not merely as factors of production, but as individuals having human dignity and self-respect. The objective is to change the traditional views of management and labour towards each other and develop mutual understanding and co-operation and work towards achievement of common goal. Good industrial relations lead to industrial peace and increase in production. 2. Joint consultation between employees and management paves the way for industrial democracy and they contribute to the growth of the organisation. 3. Conducive industrial relations motivate the workers to give inereased output. Problems are solved through mutual discussions, workers’ participation, suggestion schemes, joint meeting, ete. Good industrial relations. increase labour efficiency and productivity 4. With increased productivity. the management is in a position to offer financial and non- financial incentives to workers. Industrial Relations — Conditions for Healthy IR Good industrial relations depend upon a large number of factors/conditions. 1, History of Industrial Relations in an Enterprise: Every industry moves ahead with its good or bad history of industrial relations. Harmonious relationship between the workers and management marks the good history of the enterprise. While strikes and lockout characterise the bad history of the business. History, good or bad, established once will take time to change. Once militancy (strikes, lockouts etc.,) is established as a conduct of operations, there is a tendency to continue. If harmonious relationships are established, it will perpetuate. This, however, does not mean that militancy situation cannot be converted into a harmonious relationships or vice-versa. Rather what it means is that probability of peaceful relations is greater where mutual understandinga ‘ists ~ and the Probability of conflict is greater when industrial o ey 2 industrial conflict has been accepted as a 2. Strong Trade Unions: Strong i enlightened trade unions help to promote the status of labour without interest of Management, Trade unions maintain good relations wit militaney and strikes situ: ation. Enlightened trade persuade the management to pay more jeopardising the h management and avoid unions induce the workers to produce more and They mobilize public opinion on vital | progressive labour law: union rivalry. relations. labour issues and help the government in enacting. ‘They develop right kind of leadership, avoid multiplicity of unionism and Hence, a strong, responsible and enlightened trade union promote healthy industrial 3. Negotiating Skills of Management and Workers: Well experienced and skillful negotiations er equitable collective agreements. The repres: the human clement involved in collective b: eate a bargaining environment conducive to the tatives of management and workers mi argaining proces lust recognize Both parties must have trust and confidence in each other. They problem form the opposite angle with an open mind. A construc both the parties must be present to honour the should be able to perceive a tive and positive approach from agreements in the right spitit. 4. Econo Factors: Economic satisfaction of workers is one of the important condition for good industrial relations. Reasonable wages and benefits in commensurate with other industries must be paid by the employer. Economic need is the basic survival need of the workers 5. Social Factors: Social factors such as — social values, social groups and social status also influence the industrial relations, The employment relationship is not just an economic contract. It is a joint venture involving a climate of human and sécial relationships wherein each party (workers and management) fulfills his needs and contributes to the needs of others. The supportive climate is essentially built around social factors. The influence of social factors gets changed with the progress of industrialisation 6, Psychological Factors: The psychological factors such as motivation, alienation and morale are significant determinants of industrial relations. The relationship between workers and management would be more stable and sure if the needs and expectations of the workers are integrated with the goals of the enterprise. Workers should understand that their interests get furthered when organisational goals are achieved. Cordial and collective relations create an environment of power relationships, where everyone will be motivated to offer their best towards the attainment of goals. 7. Public Policy and Legislation: The regulation of employer- employee relationship by the government is ancther important factor for the smooth industrial relations. Government intervenes the relationships by en: enforcing labour management action, cting and . Government intervention checks and balances upon the arbitrary‘ fers to give emotional re workers and employ’ lease 1, Italso provides a formal measure to the w Cadac aatle Wy, 7 4 i e vovernment can catel Problems befgn aS ¥ dissatisfaction. Timely intervention by the government foreweey S become amounting serious, 8. Off the Job Conditions: : tal ‘5 Living conditions of workers are also important. 7 industry Aiea econ ik inseparable from his work life. His persona as niin So off-the-job conditions of workers must be taken care of and relations at the work place personal and home li on his efficieney and productivity improved to develop good indust 9. Better Education: : : Industrial workers in Indian are generally illiterate. They can be easily misled by the Fy union leaders who have their self-interest. Workers must be properly educated to understand the if prevailing industrial environment. They must have a problem solving approach and a capability to analyse the things in the right perspective. They must be aware of their responsibility towards the organisation and the community at large 10. Business Cyel . Industrial relations are good when there is boom and prosperity all round. Levels of employment go up, wages rise and workers are more happy in prosperity period. But during recession. there is decline in wages and fall in employment level. Such recessionary conditions mars the good industrial relations. Thus business cycles also influence the existence of healthy industrial relations. Industrial Relations — Models of IR 1, Dunlop’s Industrial Relations System Model- Four Interrelated Elements: i, Actors: a. Specialized government agencies. b. Management, non-managerial employees and their representatives. i. Shared Ideology: a. Beliefs within the system which not only define the role of each actor or groups of actors but also define the view that they have of the role of other actors in the system. If the view is compatible- stable IR system and other wise. b, Set of ideas and beliefs held by the actors. ¢. Helps to bind or integrate the system together. iii, Contexts: Influence and constraints on the decisions of the actors which emanate from other parts of society. stich as technology, market, budgetary and the locus of power in the society iv. Rules: (i) Procedural (ii) Substantive (iii) Distributive (iv) The regulatory framework developed by a range of process and presented in variety of forms which expresses the terms and nature of the employment relationship.— a! iticisms of the Dunlop Model: i) Descriptive (ii) Lacks ability 0 predict outcomes relationships (ii) Underestimates importance of power and conflict in employment relationship (iy) Static. (v) Cannot explain rapid decrease in unionization especially in the U.S, tem Model: 2. Craig’s Industrial Relations (i) Adds an actor- end user (ii) Elements from the external environment converted into outputs, (ii) Series of conversion mechanisms (iv) Outputs flow back into the environment through a feedback loop External Inputs: (i) Legal Subsystem (ii) Economics Subsystem (iii) Ecological Subsystem (iv) Political Subsystem cultural Subsystem (y) Si Internal Inputs: (i) Goals- Sought by actors plemented (0 achieve goals (ii) Strategies- Processes developed an: (iii) Power- The ability to make another actor agree to your terms Conversion Mechanisms: (i) Processes actors use to convert internal and external inputs into outputs (ii) Collective bargaining (iii) Produces a collective agreement (iv) Grievances (v) Written complaint by employees (vi) Alleges collective agreement not been followed (vii) Day to day relations-communication elee Sse Third-Party Interventions: Fess (i) Interest arbitration § Fe OR (ii) Mediation (iii) Grievance arbitration (iv) Conciliation (v) Fact-finding (vi) mediation/arbitration (vii) strikes/lockouts (viii) Joint committees (ii) Productivity, profitability (iii) Labour outcomes (iv) Equity issues, ways to achieve faimess in the workplace (v) Worker perceptions (vi) Work climate (vii) Employee morale (viii) Organizational commitment (ix) Union satisfaction/commitment (x) Conflict or conflict resolution Industrial Relations — Main Aspects of IR relations are: The main aspects of indust (1) Promotion and development of healthy labour management relations; (2) Maintenance of industrial peace and avoidance of industrial strife; and (3) Development of industrial democracy. (1) Promotion and Development or Healthy Labour-Management Relations: One of the aspects of industrial relations is to promote and develop healthy relations between the employer and employees and pre-supposes. (a) Spirit or collective bargaining and willingness to take recourse to voluntary arbitration. The very feeling of collective bargaining makes them assume equal status in the industry. This feeling may further industrial peace. (b) The existence or strong, well organised, democratic and responsible trade unions and also associations or the employers in the industry which may ensure job security to workers and theit participation in the decision-making and give labour a dignified role in the society. Theserhe Mobitising System™ sistame ciations, tend to creat ‘ f€ grounds for negotiations, « dng to ood labour mansoen oe nesations, consultations and discussions on mutual basis ther voluntary or statut te luniry Statutory provided by the state, trade unions and the @) Maintenance of Industriat een ® eed and healthy labour-management relations Industrial peace presupposes a ses th ee of i when the following rights sag’ ahsenee of Industral strife, Such peace ean be established only tripartite consultation mec ern leBeS ate enioyed bythe Sate and facilities for bipartite or (@) Machinery for he efor resolving disputes i any, are provided ion and settlement of industrial disputes should be established throu, leislatve and administrative enactment. ee een cheer alte \ a 1e prov 'on of the bipartite and tripartite forums for the settlement of disputes must be made. (0) Approniage patel standing orders and procedures to resolve disputes are necessary ehagehroPriate Government must have sufficient power to refer the disputes to adjudication or Gditration when it feels it necessary inthe interest of the industry, or of the country. The Op rauuuent must not allow any’ group inthe industy to stop production due to strikes or lock-outs (2) Implementation Cells and Evaluation committees must be established, having power to look into the implementation of various agreements, settlements and awards and also to violation of statutory provisions under various labour laws. (3) Development of Industrial Democracy: The idea of ‘industrial democracy’ is that the labour must have the right to associate with the ‘management in running the industry. In this connection, following techniques are usually adopted: (a) Establishment of the Shop Councils and Joint Management Councils at the floor and plant level to improve the working and living conditions through mutual consultation and understanding. It will create necessary climate for the development of industrial democracy; (b) Increase in labour productivity through various means; (c) Recognizing the labour not as a commodity but as a human being in the industry, allowing them a feeling of self-respect and better understanding of their role in the organisation; (d) The material and social environment to which the worker adjusts and adapts himself while at work, must be available According to Lester, “Industrial relations involve attempts to arrive at solutions between the conflicting objectives and values; between profit motive and social gain; between discipline and freedom; between authority and industrial democracy; between bargaining and cooperation; and conflicting interests of the individual, the group and the community.” Industria} Relations — 3 Main Participants in Industrial Unit We can have three parties or participants or actors in an industrial unit: 1. The workers and their unions, 2. Employees and their associations, and 3. Govemment. 1, Workers and their Unions: The total work plays an important role in industrial relations. The total work includes working age, educational background, family background, Psychological factors, social background, culture, skills, attitude towards other work, etc. Workers organisation prominently in trade union activities. The main purpose of trade unions is to protect the workers economic interest through collective bargaining and by bringing pressure on management through economic and political practices. Trade union factors include leadership, financial, activities, ete. 2. Managers and their Associations: The prominent role is of work group, the differences in their sizes, constitutions and the degree of specialization they press upon. Of course, there is the necessary provision for inutual communications for the structure of status and authority and for such other organisation as trade unions and employer’s associations. 23jon; government exerts its influence Government plays a balancing role as a custodian of the nation fadarenibinale stints industrial relations through its labour policy. industrial relations Po ter cate the process of conciliation and adjudication by playing the oie ne a anisations the activites and behaviour of both employee's organisations ane ONO the social and 4 Jations system may Thus the three groups of employees, employers ad the government 1 regulations which enforce the workplace overnme economic environment that prevails at a particular time. be in vogue. it has in its framework the intricate rules an ulations. There might and the working community prone various systems might comprise of different forms of such rules an L ious systems might comprise of different forms of suc ie earenienss writen be laws and awards of different courts, committees or tribunals. There might or sanctioned by custom, usage, practice or tradition or there might be the outcome of government Policies or intervention Industriat Relations — Policies i, Monitoring of industrial relations (Man-days lost in strikes and lockouts/ workers affected by closure/retrenchment, reasons for labour unrest and industrial sickness etc.) ii. Convening of meetings of Industrial Tripartite Committees and Special Tripartite Committee. iti, Decisions on closure, retrenchment and lay-off applications submitted by Central Public Sector Undertakings (CPSUs). ing to employees in Central Public Sector Undertakings on payment of iv. Policy matters relat Statutory dues of workers, impact of disinvestments and restructuring of PSUs on employees, improvements in Voluntary Retirement Scheme / Separation Scheme, etc.) Special Tripartite Committee / Industrial Tripartite Committees: Seven industrial tripartite committees have been constituted with the view to promote the spirit of tripartism. These tripartite bodies aim at solving the industry specific problems related to workers in the Sugar industry, Cotton, Textile industry, Electricity Generation and Distribution, Jute industry, industry and Chemical industry. In addition a Special Tripartite Road transport, engineering Committee has been constituted to discuss general matters pertaining to Government reforms policies and their impact on workers. Implementation: i, Recognition of unions under the Code of Discipline in respect of industries / undertakings in the Central Sphere. ii, Rendering assistance in securing recognition to unions in multi-state establishments which are in the State sphere, as and when such requests are received. iii. Verification of membership of unions in Major Ports and Docks for the purpose of allocation of seats in the Port Trusts and Dock Labour Boards. iv. Verification of membership of unions operating in nationalized Banks and SBI for the purpose of identifying the representative union for appointment of workmen, Directors on the Boards of Nationalized Banks. v. Rendering advice/clarification in matters of withdrawal/derecognition of unions, criteria for recognition of unions, verification procedure rights and privileges of recognized and unrecognized unions etc. vi. General verification of membership of trade unions. vii. Implementation of the Code of Discipline. viii, Implementation of awards under the Industrial Disputes Act. ix. Screening of proposals for appeal against industrial awards under the Industrial Dispute Act by Public Sector Undertakings. Screening Procedure: ; / 7 According to the screening procedure as approved by the Committee of Economic Secretaries in its meeting held on August 1, 1964, the Public Sector Undertakings are required to consult the ‘Administrative Ministry concerned whenever they have to file an appeal challenging the award of the Tribunal etc.See aa ae filing a Writ Petition in the High Court. Ifthe Labour and the Ee ive Ministries do not agree w is " aire Committeé of Economic Secrens 0° NOt A828 With the decision, the matter isto be taken to the Labour Management Relation jons have undergone a sea change. Developing and maintaining good labour relations has heeome a part of organisational strategy Intl nis section, we shall discuss some of the strategi es involved in labour-management relations which are: 1. Develo Relations: a fate healthy labour-management relations: i. A well-organised and democratic employee union that can protect employee interests by providing job security and ensuring proper wages and benefits 4i, A well-organised employers union that can promote and maintain uniform personnel policies. They should protect the interests of the weaker employers. iii, Mutual negotiations and consultations between the employees and the employers. It is important to develop the collective bargaining approach, a process through which employee issues are settled through mutual discussions, 2, Maintaining Industrial Peace: Industrial peace is essential to increase production and ensure healthy relations between the workers and employers. ‘The following measures help attain industrial peace: i, Industrial disputes can be settled with the help of legislative enactment such as The Trade Unions Act, The Industrial Disputes Act and Work Committees and by Joint Management Councils ii, The Government should be empowered to refer disputes to adjudication, specially when the situation gets out of hand. Government intervention is required during frequent stoppage of production due to long strikes or lockouts. iii, Forums based on the code of discipline in industry, the code of conduct, the code of efficiency, etc. can be set up to settle disputes. 3. Developing Industrial Democracy: Industrial democracy can be established when labour is given the right to be associated with various activities of the industry. Industrial democracy can be attained by: i, Establishing shop councils and joint management councils at the floor and plant level to improve the working and living conditions of the workers, enhance productivity, and encourage feedback from them. These councils serve as channels of communication between the management and the workers. ii, Recognising human rights in the industry by viewing employees as human resources, not as commodities. iii. Increasing labour productivity improve their efforts and skills. iv. Providing proper work environment to help workers adapt to work by motivating employees to perform better and help them Changing Trends in Labour Management Relations Before industrialisation, one couldn’t even dream of cordial labour-management relations. However, organisations realised that employee participation was needed for their survival. From exploiting workers, organisations sought the participation of workers in every activity. 1, From Exploitation to Participation: In the initial years of industrialisation, most organisations adopted the authoritative style of management. There were no formal communication channels between the management and labour. Labour was considered a commodity. Workers were provided with poor, unsafe working conditions Loi a hts and their-activities were strictly ¢ ‘s v Pt, and meager incomes. Workers were not aware of their righ changes in the economic environment, and the growing management style. Organisations realised the monitored. er participation to counter the The enactment of protective legislation, awareness of human rights led to a change in the r importance of human resources. Many organisations encouraged wor _ avant: challenges posed by the rapidly changing business environment. The concept of industrial relations began to gain in importance. in speci Most organisations supported workers’ participation in management to serve certain specific Purposes such as: i. Managing resistance to change among employees ii, Encouraging communication between the management and workers who are a part of the decision-making process iil. Establishing democratic values in the organisation right from the shop-floor level. 2. ‘Changes in the Economic Environment: — liberalisation and globalisation have had a tremendous impact on labour-management i, Economic Liberalisatior > aan conomy. which was liberalised in the year 1991, shifted its focus from import With multinetonch me promotion and domestic competition. Thus, domestic firms had to compete wee nanenear ts a ‘irms discovered that to maintain high quality and maximise productivity, icra eas ae Moat To have a committed workforce, it was essential labour-management were eness towards the organisation, This made organisations work towards a petals, trade unions in India played a major role in protecting the interests of the the management af die acties Such as strikes and gheraos. Some trade unions even threatened ee “onsequences if their demands were not met. However, with most ‘Banisations adopting a participative management style, trade unions began to co-operate with the management, This is because the trade unions realised that market forces and not the strength of the trade union determined workers’ interests. ii. Globalisation: Globalisation is defined as the growing liberalisation of international trade and investment, due to the integration of national economies. Most workers associate globalisation with loss of jabs. They strongly feel that globalisation has always had a negative impact on labour relations. The reasons are: a. Multinational companies are successful in exporting jobs from the developed countries to developing countries with the help of foreign investments. b. Trade liberalisation has boosted the marketing of foreign goods rather than domestic goods. c. Multinational companies extensively use technology and are less dependent on labour. Priority Issues in Labour-Management Relations: We shall now discuss the priority issues in labour-management relations. Roles and Responsibilities of the Labour Union and Management: The roles and responsibilities of unions and management have undergone a significant change in the past few years. Earlier, unions used political pressure to force the management to accept their demands. The management looked at unions as negative forces that did more harm than good. The changed roles and responsibilities of unions are: i, To provide job security to workers ; ii, To safeguard the interests and protect the rights of workers . To encourage and enable worker participation in management iv. To help employees develop their skills : v. To co-operate with management at times of crises | vi. To negotiate with management on industrial conflicts The roles and responsibilities of management are: i. To get things done on time ae ii, To co-operate with the unions and satisfy their needsaximise productivity by enabling p; articipati | ante tights to workers oe f yo treat unions as a strength, not as a liability {To help workers adapt to changes i To involve worke: Building Consensu: ions and management can build e in decision-making Asenstts by listening Tistening to each other and getting involved in doch other's a Consensus can be built by: j. Establishing goals ji, Developing strategies and tac j, Measuring the results iv. Identifying the problem 4. Conflict Management: Conflicts at the workplace affect the phy tional performance. Therefore. cs to achieve goals cal and mental health of the people. This has a bearing on derstand, and resolve organi conflicts in labour relations. Some methods to manage conflicts are: i. Find solutions that are acceptable to conflicting parties with the help of bargaining. ‘i technique used to ensure that the conflicting parties reach an seat aca osu vot : neutral third party to resolve the conflict. one ii, Use the problem-solving approach helps to identify problems and devise ways and means to solve the problem. 5, Effective Negotiations: Negotiation is a peaceful way of resolving disputes. Management and unions can develop strategies to ensure that the negotiations are effective. i. Management Strategies: a, Determining the compensation package that the company intends to offer the union b. Collecting statistical data that is likely to be used during negotiations c. Collecting and compiling information on issues that are likely to be discussed during negotiations d. Strategic Issues in Employee Safety, Health and Labour Relations e. Analysing various trade union acts and their use in other companies ii. Union Strategies: Collecting information regarding: a. The financial health of the company and its ability to pay employees b. Negotiations handled by the company in the past c. Negotiation strategies adopted by similar companies d. The desires, preferences and interests of employees regarding their work e. Preparing a questionnaire to finalise the demands to be discussed during the negotiation f. Persuading members of the union not to resort to violence during the process of negotiation 6. Interpersonal Communications: Communication is essential for unions to convey their grievances to the management, and for the management to convey its opinions to the union. Effective communication helps remove misunderstandings between the conflicting parties. The different forms of interpersonal communication used in labour relations are: i, Oral Communication ii, Written communication ‘The management uses oral communication during negotiations, discussions, and interactions with ‘the union. Management and unions use written communication in the form of memos, letters, and reports. 7. Trust and Co-Operation: ‘Trust and co-operation are essential in labour relations. They help build a partnership between workers and employers and both groups to work together. Lack of trust and co-operation between 27d strikes. That slows down the productivity of the disputes an the two groups can result in conflicts, organisation. : ; ; The Steel Authority of India Limited (SAIL), is well- known for its culture of mutual trust and co- t. SAIL has not had a strike after the 1969 nt made by and the managemen! ment and the trade u Steel Industry (NJCS) an‘ nion. The 1994 collective agreeme: operation between the workers d SAIL identified areas to improve negotiations between the manag‘ The National Joint Committee for organisational performance. Some of them are: i, Reducing wastage by handling raw materials efficiently ii, Reducing operational costs and procuring material at economic prices iii. Improving quality in all operations iv. Making necessary improvements in the working conditions vy. Reducing unauthorised absenteeism vi. Optimising capacity utilisation in each steel plant vii. Improving house-keeping, customer service, and delivery viii. Making effective use of all resources, including human resources.