METHODS OF

PERFORMANCE
APPRAISAL
 Performance Appraisal.
Performance appraisal can be described as a
systematic evaluation of performances of several
employees so that they can understand all
abilities of a person and their development and
growth. Performance appraisal is also done in a
very systematic manner which includes
measuring the pay of employees and comparing
it with all plans and targets.
Methods Of Performance
Appraisal
🞇 The methods of performance appraisal are as
follows
A. TRADITIONAL METHODS.
B. MODERN METHODS.
A.Traditional methods are as
follows
1. Ranking Method
2. Paired Comparison
3. Grading Method
4. Forced Distribution Method
5. Forced-Choice Method
6. Check-List Method
7. Critical Incidents Method
8. Graphic Rating Scale Method
9. Essay Method
10. Field Review Method
11. Confidential Report
1. Ranking Method:
It is the oldest and simplest formal systematic method
of performance appraisal in which employee is compared
with all others for the purpose of placing order of worth.
The employees are ranked from the highest to the lowest or
from the best to the worst.
2. Paired Comparison:
In this method, each employee is compared with other
employees on one- on one basis only. The rater is provided
with a bunch of slips each coining pair of names, the rater
puts a tick mark against the employee whom he insiders
the better of the two.
3. Grading Method:
In this method, certain categories of worth are
established in advance and carefully defined. There can be
three categories established for employees: outstanding,
satisfactory and unsatisfactory. The employee is, then,
allocated to the grade that best describes his or her
performance.
4. Forced Distribution Method:
This method assumes that employees performance level
confirms to a normal statistical distribution i.e., 10,20,40,20
and 10 per cent. This is useful for rating a large number of
employees’ job performance and promo ability. It tends to
eliminate or reduce bias.
5. Forced-Choice Method:
Under this method, the rater is forced to answer
the ready-made statements as given in the blocks of two
or more, about the employees in terms of true or false.
Once he is done with the list, it is
forwarded to the HR department for the final
assessment of the employee.
6. Check-List Method:
The basic purpose of utilizing check-list method is
to ease the evaluation burden upon the rater. In this
method, a series of statements, i.e., questions with their
answers in ‘yes’ or ‘no’ are prepared by the HR
department. The check-list is, then, presented to the
rater to tick appropriate answers relevant to the
appraise. Each question carries a weight-age in
relationship to their importance.
7. Critical Incidents Method:
The critical incident method requires the rater to
record statements that describe extremely good or bad
behavior related to job performance. The statements are
called critical incidents and are
usually recorded by the the supervisor during
evaluation period for each subordinate.
Recorded incidents include a brief explanation
of what happened.
8. Graphic Rating Scale Method:
The graphic rating scale is one of the most popular
and simplest techniques for appraising
performance. It is also known as linear rating
scale. In this method, the printed appraisal form is
used to appraise each employee.
9. Essay Method:
Essay method is the simplest one among various
appraisal methods available. In this method, the
rater writes a narrative description on an
employee’s strengths, weaknesses, past
performance, potential and suggestions for
improvement. Its positive point is that it is simple in
use. It does not require complex formats and
extensive/specific training to complete it.
10. Field Review Method:
This is an appraisal done by someone outside
employees, own department usually from corporate or
HR department.
Advantages: Useful for managerial level promotions,
when comparable information is needed.
Disadvantages: Outsider is generally not familiar with
employees work environment, Observation of actual
behaviors not possible.
11. Confidential Report:
It is the traditional way of appraising employees
mainly the Government Departments. is
in made by the immediate boss or for
supervisor giving effect to promotion and
Evaluation
transfer. Usually a structured format is devised to
collect information on employee’s strength
weakness, intelligence, attitude, character,
attendance, discipline, etc.
B.Modern methods are as
follows.
1. Management by Objectives (MBO)
2. Behaviourally Anchored Rating
Scales (BARS)
3. Assessment Centers
4. 360 – Degree Appraisal
5. Human Resource Accounting
1. Management by Objectives (MBO):
The concept of MBO can be described as a
“process whereby the superior and subordinate
managers of an organization jointly identify its
common goals, define each individual’s major areas of
responsibility in terms of results expected of him, and
use these measures as guides for operating the unit
and assessing the contribution of each its members”.
2. Behaviourally Anchored Rating Scales (BARS):
Behaviourally Anchored Rating Scales (BARS) are
designed to bring the benefits of both qualitative and
quantitative data to the employee appraisal process.
BARS compare an individual’s performance against
specific examples of behaviour that are anchored to
numerical ratings.
3. Assessment Centers:
An assessment center is a central location where
the managers may come together to participate in
job related exercises evaluated by trained
observers. The principle idea is to evaluate
managers over a period of time, by observing and
later evaluating their behaviour.
4. 360 – Degree Appraisal:
In 360-degree appraisal system, an employee is
appraised by his supervisor, subordinates, peers, and
customers with whom he interacts in the course of his
job performance. All these appraisers provide
information or feedback on an employee by
completing survey questionnaires designed for this
purpose.
5. Human Resource Accounting:
Human resource method attaches money values
to the value of a firms internal human resources and its
external customer good will. Under this method,
performance is judged in terms of costs and
contributions of employees. Difference between the
cost and contribution will reflect the performance of the
employees.
CAREER

Edwin B. Flippo defined a career, as a sequence

of separate but related work activities that
provide continuity, order and meaning in a
person’s life. A career may be viewed as
amalgamation of the changes in values, attitudes
and motivation an individual embrace, as he or
she grows older. This constitute subjective
element of the concept “career”.
Career Planning

As both the individual and the organisation have

interests in individual’s career, career planning is a
deliberate process of being aware of self, available
opportunities, existing constraints with the alternative
choices and sequences. It also involves, identifying
career related goals and undertaking work education and
related developmental exercises to provide the right
direction, proper timing and sequences to attain a
specific career goal.
Career planning and Manpower Planning
Career Planning and Manpower Planning are not synonymous.
The latter enables the personnel department of an organisation to
report on the inventory of skills and potentials available in the
organisation. The former enables the organisation to identify, who
on the basis of performance and potentials appraised and
evaluated, could be groomed for or fitted in higher level
assignments, and where, when, and how. Again 
manpower planning provides human resources data that is
immediately available within the organisation to meet change in
conditions such as expansion of the existing business, a 
technological innovation, providing a new service or opening up
new branches.
NEED FOR CAREER PLANNING

career planning is an essential prerequisite for effective

man-management, for organisational growth and
development and for obtaining optimum productivity. 

career planning has become a must for manning an

organisation with efficient supervisors, higher technical
and managerial personnel and for preventing such
personnel leaving the organisation for lack of
promotional avenues
Career planning, if properly designed and implemented,
it benefits the managements as well as the employees
and the absence of it make a big difference both for the
employees and the organization.
Features of Career Planning
A Process: Career planning is an ongoing 
process of developing human resources. It is neither an event nor a
programme.
Upward movement: It involves upward movement in the organisational
hierarchy. It could also be special assignments, completing a project that
requires better skills and abilities to handle recurring problems.
Mutuality of Interest: Career planning serves mutuality of interest. It serves
individual’s interest by taking care of his needs and aspirations to the required
extent. Simultaneously it serves the organisation’s interest as the human
resources of an organisation are provided with the opportunity to develop and
contribute to the organisation’s goals for fulfillment of its objectives to the best
of their ability and confidence.
Dynamic: The dynamic nature of career planning is to cope and adjust with
the ever changing environment.
Objectives of Career Planning

It provides and maintains appropriate human resources in an organisation by

offering careers, not jobs.

It creates an able environment of effectiveness, efficiency and growth.

It maps out careers of different categories of employees, in accordance with
their ability and willingness to be ‘trained and developed’ to take the
responsibility of higher positions.

It seeks to maintain a stable workforce within an organisation by controlling 

absenteeism and reducing employee turnover.
It caters to the immediate and future human resource need of the organisation
at appropriate time.

It increases proper utilization of managerial reserves within the organisation.

Career Planning Process
Identifying individual needs and aspirations: Most
individuals do not have a clear cut idea about their career aspirations, anchors
 and goals. Therefore, the human resource professionals must help an
employee in this direction and provide as much information as possible.
Taking into account his skills, experience, and aptitude, he is shown the kind
of work, that would suit him most. Workshops, seminars can also be arranged
with psychological testing, simulation exercises to extend such type of
assistance. Such an exercise is basically meant to help an employee to form a
clear view of his career of chosen occupation within the company. Workshops
and seminars boost employee interest in career planning, as it help the
employees set their career goals, identify career paths and uncover specific
career development activities. Printed and other forms of information can also
be provided to supplement individual efforts. To assist the employees in a
better way, organizations construct a data bank or skill and talent inventory,
consisting of information on the career histories, skill evaluations and career
preferences of its employees.
Analyzing career opportunities: Once career needs
and aspirations of employees are known, the
organization determines the career paths for each
position, showing career progression possibilities
clearly. That indicate the different positions, a good
performer could hold over a period of time. Career paths
change over time in tune with employee’s needs and
organizational requirements.
Aligning needs and opportunities:

After employees have identified their needs and there is existence of career
opportunities, the next step is to align the former with latter. This process
involves identification of the potentiality of employees and then undertaking 
career development programme. The potentiality of employees can be assessed
through performance appraisal. That would reveal employees who need
further training, who can take added responsibilities, etc. Then certain
developmental techniques are undertaken to update employees’ knowledge and
skills taking into consideration of employee potentiality. It includes special
assignments, planned position rotation, supervisory coaching, job enrichment,
understudy programmes and so on.
Action plans and periodic review: 
After initiating the above steps, it is necessary to review
the whole things periodically to uncover the gaps. These
gaps are to be bridged both by 
individual career development efforts and organization
supported efforts from time to time. Periodic review will
help the employees to know the direction in which he is
moving, what changes are sought, what kind of skills
are needed to face new and emerging organizational
challenges. Organizations also find out how employees
are doing, their goals and aspirations and whether the
career paths are in tune with individual needs and serve
the overall corporate.
Career Planning and Succession Planning
Succession planning is a conscious and deliberate decision of an
organization to foster and promote the continual development of
employees in order to ensure that, key positions maintain some
degree of stability, enabling an organization to achieve its 
business objectives. Succession planning ensures the availability
right personnel to takeover in the event of departure and
eventualities of key employees, in an organization. When
vacancies occur in key positions in the organization, it is to be
filled up either promoting internal people or by hiring externally.
When this is done in accordance with an agreed upon and
carefully-thought-out policy and process, it is a succession plan.
Generally, succession or replacement planning programmes are
implemented to ensure the development of sufficient number of
qualified people to fill future vacancies in key managerial and
professional positions.
Succession planning is essential for higher level executives.
Whereas career planning covers executives at all levels including
highly skilled employees and operatives. To develop succession
plans based on current employees skill sets, 
organisations need to create and maintain current skills inventorie
s
 by having a reinforced career system. It also identifies key
employees for future openings which are critical to the
company’s leadership and business success. Both have the same
requirements and implications. Generally, career planning in an
organisation moves with a succession plan for the higher-level
executives.
The 
succession plan involves identification of likely vacancies in the
higher echelons and to locate the probable successors
. Career planning may have charts showing the career paths of
different categories of workers and how they can advance up in
CAREER DEVELOPMENT

The concept of career development is of growing concern to

organizations since it matches the needs of a business with the
career goals of employees. Formulating a career development
plan can help employees to do their jobs more efficiently.
Additionally, these plans can be beneficial for employees who
might want to move up in a company or look for other jobs in the
future. Today, challenging organizations have developed new
concerns for the career development of their employees. They put
greater emphasis on ‘career’ with coherent induction, training and
development, increased job security by the accrual of experience
and qualifications valued in the labor market.
Definition of Career Development
Career development is defined an organized, planned effort
comprised of structured activities or processes that result in a mutual
career plotting effort between employees and the organization.
Career development is an ongoing process by which individuals
progress through a series of stages, each of which is characterized by
a relatively unique set of issues, themes and tasks. Career
development involves two sets of activities: career planning and 
career management. Career planning is defined as the activities
performed by an individual, with the assistance of counselors and
other individuals to assess the skills and potential of employees to be
able to establish a realistic career plan while career management
consists of activities that help an individual to develop and carry out
career plans. Career management involves taking the necessary steps
to achieve that plan, and generally focuses more on what the
organization can do to foster employee career development.
Purpose and Benefits of Career Development

Reduces attrition of employees: A career development program

helps to increase the level of satisfaction of the employees and
therefore reduce the number of people who intend to leave the
organization.
Provides equal opportunity employment: There is chance for
equal opportunity employment when one considers the career
development program since these programs identify each person
for the merits. Highly effective people and the results that are
shown by the individual are taken as a criterion for their
development and not other criteria, which therefore demonstrate
equal opportunity.
Improves the use of the employees: Career development
enables employees to learn better aspects of their work and
improve their capabilities. It also helps them to manage their time
efficiently and ensure that the use of employees increases over
time.
Improves the quality of the work life of employees: Career
Development helps employees learn better methods of working,
work ethics and other important aspects of work.
Improves the organization itself: Through a career development
program, employees have an increased knowledge of the various
activities of the firm. Therefore the sharing of knowledge and
work ethics tend to make the organization improve.
Increases the skill of the employees: An employee’s skill is
improved if he/she goes through a career development program.
These programs aim at increasing various facets of a worker’s life
which makes the latter perform better at work.
Stages of Career Development
1. Exploration Stage
This stage starts when a new employees joins an organisation. This career
exploration stage is best described as the “information gathering” phase. This
is a kind of ‘budding’ stage for a new employee and is considered as the
formative phase of his/her career. Therefore, it is essential for an organisation
to sustain the behavioral as well as operational deficiencies of new hire to help
him to develop in the course of time. The organisation’s responsibility at this
stage is to ensure that, the employee’s concerns are taken care of. He/she is
helped out to settle down and establish himself/herself. At this stage,
induction-training in the form of organisational work familiarization
programmes, technical or professional training or on-the-job training at the
institutions are imparted to the employees. Unfortunately many organizations
experience high level of turnover at this trial and exploration stage. Employees
in this stage need opportunities for self-exploration and experiment with a
variety of job activities or assignments.
2. Establishment Stage
The next phase is the establishment and developmental stage. It is also known
as blooming’ stage or advancement stage. This involves growing and getting
established in one’s career. In this stage, the individual is concerned with
achievement, performance, and advancement. This stage is marked by 
high employee productivity and career growth, as the individual is motivated
to proceed and succeed in the organization in his or her chosen occupation.
This stage desires the employees to take the opportunities of higher
responsibility and more challenging jobs for better use of special
competencies. The employees strive hard for creativity and innovation by
taking challenging job assignments. Organisations, at this stage, need to
provide required degree of autonomy to the employees, so that they can
experience feelings of individual achievement and personal success. During
this period, employees must be oriented in a manner that will create maximum
learning opportunities and favorable attitude towards the organisation. It
should also be ensured that the assignments assigned to them are optimally
challenging with a genuine test of their abilities and skill.
4. Maintenance Stage

This is a mid-career stage for those employees, who strive hard to retain their
established name and fame. The mid-career stage is generally typified and
characterized by a sort of continuation of established patterns of work
behavior. At this stage, the person seeks to maintain his or her established
position in the organization. This stage is also viewed as a mid-career plateau
in which very little new ground is broken. This is otherwise known as mid
career crisis. People at this stage, often make a major reassessment of their
progress relative to their original career ambitions and goals. The individuals
at this stage is helped out and provided with some technical training to update
their skill sets in their respective field.
4. Stage of Decline

This stage is characterized by lessen career importance and the employees plan
for retirement and seek to develop a sense of identity outside the work
environment. Employees at this stage get scared for the possible threat of
reduced role and responsibilities in the organisation. Therefore, career
development at this stage aims at helping the employees to get mentally
prepared for retirement and to accept the reduced role and responsibilities, so
that they can accommodate themselves in their family and in the society after
retirement. Retirement rituals management without destroying the employee’s
sense of self worth is the primary concern of the career development process at
this stage. The retired employees can also be provided with new part-time
roles both within and outside the parent organisation, so that people can use
their knowledge, experience and wisdom for the cause of society.
Transfer, Promotion
and
Reward Policy
Transfer
Transfer is defined as “a lateral shift causing movement of
individuals from one position to another usually without
involving any marked change in duties, responsibility, skills
needed or compensation”
Transfer is change in assignment in which the employee
moves from one job to another in the same level of
hierarchy requiring similar skill involving approximately
same level of responsibility, same status and same level of
pay.
Reasons for Transfer
To meet organizational requirements
To satisfy employee’s need
To resolve interpersonal conflicts
To improve employee background
Disciplinary decisions
To minimize fraud/bribe.
Benefit of transfer
Transfers benefit both the employees and the organization.
Transfer reduce employee’s monotony, boredom etc.
Increase employees job satisfaction.
Improves employee’s skills, knowledge etc.
Correct erroneous placement and interpersonal conflicts.
Enhance human resource contribution to organizational
effectiveness.
Problems of transfer
Adjustment problem to the employee.
Reduction in employee contribution
Affects employees’ morale, job satisfaction,
commitment and contribution.
Loss of man-days.
Separation
 Separation is a decision that the individual and the
organization should part.

 The separation between employer and employee can be due

to any of the following two:
 Resignation - Employee decides to leave the organization.
 Termination - Employer decides to break the contract of
employment.
 Retrenchment/Layoff
Resignation
Employee leaves his job and employment with his
employer to pursue better opportunities; a better position
at a better compensation package
An employee resigns for:
Better compensation and benefits
Higher position / level
Challenging role
For foreign or international assignments
To move from an unknown or lowly branded company to a
highly branded and reputed company
Termination
In termination, an employer uses his right to
terminate the contract of an employment. There can
be many reasons for an employer to terminate the
contract of employment but some of the common
reasons are:
Indiscipline
Misconduct
Insubordination
Theft and etc
Retrenchment/Layoff
Retrenchment is something akin to downsizing.
Lay off is a temporary suspension of the contract of
employment.
Layoffs are made for lack of work.
Layoffs are not to be used as a means of removing
employees from the payroll for other reasons, such as
unsatisfactory work or misconduct, which are reasons
for release or discharge.
Promotion
Promotion is advancement of an employee to a better job-
better in terms of greater responsibility, more prestige or
status, greater skills and especially increased rate of pay or
salary.”
The main conditions of promotion are:-
Reassignment of higher level job to an employee than what
he is presently performing.
The employee will naturally be delegated with greater
responsibility and authority than what he has had earlier.
Promotion normally accompanies higher pay.
Purpose of Promotion
To utilize the employee’s skills, knowledge at the appropriate
level in the organizational hierarchy resulting in organizational
effectiveness and employee satisfaction.
To develop competent spirit and inculcate the zeal in the
employees to acquire the skills, knowledge etc. required by
higher level jobs.
To develop competent internal source of employees ready to take
up jobs at higher level in the changing environment.
To promote a feeling of content with the existing conditions of
the company and a sense of belongingness.
To build loyalty and to boost morale.
To reward committed and loyal employees.
Basis to Promotion: Seniority
Seniority refers to relative length of service in the same job
and in the same organization.
The logic behind considering the seniority as a basis of
promotion is that there is a positive correlation between
the length of service in the same job and the amount of
knowledge and the level of skill acquired by an employee in
an organization.
Easy to measure and judge the seniority
No scope for favoritism, discrimination thus reduces
conflicts
Basis to Promotion: Merit
Merit is taken to denote an individual employee’s skills,
knowledge, ability, efficiency and aptitude as measured
from educational, training and past employment record.
Better utilization of resources
Motivation to competent employees
Encourages employees to acquire new skills/knowledge
Types of Promotion
Horizontal Promotion:-This type of promotion involves an
increase in responsibilities, and a change in designation.
But the employee concerned does not transgress the job
classification.
Vertical Promotion:- This type of promotion results in
greater responsibility, prestige and pay, together with a
change in the nature of the job.
Dry Promotions:- The person is promoted to just next level
in heirarchy.Designations are different but no change in
responsibilities.
Benefit of promotion
Promotion places the employees in a position where an
employee’s skills and knowledge can be better utilized.
It creates and increases the interest of the other employees in
the company as they believe that they will also get their turn.
It creates among employees a feeling of content with the
existing conditions of work and employment.
It increases interest in acquiring higher qualifications, in
training and in self development with a view to meet the
requirement of promotion
Promotion improves employee morale and job satisfaction.
Ultimately it improves organizational health.
Demotion
Demotion is the reassignment of a lower level job
to an employee with delegation of responsibility
and authority required to perform that lower level
job and normally with lower level pay.
Organizations use demotion less frequently as it
affects employee career prospects and morale
Need for demotions
• Unsuitability of the employee to higher level jobs:
• Adverse business conditions:
• New technology and new methods of operation demand
new and higher level skills.
• Employees are demoted on disciplinary grounds. This is
one of the extreme steps and as such organizations rarely
use this measure.
Reward Policy
 A reward policy is a carefully drafted document by an
organization which states procedures, policies, rules and
standards associated with allocation of benefits and
compensation to employees.
Reward Policy
 Advantage
 Employee motivation
 Better employee retention
 Better work performance
 Creates a zeal in employees for recognition
 Disadvantages
 Workers may sacrifice quality for quantity.
 Workers tend to overwork and undermine their
health.
Reward Policy
 Types of rewards.
Non-monetary Incentives
Monetary Incentives
Group Incentive plans
Individual Incentive Plans
Factory / Plant wide Incentive Plans
Non-monetary Incentives
Necessary to satisfy the social and egoistic needs of
workers
Each person has its individual psychological
framework and responds to different appeals in
different manner.
Some commonly used Non-monetary Incentives are:-
Praise and credit
Security of tenure
Participation
Important and interesting task.
Monetary Incentives
 Skill-based rewards.
Incentives given to people for acquiring and developing
job-relevant skills.
Advantages.
Employee cross-training.
Fewer supervisors needed.

 Profit-sharing rewards.
Reward employees based on entire organization’s
performance.
Often fund employee retirement plans.
 Lump-sum pay increases.
Individuals get to receive a pay increase in one or more
allowances that increases their base salary.
Lump-sum payments — which differ from lump-sum
increases — are one-time bonus payments that do not
increase the base salary.
 Gain-sharing plans.
Workers share the enhanced earnings resulting from
productivity gains.
Advantages.
Increased worker motivation.
Greater sense of personal responsibility.
Encourages participation and teamwork.
 Fringe incentives:
These incentives are indirect incentives such as
providing accomodation ,car or servants.
Usually given to keep a good employee foccussed and
loyal to the company.
WAGE AND SALARY ADMINISTRATION
 CHAPTER 6

Definitions and Concepts

 Wage salary administration is essentially the application

of a systematic approach to the problem of ensuring that
employees are paid in a logical, equitable and fair manner
and the terms used are Wage, Salary, Earnings, Nominal
Wage, Real Wage, Take Home salary, Minimum Wage,
Statutory Minimum Wage, The Need-based Minimum
Wage, The Living Wage, The Fair Wages, Incentive Wage,
Wage Rate, Standard Wage Rate
Contd.
 CHAPTER 6

 Indian Labour Organization (ILO) defined the term wage

as “the remuneration paid by the employer for the services of
hourly, daily, weekly and fortnightly employees
 Salary is defined as the remuneration paid to the clerical and
managerial personnel employed on monthly or
annual basis
 Minimum Wage is the amount of remuneration which
could meet the “normal needs of the average employee
regarded as a human being living in a civilised society”
 Statutory Minimum Wage is the amount of remuneration
fixed according to the provisions of the Minimum Wages
Act. 1948
Contd.
 CHAPTER 6
The Need-based Minimum Wage is the amount of
remuneration fixed on the basis of norms accepted at the 15th
session of the Indian Labour Conference held at New Delhi in
July 1957
The Conference recommended that minimum wages should
ensure the minimum human needs of industrial workers,
minimum food requirements should be calculated on the basis of
a set in activity, clothing requirements should be estimated on the
basis of per capita consumption of 18 yards per annum which
would give for the average worker’s family of four a total of 72
yards amongst other recommendations
 CHAPTER 6

NEED FOR SOUND SALARY ADMINISTRATION

 Most of the employees’ satisfaction and work

performance are based on pay
 Internal inequalities in pay are more serious to certain
employees
 Employees act only to gross external inequities
 Employee comparisons of pay are uninfluenced by levels of
aspirations and pay history
 Employees compare their pay with that of others
 CHAPTER 6
OBJECTIVE OF WAGE AND SALARY ADMINISTRATION
 To Acquire Qualified Competent Personnel
 To Retain the Present Employees
 To Secure Internal and External Equity
 To Ensure Desired Behaviour
 To Keep Labour and Administrative costs in line
with the ability of the organization to pay
 To Facilitate Pay Roll
 To Simplify Collective Bargaining procedures
and negotiations
 To Promote Organization feasibility
 CHAPTER 6

FACTORS AFFECTING WAGE/SALARY LEVELS

 Remuneration in Comparable Industries

 Firm’s ability to pay
 Relating to price index
 Productivity
 Cost of living
 Union pressure and strategies
 Government legislations
(i) Remuneration in Comparable Industries:
Prevailing rates of remuneration in comparable industries constituted an
important factor in determining salary levels. The organisation, in the
long-run, must pay at least equal to the going rate for similar jobs in
similar organisations. Further, the salary rates for the similar jobs in the
firms located in the same geographical region also influence the wage rate
in the organisation.
The organisation has to pay the wages equal to that paid for similar jobs
in comparable industries in order to secure and retain the competent
employees, to follow the directive of courts of law, to meet the trade
union’s demands, to satisfy the employee need for the same social status
as that of the same categories of employees in comparable organisations.
Comparable industries constitute the organisations engaged in the same
or similar activities, of the same size, in the similar type of management,
i.e., public sector or under the management of the same owners,
organisations located in the same geographical region etc.
(ii) Firm’s Ability to Pay:
One of the principal considerations that weighs with the management in
fixing the salary levels is its ability to pay. But in the short-run, the
influence of ability to pay may be practically nil. However, in the long-
run, it is quite an influential factor. In examining the paying capacity of
an organisation, apart from profitability, various expenses that the
industry has to bear, certain trends in prices of products/services that are
to be charged by the industry should also be taken into account.
In addition, total cost of employees (salaries, allowances, cost of fringe
benefits etc.) should be taken into consideration in determining the
ability to pay. Trade Unions demand higher wages when the company’s
financial position is sound. But they may not accept wage reduction,
when the company is financial position is in doldrums.
Hence, the management has to take decision judiciously. Further, certain
incentives are linked to the profitability. Thus, whatever the influence of
other factors may be, the organisation cannot pay more than its ability to
pay in the long-run.
(iii) Cost of Living:
The cost of living is another important factor that influences the quantum of
salary. The employees expect that their purchasing power be maintained
atleast at the same level, if not increased by adjusting wages to changes in cost
of living. In fact, in recent years, in advanced countries, “a number of labour
agreements have ‘escalator’ clauses, providing for automatic wage and salary
increase as cost of living index rises.”18 Dearness allowance is an allowance
granted to the employees with a view to combating onslaughts of soaring
prices.
(iv) Productivity:
An interesting development in wage determination has been
productivity standard. This is based on the fact that productivity
increase is also the result of employee satisfaction and contribution to
the organisation. But wage productivity linkage does not appear to be
so easy since many problems crop up in respect of the concept and
measurement of productivity.
But, although the wages are not linked directly to the productivity, in
an organisation, changes in productivity have their impact on
remuneration. This criterion received consideration of wage boards,
“not only because it constituted a factor in the fixation of ‘fair wage’
but also because it was directly related to such questions as
desirability of extending the system of payment by result.”
(v) Union Pressure and Strategies:

The wages are also often influenced by the strength of unions, their
bargaining capacity and their strategies. Arthur M. Ross, concluded that
“real hourly earnings have advanced more sharply in highly organised
industries than in less unionized industries.” Unions pressurise
management through their collective bargaining strategies, political
tactics and by organising strikes etc.

Trade unions influence may be on the grounds of wages in comparable

industries, firm’s financial position, rising living cost, government
regulations, etc. It may be noted here that the unions may have the wage
raised particularly in those industries where the wage level is below that
of other comparable industries.”
(vi) Government Legislations:

Government legislations influence wage determination. The two important legislations

which affect wage fixation are- The Payment of Wages Act, 1936 and The Minimum
Wages Act, 1948. The important provisions of The Payment of Wages Act, 1936 are-
ensuring proper payment of wages and avoiding all malpractices like non-payment,
under payment, delayed and irregular payment, and payment in kind and under-
measurement of work.

The Act covers all employees drawing the wage up to Rs 1,000 per month. The Act
stipulates that the organisations with less than hundred workers should pay the wage
by the seventh and the organisations with more than 100 employees should pay by the
tenth of next month.

The Act also stipulates time for payment of dues to the discharged employees. Under
the Act, fines can be levied but after due notice to the employees and the fine
deductions are restricted to 1/32nd of the wage.
 CHAPTER 6
WAGE BOARDS AND PAY COMMISSIONS
 Wage policies are formulated by the following
institutions in India:
 Collective Bargaining and Adjudication
 Wage Boards
 Pay Commissions
(i) Collective Bargaining and Adjudication:
Collective bargaining is a procedure in which
compromise is reached through balancing of
opposed strengths. It is a means through which
employee problems relating to various issues
including wages are settled. If these problems are
not settled through collective bargaining, they may
be settled through voluntary arbitration or
adjudication. The awards given or reached by or
through the arbitrator or adjudicator or collective
bargaining agreements from the basis for fixing
wages in various organisations.
(ii) Wage Boards:
This is one the important institutions set-up by the Government of
India for fixation and revision of wages. Separate wage boards are set-
up for separate industries. Government of India started instituting
Wage Boards in accordance with the recommendations of Second Five
Year Plan, which were reiterated by the Third Five Year Plan. Wage
Boards are not governed by any legislation but are appointed on ad-
hoc basis by the Government.
Each Wage Board consists of one neutral Chairman, two independent
members and two or three representatives of workers and
management each. The Wage Boards have to study various factors
before making its recommendations. The recommendations of the
Wage Board are first referred to the Government for its acceptance.
The Government may accept with or without modification or reject
the recommendations of the Wage Board. The recommendations
accepted by the Government are enforceable by the parties
concerned.
The Wage Boards take the following factors into consideration for fixing or
revising the wages in various industries:

(a) Job evaluation.

(b) Wage rates for similar jobs in comparable industries.
(c) Employees’ productivity.
(d) Firm’s ability to pay.
(e) Various wage legislations.
(f) Existing level of wage differentials and their desirability.
(g) Government’s objectives regarding social justice, social equality, economic
justice and economic quality.
(h) Place of industry in the economy and society of the country and the region.
(i) Need for incentives, improvement in productivity etc.
The Wage Boards fix and revise various components of wages like basic pay,
dearness allowance, incentive earnings, overtime pay, house rent allowance and
all other allowances.
(iii) Pay Commissions:

This is another institution which fixes and revises the

wages and allowances to the employees working in
government and government departments. Pay
Commissions are separately constituted by Central and
State Governments. Central Government so far has
appointed four Pay Commissions.
 CHAPTER
6
OBJECTIVES OF WAGE INCENTIVE SCHEMES

 To improve the profit of a firm through a

reduction in the unit costs of labour and materials or
both

 To avoid or minimise additional capital

investment for the expansion of production
capacity
Contd.
 CHAPTER 6

OBJECTIVES OF WAGE INCENTIVE SCHEMES

 To increase a worker’s earnings without dragging the

firm into a higher wage rate structure regardless of
productivity

 To use wage incentives as a useful tool for securing

a better utilization of manpower, better production
scheduling and performance control, and a more
effective personnel policy
 CHAPTER 6
MERITS OF WAGE INCENTIVE SCHEMES
 They are accepted as sound technique for the
achievement of greater production
 The need for supervision is reduced for the
employees.
 The experience gained in India and elsewhere
indicates that wage incentives have resulted in
gains in productivity
 “In a majority cases, the existence of payment by
results was related to increased output, higher
earnings and lower costs”
 CHAPTER 6
DEMERITS OF WAGE INCENTIVE SCHEMES

 The experience with the working of incentives in

the highly industrialized countries of the West is not
quite happy
 They have a dubious value for increase in
output
 A sound and effective administration of incentive
schemes would depend upon an understanding of the
problems of human relations as well as those of
engineering.
 CHAPTER 6
NEED FOR WAGE INCENTIVES IN INDIA
 The efficiency of the Indian worker is very low, and needs
to be raised and in this regard wage incentives can play an
important role
 The average Indian worker is financially very poor and
financial incentives are likely to tempt him to work better
 It can help in promoting the use of electronic devices,
can help in affecting the prices that the community would
be benefited and in the national interest, it is felt that wage
incentive schemes should be applied to all economic
activities