Human Resource Management An introductory overview of Human Resource Management HRM can broadly be defined as a common title given to all aspects of a business related to effective and efficient management of its workforce. HRM is representative of all issues or problems related to people and their management, in a manner that is most beneficial for the business. Importance of HRM “An organization is only as good as it’s people.” Management as a process involves planning, organizing, affing, leading and controlling activities that facilitate the chievement of an organization's objectives. All these ctivities are accomplished through efficient utilization of hysical and financial resources by the company’s human esources. Human resource management is one of the most complex and challenging fields of modern management. It ensures the building up of an effective workforce, the proper handling of employee expectations and makes sure that they perform at their very best… Human resources is one of the most valuable and unique assets of an organization. The term human resources refers to the total knowledge, skills, creative abilities, talents and aptitudes of an organization‘s workforce, as well as the values, attitudes and beliefs of the individuals involved. Sound knowledge of HRM is crucial not just for a HR manager but for all successful managers. As a Manager or Entrepreneur you could do everything right.. ->Have great ideas ->Lay brilliant plans ->Draw clear organization charts ->Get state of the art equipment and so on, but you could still fail by hiring the wrong people or by a having a workforce which is not motivated or negative. Some Functions of HRM Human resource planning. Recruitment and selection. Training and development. Performance and potential appraisal. Internal mobility. Compensation management. Quality of working life. People development and retention. Employee satisfaction. Job Enrichment. Emerging HRM Functions Increasing organizational size and its complexity, transition from traditional to professional management, changing social and cultural norms, globalization of industry and availability of information technology are constantly changing the profile of HRM functions. HRM today plays a much more dynamic role in not only performing the maintenance function but in also creating innovative ways to satisfy human aspirations and to provide a competitive edge to the organization on a sustainable basis. Division of HRM Functions Line Functions: Staff Functions: >Educate employees on humane >HR Planning issues >Job Analysis >Conduct surveys (ESAT) >Survey & keep track of market trends >Recruitment & selection >Dealing with human issues >Induction >Taking care of company's corporate responsibility >Training >Ensure smooth flow of business activities by taking care employee issues >Performance & potential >Appraisal >Internal Mobility >Compensation Management Human Resource Planning “If you fail to plan you are planning to fail” Human Resource Planning Defined HR planning is the process including forecasting, developing and controlling by which a firm ensures that it has the right number of people and the right kind of people, at the right places at the right time, doing work for which they are economically most useful. It is the process deciding what positions the firm will have to fill, and how to fill them. It embraces all future positions, from maintenance clerk to CEO. Human resource planning can be described as a series of activities, consisting the following: Forecasting future work force requirements, either in terms of mathematical projections of economic trends and industrial development or through judgmental estimates based upon specific future plans of the company. Making an inventory of the existing man power resources, and analyzing the degree to which these resources are employed. Anticipating workforce problems, by projecting present resources into the future and comparing them with the forecast of requirements, to determine their adequacy, both quantitatively and qualitatively. Planning the necessary programs of recruitment, selection, training, deployment, utilization, transfer, promotion, development, motivation, and compensation so that the future workforce requirements will be met. Significance of Human Resource Planning A concrete human resource plan helps avoid sudden disruptions in an enterprise’s production run, since it indicates shortages of particular types of personnel, if any, in advance; thus enabling the management to adopt suitable strategies to scope with the situation. All companies irrespective of sector need to plan their human resource requirements in terms of numbers, skills, and occupation groups-to meet increasing demands, either due to business growth or expansion. Besides, even if none of the above happened, within an ongoing enterprise there would be attrition, lay offs or internal mobility (transfers or promotions), leaving gaps which have to be filled in. A human resource plan that anticipates the need for various types of skill requirements and levels of personnel, well in advance, will be able to give adequate lead time recruitment, selection, and training of such persons. Human resource planning becomes all the more crucial because the lead time for getting personnel is a delaying factor in many cases, and the skills that one may need are not always available. No availability of suitable human resources results in postponement or delays in executing new projects and expansion plans, which eventually leads to inefficiency and lower profitability. Besides, changing job requirements, due to technological change or the growing complexity of business operations, make differing demands on the number and type of manpower required. Main objectives of HR Planning Searching for and recruiting highly skilled and specially qualified employees. Getting the best possible employee and assigning him/her to the right work, so that the efficiency and the production can be maximized. Anticipating the changed requirements of personnel, and be prepared for it organizationally. A forward looking activity plan that will help the management in identifying organizational needs, in developing people, and in providing them growth opportunities. HR Planning Process Business Plan Workload Analysis Job Analysis Job Description Job Specification Business Plan It is the basic exercise that has to be undertaken in order to arrive at the scale of business activity over a period of time. It is basically a blue print of the desired objectives. These objectives, stated in economic terms, would incorporate the growth rate of the company, diversification plans, market opportunities, etc. Involves assessing where the organization is going, it’s objectives and strategies for the future which in turn determines its future human resource needs. Workload Analysis Can be defined as the studies that are utilized to understand the methods and processes of doing a particular job, and can thus be helpful in work simplification, higher productivity or efficiency, reducing the time and number of people required to do a particular job successfully. Workload analysis helps in determining the optimum number of human resource required perform the task in hand in the most effective and efficient manner possible. There are a number of methods that could be used to develop workload norms. They may vary from being as simple as just observation on the job, to highly sophisticated statistical models. Gives an estimate of the number of employees needed, and the nature and extent of the work to be done by them. Job Analysis Job analysis is the process by which data, with regard to each job, is systematically observed and noted. It provides information about the nature of the job and the characteristics or qualifications that are desirable in the job holder. It provides information in the following areas: 1. Job identification 2. Distinctive or significant characteristics of the job 3. What the typical worker does 4. Materials or equipment used 5. How the job is performed 6. Required personnel attributes Job Description Refers to the job contents and the expectations that an organisation has from its employees. Job descriptions usually outline the minimum requirements of jobs. A job description is a written statement of what the job holder does, how it is done and why it is done. It should accurately portray job content, environment, and conditions of employment. It usually includes the following: 1. The job title 2. The duties to be performed 3. Distinguishing characters of the job 4. The authority and responsibilities of the job holder Job Specification The job specification states the minimum acceptable qualifications that the employee must possess to perform the job successfully. These may include: 1. Academic qualifications 2. Professional qualifications 3. Age 4. Years of experience 5. Relevance and nature of previous experience 6. Other skills and attitudes They form the minimum eligibility requirements, which a candidate must have, to be considered for appointment to a job. A clear indication of specifications helps in generating eligible applications, because of self election. Lack of clear-cut specifications may generate a large number of applicants, leading to high costs, in terms of man hours, in processing them. Demand Forecasting Methods of Forecasting Major Considerations in Forecasting. Methods of Forecasting Bottom up Technique: This method of forecasting starts at the lowest level and progresses upwards, through various levels in the organization, till an aggregate projection for the organization as a whole is ready. The basic idea is that the best person to determine human resource requirement is the manager of the unit or department. Department managers periodically project their workforce requirements, while comparing their present and future needs, keeping in mind productivity levels, market demands, sales forecast; and mobility of staff in the department. Since this exercise is done periodically, it gives sufficient lead time to human resource managers to identify available human resources, both internally and externally. Delphi Technique: The objective of this technique is to predict future developments in a particular area, by integrating the judgments and opinions provided independently by many experts. It is a structured approach for reaching a consensus judgment, among the experts, regarding the number of employees, who will be required in the future. These experts are well versed with the plan of the organization, and the internal and external factors that may influence these planned activities, and hence, the demand for workforce. These experts can come both from within or outside the organization. The basic procedure consists of experts presenting their forecast to other experts without physically meeting them. Once the first forecast is collected and shared, another round of forecasting takes place. This process of sharing and revising goes on till a consensus has emerged, One of the major problems of the Delphi technique is in the integration of varied opinions of experts. As a result, it may drag on for a long time of many reiterations. One of the reasons for this maybe the physical absence of experts at one place to provide timely feedback, or make timely adjustments in their forecast. Trend Analysis: Trend analysis means studying variations in your firm’s employment levels over the last few years. For eg, you might compute the number of employees at the end of each of the last five years, or perhaps the number in each subgroup (like sales, production, admin,etc),. He purpose is to identify trends that might continue into the future. Trend analysis can provide an initial estimate of future staffing needs, but employment rarely depends on the passage of time. Other factors like changes in sales volume and productivity also affect staffing needs. Ratio Analysis: Means making forecasts based on the historical ratio between 1. Some casual factor (like sales volume) 2. The number of employees required (for instance, salespeople). For eg, suppose a salesperson traditionally generates RS.5,00,000/- in sales. If the sales revenue to salespeople ratio remains the same, you would require six new salespeople next year (assuming each of whom produces an extra Rs.5,00,000/-) to produce a hoped-for extra Rs.30,00,000/- in sales. Using Computers to Forecast Personnel Requirements: Computerized forecasts enable the manager to include more variables into his or her personnel projections. These variables may include direct labor hours required to produce one unit of product (measure of productivity), and three sales projections- minimum, maximum, and probable- for the product line in question. Based on such input, a typical program generates average staff levels required to meet product demands, as well as separate computerized forecasts for direct labor( such as assembly workers), indirect staff (such as secretaries), and exempt staff (such as executives). With programs like these, employers can more accurately translate projected productivity and sales levels into forecasted personnel needs. And, they can estimate the affects of various productivity and sales level assumptions on personnel requirements. Major Considerations in Forecasting. Absenteeism: Is one of the major sources of unforeseen shortage of employees on a given day. Each year organizations seem to loose more work time due to absenteeism than due to strikes or lockouts. Absenteeism is defined as unauthorized absence from work. Such unscheduled absence from work causes tremendous problems in planning and execution of the work. The annual absentee ratio can be calculated using the following formula: Absentee ratio= Unauthorized absence x 100 Man shift worked This will give an estimate of the average absenteeism rate, which can be incorporated while projecting the actual number of people required. Retirements: Another factor contributing to accurate planning has to do with the age profile of the employees, particularly close to retirement. Surprisingly, a large number of organizations in India do not have any idea of the profile of the employees in their organizations. Often, the retirement of employees comes as a surprise, leaving vacancies unfilled and causing disruption in the output. Manning tables should be carefully used to get an idea of the number of employees who would be retiring during the plan period, so that their replacements can be found. Succession Planning: Succession Planning has to do with the upward movement of staff in the hierarchy of organizations. It is process that ensures that a qualified person is available to assume the position once it is made vacant. In the process of forecasting, the number of people needed in a planned year, filling up such vacancies has to be considered. Technology Upgrading: Technology is generally conceived in terms of machines and equipment used in converting the input into output. However, technology is not only the hardware, but it also refers to the knowledge and information used in producing goods and services. Technology change has caused obsolescence of human skills, as the growth of technology has outpaced skill development. HR planning has to be done keeping in mind: Impact of better and more sophisticated technology on the quantity and quality of people. Would technology upgradation create redundancy in staff. Effect of technology on the size of the workforce. Supply Sources Internal Supply External Supply Internal Supply Before going out for the external supply of human resources, organizations usually look for what is internally available, and can be used. To be able to effectively use the internal supply, organizations must conduct a total audit of the existing human resources. From the information that is gathered, a personnel inventory and manning table or skill inventory can be prepared. External Supply 1. Employment Exchange. 2. Employment Agencies. 3. Professional Association. 4. Campus Recruitment. 5. Employee referral program. 6. Advertisements (print, radio and electronic media) Recruitment and Selection Meaning Of Recruitment According to Edwin B. Flippo, recruitment is the process of searching the candidates for employment and stimulating them to apply for jobs in the organization‖. Recruitment is the activity that links the employers and the job seekers. A few definitions of recruitment are: A process of finding and attracting capable applicants for employment. The process begins when new recruits are sought and ends when their applications are submitted. The result is a pool of applications from which new employees are selected. It is the process to discover sources of manpower to meet the requirement of staffing schedule and to employ effective measures for attracting that manpower in adequate numbers to facilitate effective selection of an efficient working force. (continued) Recruitment of candidates is the function preceding the selection, which helps create a pool of prospective employees for the organization so that the management can select the right candidate for the right job from this pool. The main objective of the recruitment process is to expedite the selection process. Recruitment is a continuous process whereby the firm attempts to develop a pool of qualified applicants for the future human resources needs even though specific vacancies do not exist. Usually, the recruitment process starts when a manager initiates an employee requisition for a specific vacancy or an anticipated vacancy. RECRUITMENT NEEDS ARE OF THREE TYPES PLANNED i.e. the needs arising from changes in organization and retirement policy. ANTICIPATED Anticipated needs are those movements in personnel, which an organization can predict by studying trends in internal and external environment. UNEXPECTED Resignation, deaths, accidents, illness give rise to unexpected needs. The Purpose and Importance of Recruitment Attract and encourage more and more candidates to apply in the organization. Create a talent pool of candidates to enable the selection of best candidates for the organization. Determine present and future requirements of the organization in conjunction with its personnel planning and job analysis activities. Recruitment is the process which links the employers with the employees. Increase the pool of job candidates at minimum cost. (continued) •Help increase the success rate of selection process by decreasing number of visibly under qualified or overqualified job applicants. •Help reduce the probability that job applicants once recruited and selected Will leave the organization only after a short period of time. •Meet the organizations legal and social obligations regarding the composition of its workforce. •Begin identifying and preparing potential job applicants who will be appropriate candidates. •Increase organization and individual effectiveness of various recruiting techniques and sources for all types of job applicants. Recruitment Process The recruitment and selection is the major function of the human resource department and recruitment process is the first step towards creating the competitive strength and the recruitment strategic advantage for the organizations. Recruitment process involves a systematic procedure from sourcing the candidates to arranging and conducting the interviews and requires many resources and time. A general recruitment process is as follows: Identifying the vacancy: The recruitment process begins with the human resource department receiving requisitions for recruitment from any department of the company. These contain: • Posts to be filled • Number of persons • Duties to be performed • Qualifications required (continued) •Preparing the job description and person specification. •Locating and developing the sources of required number and type of employees (Advertising etc). •Short-listing and identifying the prospective employee with required characteristics. •Arranging the interviews with the selected candidates. •Conducting the interview and decision making Step 1 Identify vacancy Step 2 Step 7 Prepare JA, JD, JS Decision making Recruitment Process Step 6 Step 3 Interviews Advertise the vacancy Step 4 Step 5 Managing response Short listing Sources Of Recruitment Every organization has the option of choosing the candidates for its recruitment processes from two kinds of sources: internal and external sources. The sources within the organization itself (like transfer of employees from one department to other, promotions) to fill a position are known as the internal sources of recruitment. Recruitment candidates from all the other sources (like outsourcing agencies etc.) are known as the external sources of the recruitment. SOURCES OF RECRUITMENT Factors Affecting Recruitment The recruitment function of the organizations is affected and governed by a mix of various internal and external forces. The internal forces or factors are the factors that can be controlled by the organization. And the external factors are those factors which cannot be controlled by the organization. FACTORS AFFECTING RECRUITMENT Recruitment Policy In today‘s rapidly changing business environment, a well defined recruitment policy is necessary for organizations to respond to its human resource requirements in time. Therefore, it is important to have a clear and concise recruitment policy in place, which can be executed effectively to recruit the best talent pool for the selection of the right candidate at the right place quickly. Creating a suitable recruitment policy is the first step in the efficient hiring process. A clear and concise recruitment policy helps ensure a sound recruitment process. It specifies the objectives of recruitment and provides a framework for implementation of recruitment program. It may involve organizational system to be developed for implementing recruitment programs and procedures by filling up vacancies with best qualified people. COMPONENTS OF THE RECRUITMENT POLICY The general recruitment policies and terms of the organization Recruitment services of consultants Recruitment of temporary employees Unique recruitment situations The selection process The job descriptions The terms and conditions of the employment A recruitment policy of an organization should be such that: It should focus on recruiting the best potential people. To ensure that every applicant and employee is treated equally with dignity and respect. Unbiased policy. To aid and encourage employees in realizing their full potential. Transparent, task oriented and merit based selection. Weightage during selection given to factors that suit organization needs. (Continued) Optimization of manpower at the time of selection process. Defining the competent authority to approve each selection. Abides by relevant public policy and legislation on hiring and employment relationship. Integrates employee needs with the organizational needs. FACTORS AFFECTING RECRUITMENT POLICY Organizational objectives Personnel policies of the organization and its competitors. Government policies on reservations. Preferred sources of recruitment. Need of the organization. Recruitment costs and financial implications. Recent Trends in Recruitment OUTSOURCING In India, the HR processes are being outsourced from more than a decade now. A company may draw required personnel from outsourcing firms. The outsourcing firms help the organization by the initial screening of the candidates according to the needs of the organization and creating a suitable pool of talent for the final selection by the organization. Outsourcing firms develop their human resource pool by employing people for them and make available personnel to various companies as per their needs. In turn, the outsourcing firms or the intermediaries charge the organizations for their services. Advantages of outsourcing are: Company need not plan for human resources much in advance. Value creation, operational flexibility and competitive advantage. turning the management's focus to strategic level processes of HRM. Company is free from salary negotiations, weeding the unsuitable resumes/candidates. Company can save a lot of its resources and time. POACHING/RAIDING ―Buying talent‖ (rather than developing it) is the latest mantra being followed by the organisations today. Poaching means employing a competent and experienced person already working with another reputed company in the same or different industry; the organisation might be a competitor in the industry. A company can attract talent from another firm by offering attractive pay packages and other terms and conditions, better than the current employer of the candidate. But it is seen as an unethical practice and not openly talked about. Indian software and the retail sector are the sectors facing the most severe brunt of poaching today. It has become a challenge for human resource managers to face and tackle poaching, as it weakens the competitive strength of the firm. E-RECRUITMENT Many big organizations use Internet as a source of recruitment. E- recruitment is the use of technology to assist the recruitment process. They advertise job vacancies through worldwide web. The job seekers send their applications or curriculum vitae i.e. CV through e mail using the Internet. Alternatively job seekers place their CV‘s in worldwide web, which can be drawn by prospective employees depending upon their requirements. Advantages of recruitment are: Low cost. No intermediaries. Reduction in time for recruitment. Recruitment of right type of people. E-Recruitment The buzzword and the latest trends in recruitment is the ―E-Recruitment‖. Also known as ―Online recruitment‖, it is the use of technology or the web based tools to assist the recruitment processes. The tool can be either a job website like naukri.com, the organization's corporate web site or its own intranet. Many big and small organizations are using Internet as a source of recruitment. They advertise job vacancies through worldwide web. The job seekers send their applications or curriculum vitae (CV) through an e-mail using the Internet. Alternatively job seekers place their CV‘s in worldwide web, which can be drawn by prospective employees depending upon their requirements. The internet penetration in India is increasing and has tremendous potential. According to a study by NASSCOM – ―Jobs is among the top reasons why new users will come on to the internet, besides e-mail.‖ There are more than 18 million résumé's floating online across the world. The two kinds of e-recruitment that an organization can use is – Job portals: i.e. posting the position with the job description and the job specification on the job portal and also searching for the suitable resumes posted on the site corresponding to the opening in the organization. Creating a complete online recruitment/application section in the companies own website. - Companies have added an application system to its website, where the ‗passive‘ job seekers can submit their resumes into the database of the organization for consideration in future, as and when the roles become available. Resume Scanners: Resume scanner is one major benefit provided by the job portals to the organizations. It enables the employees to screen and filter the resumes through pre-defined criteria‘s and requirements (skills, qualifications, experience, payroll etc.) of the job. Job sites provide a 24*7 access to the database of the resumes to the employees facilitating the just-in-time hiring by the organizations. Also, the jobs can be posted on the site almost immediately and is also cheaper than advertising in the employment newspapers. Sometimes companies can get valuable references through the ―passers-by‖ applicants. Online recruitment helps the organizations to automate the recruitment process, save their time and costs on recruitments. Online recruitment techniques Giving a detailed job description and job specifications in the job postings to attract candidates with the right skill sets and qualifications at the first stage. E-recruitment should be incorporated into the overall recruitment strategy of the organization. A well defined and structured applicant tracking system should be integrated and the system should have a back-end support. Along with the back-office support a comprehensive website to receive and process job applications (through direct or online advertising) should be developed. Therefore, to conclude, it can be said that e-recruitment is the ―Evolving face of recruitment.‖ Advantages & Disadvantages Of E-Recruitment There are many benefits – both to the employers and the job seekers but the e-recruitment is not free from a few shortcomings. Some of the advantages and the disadvantages of e-recruitment are as follows: Advantages Lower costs to the organization. Also, posting jobs online is cheaper than advertising in the newspapers. No intermediaries. Reduction in the time for recruitment (over 65 percent of the hiring time). Facilitates the recruitment of right type of people with the required skills. Improved efficiency of recruitment process Gives a 24*7 access to an online collection of resumes. Online recruitment helps the organizations to weed out the unqualified candidates in an automated way. Recruitment websites also provide valuable data and information regarding the compensation offered by the competitors etc. which helps the HR managers to take various HR decisions like promotions, salary trends in Disadvantages of E-Recruitment Apart from the various benefits, e-recruitment has its own share of shortcomings and disadvantages. Some of them are: Screening and checking the skill mapping and authenticity of million of resumes is a problem and time consuming exercise for organizations. There is low Internet penetration and no access and lack of awareness of internet in many locations across India. Organizations cannot be dependant solely and totally on the online recruitment methods. In India, the employers and the employees still prefer a face-to-face interaction rather than sending e-mails. Recruitment Vs Selection Both recruitment and selection are the two phases of the employment process. The differences between the two are: 1. The recruitment is the process of searching the candidates for employment and stimulating them to apply for jobs in the organization WHEREAS selection involves the series of steps by which the candidates are screened for choosing the most suitable persons for vacant posts. 2. The basic purpose of recruitments is to create a talent pool of candidates to enable the selection of best candidates for the organization, by attracting more and more employees to apply in the organization WHEREAS the basic purpose of selection process is to choose the right candidate to fill the various positions in the organization. 3. Recruitment is a positive process i.e. encouraging more and more employees to apply WHEREAS selection is a negative process as it involves rejection of the unsuitable candidates. 4. Recruitment is concerned with tapping the sources of human resources WHEREAS selection is concerned with selecting the most suitable candidate through various interviews and tests. 5. There is no contract of recruitment established in recruitment WHEREAS selection results in a contract of service between the employer and the selected employee. Recruitment Management System Recruitment management system is the comprehensive tool to manage the entire recruitment processes of an organization. It is one of the technological tools facilitated by the information management systems to the HR of organizations. Just like performance management, payroll and other systems, Recruitment management system helps to contour the recruitment processes and effectively managing the ROI on recruitment. The features, functions and major benefits of the recruitment management system are explained below: Structure and systematically organize the entire recruitment processes. Recruitment management system facilitates faster, unbiased, accurate and reliable processing of applications from various applications. Helps to reduce the time-per-hire and cost-per-hire. (continued) Recruitment management system helps to incorporate and integrate the various links like the application system on the official website of the company, the unsolicited applications, outsourcing recruitment, the final decision making to the main recruitment process. Recruitment management system maintains an automated active database of the applicants facilitating the talent management and increasing the efficiency of the recruitment processes. Recruitment management system provides and a flexible, automated and interactive interface between the online application system, the recruitment department of the company and the job seeker. Offers support to enhance productivity, solutions and optimizing the recruitment processes to ensure improved ROI. Recruitment management system helps to communicate and create healthy relationships with the candidates through the entire recruitment process. The Recruitment Management System (RMS) is an innovative information system tool which helps to save the time and costs of the recruiters and improving the recruitment processes. ROI On Recruitment Before making any investment, every organization would want to evaluate the investment by answering the following questions in quantifiable terms: What are the costs and the corresponding and related risks on the investment? What are the expected returns of the investment? What is the expected pay-back period of the investment? An organization makes a tremendous amount of investment in its recruitment processes. A lot of resources like time and money are spent on recruitment processes of an organization. But assessing or quantifying the returns on the recruitment process, or, calculating the return on investment (ROI) on recruitment is a complicated task for an organization. Indeed, it is difficult to judge the success of their recruitment processes. Instead, recruitment is one activity that continues in an organization without anyone ever realizing its worth or measuring its impact on the organization's business. According to a survey, 38 % of organizations do not prepare or produce any kind of documents or reports on their The recruitment processes, and there is no accountability of the HR department for the costs incurred and the opportunities missed. With the increasing strategic focus on the human resources, more and more organizations are adopting one or the other way for calculating the ROI on its recruitments. Many organizations are examining their HR functions and processes and are trying to quantify their results and returns. A recruitment professional or manager can calculate and maximize the return on investments on its organization's recruitment by: Clear definition of the results to be achieved from recruitment. Developing methods and ways measuring the results like the time – to – hire, cost-Per-Hire and effectiveness of the recruitment source etc. Estimating the costs associated with the recruitment project Estimating the tangible and intangible benefits to the organization including the payback period of the recruitments. Providing and ensuring proper training and development of the recruitment professionals. Assessing the ROI on recruitments can assist an organization to strengthen its HR processes, improving its recruitment function and to build a strategic human resource advantage for the organization. Outsourcing Recruitment Outsourcing Recruitment is the human resource (HR) processes is the latest practice being followed by middle and large sized organizations. It is being witnessed across all the industries. In India, the HR processes are being outsourced from nearly a decade now. Outsourcing industry is growing at a high rate. Human Resource Outsourcing refers to the process in which an organization uses the expert services of a third party (generally professional consultants) to take care of its HR functions while HR management can focus on the strategic dimension of their function. The functions that are typically outsourced are the functions that need expertise, relevant experience, knowledge and best methods and practices. This has given rise to outsourcing the various HR functions of an organization. HR Consultancies such as Ma Foi and Planman Consulting provide such services through expert professional consultants. Human resources business process outsourcing (HR BPO) is a major component of the worldwide BPO market. Performance management outsourcing involves all the performance monitoring, measurement, management being outsourced from a third party or an external organization. Many organizations have started outsourcing its recruitment process i.e. transferring all or some part of its recruitment process to an external consultant providing the recruitment services. It is commonly known as RPO i.e. recruitment process outsourcing. More and more medium and large sized organizations are outsourcing their recruitment process right from the entry level jobs to the senior level jobs. The present value of the recruitment process outsourcing industry (RPO) in India is estimated to be $2.5 billion and it is expected to grow at the annual rate of 30-40 per cent for the next couple of years. According to a recent survey, only 8-10 per cent of the Indian companies are complete recruitment processes. However, the number of companies outsourcing their recruitment processes is increasing at a very fast rate and so is the percentage of their total recruitment processes being outsourced. Outsourcing organizations strive for providing cost saving benefits to their clients. One of the major advantages to organizations, who outsource their recruitment process, is that it helps to save up to as much as 40 per cent of their recruitment costs. With the experience, expertise and the economies of scale of the third party, organizations are able to improve the quality of the recruits and the speed of the whole process. Also, outsourcing enables the human resource professionals of organizations to focus on the core and other HR and strategic issues. Outsourcing also gives a structured approach to the whole process of recruitment, with the ultimate power of decision making of recruiting with the organization itself. The portion of the recruitment cycle that is outsourced range from preparing job descriptions to arranging interviews, the activities that consume almost 70 per cent of the time of the whole recruitment process. Outsourcing the recruitment processes for a sector like BPO, which faces an attrition of almost 50-60 per cent, can help the companies in BPO sector to save costs tremendously and focus on other issues like retention. The job seekers are also availing the services of the third parties (consultants) for accessing the latest job opportunities. In India, the trend of outsourcing recruitment is also catching up fast. For example: Vodafone outsources its recruitment activities to Alexander Mann Solutions (RPO service provider). Wipro has outsourced its recruitment process to MeritTrac. Yes bank is also known to outsource 50 per cent of its recruitment processes. Advantage Of Outsourcing Recruitment Traditionally, recruitment is seen as the cost incurring process in an organization. HR outsourcing helps the HR professionals of the organizations to concentrate on the strategic functions and processes of human resource management rather than wasting their efforts, time and money on the routine work. Outsourcing the recruitment processes helps to cut the recruitment costs to 20 % and also provide economies of scale to the large sized organizations. The major advantages of outsourcing recruitment performance management are: Outsourcing is beneficial for both the corporate organizations that use the outsourcing services as well as the consultancies that provide the service to the corporate. Apart from increasing their revenues, outsourcing Process provides business opportunities to the service providers, enhancing the skill set of the service providers and exposure to the different corporate experiences thereby increasing their expertise. The advantages are: turning the management's focus to strategic level processes of HRM accessibility to the expertise of the service providers freedom from red tape and adhering to strict rules and regulations optimal resource utilization structured and fair performance management. a satisfied and, hence, highly productive employees value creation, operational flexibility and competitive advantage Therefore outsourcing helps both the organizations and the consultancies to grow and perform better. Outsourcing Process Head Hunting Headhunting refers to the approach of finding and attracting the best experienced person with the required skill set. Headhunting is also a recruitment process involves convincing the person to join your organization. Headhunting Process Recruitment Strategies Recruitment is of the most crucial roles of the human resource professionals. The level of performance of and organization depends on the effectiveness of its recruitment function. Organizations have developed and follow recruitment strategies to hire the best talent for their organization and to utilize their resources optimally. A successful recruitment strategy should be well planned and practical to attract more and good talent to apply in the organization. For formulating an effective and successful recruitment strategy, the strategy should cover the following elements: Identifying and prioritizing jobs recruitment keep arising at various levels in every organization; it is almost a never- ending process. It is impossible to fill all the positions immediately. Therefore, there is a need to identify the positions requiring immediate attention and action. To maintain the quality of the recruitment activities, it is useful to prioritize the vacancies whether to focus on all vacancies equally or focusing on key jobs first. Candidates to target The recruitment process can be effective only if the organization completely understands the requirements of the type of candidates that are required and will be beneficial for the organization. This covers the following parameters as well: Performance level required: Different strategies are required for focusing on hiring high performers and average performers. Experience level required: the strategy should be clear as to what is the experience level required by the organization. The candidate‘s experience can range from being a fresher to experienced senior professionals. Category of the candidate: the strategy should clearly define the target candidate. He/she can be from the same industry, different industry, unemployed, top performers of the industry etc. (continued) Sources of recruitment The strategy should define various sources (external and internal) of recruitment. Which are the sources to be used and focused for the recruitment purposes for various positions. Employee referral is one of the most effective sources of recruitment. Trained recruiters The recruitment professionals conducting the interviews and the other recruitment activities should be well-trained and experienced to conduct the activities. They should also be aware of the major parameters and skills (e.g.: behavioral, technical etc.) to focus while interviewing and selecting a candidate. How to evaluate the candidates The various parameters and the ways to judge them i.e. the entire recruitment process should be planned in advance. Like the rounds of technical interviews, HR interviews, written tests, psychometric tests etc. Forms Of Recruitment The organizations differ in terms of their size, business, processes and practices. A few decisions by the recruitment professionals can affect the productivity and efficiency of the organization. Organizations adopt different forms of recruitment practices according to the specific needs of the organization. The organizations can choose from the centralized or decentralized forms of recruitment, explained below: CENTRALIZED RECRUITMENT The recruitment practices of an organization are centralized when the HR / recruitment department at the head office performs all functions of recruitment. Recruitment decisions for all the business verticals and departments of an organization are carried out by the one central HR (or recruitment) department. Centralized from of recruitment is commonly seen in government organizations. Benefits of the centralized form of recruitment are: Reduces administration costs Better utilization of specialists Uniformity in recruitment Interchangeability of staff Reduces favoritism Every department sends requisitions for recruitment to their central office DECENTRALIZED RECRUITMENT Decentralized recruitment practices are most commonly seen in the case of conglomerates operating in different and diverse business areas. With diverse and geographically spread business areas and offices, it becomes important to understand the needs of each department and frame the recruitment policies and procedures accordingly. Each department carries out its own recruitment. Choice between the two will depend upon management philosophy and needs of particular organization. In some cases combination of both is used. Lower level staffs as well as top level executives are recruited in a decentralized manner. Equal Employment Opportunity Equal employment opportunity refers to the approach of the employers to ensure the practice of being fair and impartial in the employment process. It protects from discrimination against employees on the basis of race, sex, creed, religion, color, or national origin. It also covers the discrimination on the basis of the minority status. Discrimination in employment Discrimination refers to the any kind of prejudice, biasness or favoritism on the basis of disability race age sex sexuality pregnancy Marital status in employment. No person should be treated less favorably than any other on the basis of the specified issues above. Diversity in workforce With the globalization and the increasing size of the organizations, the diversity in the workforce is increasing i.e. people from diverse backgrounds, educational background, age groups, race, gender, abilities etc come together to work for one organization and common objectives. Therefore, it is the responsibility of the employer to create an equality-based and discrimination-free working environment and practices. Equal opportunity means treating people equally and fairly irrespective of their race, religion, sex, age, disability etc. Giving women an equal treatment and access to opportunities at the workplace. Any employee should be ill-treated or harassed by the employer or other employees. Equal Employment Opportunity principles help to realize and respect the actual worth of the individual on the basis of his knowledge, skills, abilities and merit. And the policy should cover all the employees of an organization whether permanent or temporary, contractual etc. Equal employment opportunity is necessary to ensure: To give fair access to the people of all development opportunities To create a fair organization, industry and society. To encourage and give disadvantaged or disabled people a fair chance to grow with the society. Training and Development What is Training? Training means giving new or present employees the skills they need to perform their job. Training is the most effective tool to convert potential into performance. It is a learning process that involves the acquisition of knowledge, sharpening of skills, concepts, rules, or changing of attitudes and behaviors to enhance the performance of employees. Training is activity leading to skilled behavior. A well conceived and conducted training program: Reduces time required to reach maximum efficiency. Is cost effective. Achieves clear evaluation of results. Has an element of predictability. Importance Of Training and Development 1. Optimum Utilization of Human Resources 2. Development of Human Resources 3. Development of skills of employees 4. Helps in increasing the productivity 5. Helps in inculcating the sense of team work 6. Helps building the positive perception and feeling about the organization 7. Helps in improving upon the quality of work and work- life. 8. Helps in creating the healthy working environment. 9. Prevents obsolescence 10. Helps in improving the morale of the work force 11. Helps in creating a better corporate image. 12. Leads to improved profitability and more positive attitudes towards profit orientation. Role of Training Training objectives Training Identification of Evaluation Training needs Training Functions Admin of Training Training methods programs Objectives of Training The basic objective of training is to establish a match between employee and his/her job. Objectives of training differ according to the employees belonging to different levels of organizations. Training is designed to improve knowledge, skills and attitude, thus, equip the individual to be more effective in his present job or to prepare him for a future assignment. Objectives of Training Product/ Competency Induction/ Process Skill Profile development Orientation Knowledge Updating Enhancement Identification of Training needs Organizational Task Man Analysis of Problem Brainstorming Simulation Analysis Analysis Analysis Equipment Clinic Training Methods Simulation Experiential Programmed Lectures OJT E-Learning Methods Methods Instructions Admin of Training programs Training Training Implementation Contents Programs of Training Plan Training Evaluation The process of examining a training program is called training evaluation. Training evaluation checks whether training has had the desired effect. Training evaluation ensures that whether candidates are able to implement their learning in their respective workplaces, or to the regular work routines When setting any objectives for training we should be using the standard management practice of using SMART objectives: S - Specific M - Measurable A - Achievable R - Realistic T - Time-bound Performance Management and Appraisal Performance management can be defined as a process that consolidates Goal Setting, Performance appraisal, and development into a single, common system, the aim of which is to ensure that the employee’s performance is supporting the company’s strategic aims.. Why Appraise Performance? 1. From a practical point of view, most employers still base pay and promotional decisions on the employees appraisal. 2. Appraisals play an integral role in the employer’s performance management process. Periodic review of performance helps translate the employer’s strategic goals into specific employees goals. 3. Appraisals lets the boss and subordinate develop a plan for correcting any deficiencies, and to reinforce the things the subordinate does right. 4. Appraisals serve a useful career planning purpose. They provide an opportunity to review the employee’s career plans in light of his/her exhibited strengths and weaknesses. Some objectives of Performance appraisal Informing Supervisors Promotion Determining Training Employees know Personnel & Wage & Where they their research Transfer increase Development stand employees Steps in Appraising Performance Defining the job means making sure that you & your subordinate agree on his/her duties and job standards. Appraising performance means Step3: Step 1: comparing your subordinate’s Provide Define the job actual performance to the feedback standards that have been set; this usually involves some type of rating form. Providing feedback require the two of you to discuss the subordinate’s performance and progress, and make plans for any Step2: development required. Appraise performance Who should do the appraising? Appraisals Can be Done by: Appraisals 360 Immediate Peer Rating Self By Degree supervisor Appraisals Committees Ratings Subordinates Feedback 360 degree feedback 360 degree appraisals are a powerful developmental method and quite different to traditional manager-subordinate appraisals (which fulfill different purposes). As such a 360 degree process does not replace the traditional one-to-one process - it augments it, and can be used as a stand-alone development method. 360 degree appraisals involve the appraisee receiving feedback from people (named or anonymous) whose views are considered helpful and relevant. The feedback is typically provided on a form showing job skills/abilities/attitudinal/behavioral criteria and some sort of scoring or value judgment system. The appraisee should also assess themselves using the same feedback instrument or form. 360 degree respondents can be the appraisee's peers, up-line managers/execs, subordinate staff, team members, other staff, customers, suppliers - anyone who comes into contact with the appraisee and has opinions/views/reactions of and to the appraisee. Performance Appraisal Methods There are many types of performance appraisal methods. Some of them are : 1) Job results 2) Essay method 3) Mixed Standard Scales 4) Forced Distribution 5) Graphic Rating Scale 6) Behavioral Checklist 7) Behavioral Anchored Rating Scales (BARS) 8) Management by Objectives (MBO) Job Results Though not an appraisal method per se, job results are in themselves a source of data that can be used to appraise performance. Typically, an employee's results are compared against some objective standard of performance. Results indexes are often used for appraisal purposes if an employee's job has measurable results. Examples of job results indexes are volume of sales, and quantity and quality of work produced. Results indexes such as turnover, absenteeism, grievances, profitability, and production rates can be used to evaluate the performance of organization units. Essay Method The essay method involves an evaluator's written report appraising an employee's performance, usually in terms of job behaviors and/or results. The subject of an essay appraisal is often justification of pay, promotion, or termination decisions, but essays can be used for developmental purposes as well. Since essay appraisals are to a large extent unstructured and open-ended, lack of standardization is a major problem. The open- ended, unstructured nature of the essay appraisal makes it highly susceptible to evaluator bias, which may in some cases be discriminatory Mixed Standard Scales Mixed standard scales are a relatively recent innovation in rating scales. They contain statements representing good, average, and poor performance based on behavioral examples obtained from knowledgeable persons, usually supervisors. An evaluator's task is to indicate whether an employee either fits the statement, is better than the statement, or worse than the statement. In a mixed standard scale, each performance dimension has three statements relating to it: one illustrating good performance, one average, and one poor. Thus, this mixed standard scale has nine statements, three for each of the three dimensions used. Statements in mixed standard scales are randomly mixed, tending to reduce rater errors by making it less obvious which statements reflect effective or ineffective performance. Example of a mixed standard scale Instructions: If the employee fits the statement, put a ?=? in the space opposite the statement. If the employee is better than the statement, put a ?v?. If the employee is worse than the statement, put ?x?. 1. Is on good terms with everyone. Can get along with people even in disagreement. 2. Employee's work is spotty, sometimes being all right and sometimes not. Could be more accurate and careful. 3. Has a tendency to get into unnecessary conflicts with people. 4. Is quick and efficient, able to keep work on schedule. Really gets going on a new task. 5. The accuracy of employee's work is satisfactory. It is not often that you find clear evidence of carelessness. 6. Gets along with most people. Only very occasionally has conflicts with others on the job, and these are likely to be minor. 7. Is efficient enough, usually getting through assignments and work in reasonable time. 8. Work is striking in its accuracy. Never any evidence of carelessness in it. 9. There is some lack of efficiency on employee's part. Employee may take too much time to complete assignments, and sometimes does not really finish them 1. Is on good terms with everyone. Can get along with people even in disagreement. 2. Employee's work is spotty, sometimes being all right and sometimes not. Could be more accurate and careful. 3. Has a tendency to get into unnecessary conflicts with people. 4. Is quick and efficient, able to keep work on schedule. Really gets going on a new task. 5. The accuracy of employee's work is satisfactory. It is not often that you find clear evidence of carelessness. 6. Gets along with most people. Only very occasionally has conflicts with others on the job, and these are likely to be minor. 7. Is efficient enough, usually getting through assignments and work in reasonable time. 8. Work is striking in its accuracy. Never any evidence of carelessness in it. 9. There is some lack of efficiency on employee's part. Employee may take too much time to complete assignments, and sometimes does not really finish them Forced Distribution Forced distribution is a form of comparative evaluation in which an evaluator rates subordinates according to a specified distribution. Unlike ranking methods, forced distribution is frequently applied to several rather than only one component of job performance. Use of the forced distribution method is demonstrated by a manager who is told that he or she must rate subordinates according to the following distribution: 10 percent low; 20 percent below average; 40 percent average; 20 percent above average; and 10 percent high. In a group of 20 employees, two would have to be placed in the low category, four in the below-average category, eight in the average, four above average, and two would be placed in the highest category. The proportions of forced distribution can vary. For example, a supervisor could be required to place employees into top, middle, and bottom thirds of a distribution. Graphic rating scale Perhaps the most commonly used method of performance evaluation is the graphic rating scale. Off course it is also one of the oldest methods of evaluation in use. Under this method, a printed form, as shown in the table, is used to evaluate the performance of an employee. A variety of traits may be used in these types of rating devices, the most common being the quantity and quality of work. The rating scales can also be adapted by including traits that the company considers important for effectiveness on the job. Table: Typical Graphic Rating Scale Employee Name................... Job title ................. Department ......................... Rate ............... Date .................................. Quantity of work: Volume Unsatisfactory of work under normal Fair Satisfactory Good Outstanding working conditions Quality of work: Neatness, thoroughness and accuracy of work Knowledge of job A clear understanding of the factors connected with the job Attitude: Exhibits enthusiasm and cooperativeness on the job Dependability: Conscientious, thorough, reliable, accurate, with respect to attendance, relief's, lunch breaks, etc. Cooperation: Willingness and ability to work with others to produce desired goals. From the graphic rating scales, excerpts can be obtained about the performance standards of employees. For instance, if the employee has serious gaps in technical-professional knowledge (knows only rudimentary phases of job); lacks the knowledge to bring about an increase in productivity; is reluctant to make decisions on his own (on even when he makes decisions they are unreliable and substandard); declines to accept responsibility; fails to plan ahead effectively; wastes and misuses resources; etc., then it can safely be inferred that the standards of the performance of the employee are dismal and disappointing. The rating scale is the most common method of evaluation of an employee’s performance today. One positive point in favor of the rating scale is that it is easy to understand, easy to use and permits a statistical tabulation of scores of employees. When ratings are objective in nature they can be effectively used as evaluators. Behavioral Checklist A behavioral checklist is a rating form containing statements describing both effective and ineffective job behaviors. These behaviors relate to a number of behavioral dimensions determined to be relevant to the job. Items from a behavioral checklist for a salesperson's job Instructions: Please check those statements descriptive of an employee's behavior. 1. Calls on customers immediately after hearing of any complaints 2. Discusses complaints with customer 3. Gathers facts relevant to customers' complaints 4. Transmits information about complaints back to customers and resolves problems to their satisfaction 5. Plans each day's activities ahead of time 6. Lays out broad sales plans for one month ahead 7. Gathers sales information from customers, other salesmen, trade journals, and other relevant sources Behavioral checklists are well suited to employee development because they focus on behaviors and results, and use absolute rather comparative standards. An advantage of behavioral checklists is that evaluators are asked to describe rather than evaluate a subordinate's behavior. For this reason, behavioral checklists may meet with less evaluator resistance than some other methods. An obvious disadvantage of behavioral checklists is that much time and money must be invested to construct the instrument. BARS - Behaviorally Anchored Rating Scales Also known as the behavioral expectations scale, this method represents the latest innovation in performance appraisal. It is a appraisal tool that anchors a numerical rating scale with specific behavioral examples of good or poor performance. It is a combination of the rating scale and critical incident techniques of employee performance evaluation. The critical incidents serve as anchor statements on a scale and the rating form usually contains six to eight specifically defined performance dimensions. The following chart represents an example of a sales trainee’s competence and a behaviorally anchored rating scale. Table: An Example of Behaviorally Anchored Rating Scale (BARS) Performance Points Behavior Can expect trainee to make valuable suggestions for Extremely good 7 increased sales and to have positive relationships with customers all over the country. Can expect to initiate creative Good 6 ideas for improved sales. Can expect to keep in touch Above average 5 with the customers throughout the year. Can manage, with difficulty, to Average 4 deliver the goods in time. Can expect to unload the trucks Below average 3 when asked by the supervisor. Can expect to inform only a part Poor 2 of the customers. Can expect to take extended Extremely poor 1 coffee breaks and roam around purposelessly. Confidential report It is mostly used in government organizations. It is a descriptive report prepared, generally at the end of every year, by the employee’s immediate superior. The report highlights the strengths and weaknesses of the subordinate. The report is not data based. The impressions of the superior about the subordinate are merely recorded there. It does not offer any feedback to the appraisee. The appraisee is not very sure about why his ratings have fallen despite his best efforts, why others are rated high when compared to him, how to rectify his mistakes, if any; on what basis he is going to be evaluated next year, etc. Since the report is generally not made public and hence no feedback is available, the subjective analysis of the superior is likely to be hotly contested. In recent years, due to pressure from courts and trade unions, the details of a negative confidential report are given to the appraisee. Management by Objectives Management by objectives (MBO) involves setting specific measurable goals with each employee and then periodically discussing his/her progress toward these goals. The term MBO almost always refers to a comprehensive organization-wide goal setting and appraisal program that consist of six main steps: 1. Set the organization's goals. Establish organization-wide plan for next year and set goals. 2. Set departmental goals. Here department heads and their superiors jointly set goals for their departments 3. Discuss and allocate department goals. Department heads discuss the department's goals with all subordinates in the department (often at a department-wide meeting) and ask them to develop their own individual goals; in other words, how can each employee contribute to the department's attaining its goals? 4. Define expected results (set individual goals). Here, department heads and their subordinates set short-term performance targets. 5. Performance review and measure the results. Department heads compare actual performance for each employee with expected results. 6. Provide feedback. Department heads hold periodic performance review meetings with subordinates to discuss and evaluate progress in achieving expected results. MBO Features MBO emphasizes anticipatively set goals that are tangible, verifiable and measurable. MBO focuses attention on what must be accomplished (goals) rather than how it is to be accomplished (methods). MBO, by concentrating on key result areas translates the abstract philosophy of management into concrete phraseology. The technique can be put to general use (non-specialist technique). Further it is “a dynamic system which seeks to integrate the company’s need to clarify and achieve its profit and growth targets with the manager’s need to contribute and develop himself”. MBO is a systematic and rational technique that allows management to attain maximum results from available resources by focusing on achievable goals. It allows the subordinate plenty of room to make creative decisions on his own. Unclear standards Halo Bias effect Problems in Appraising performance Leniency Central Or tendency strictness How to Avoid Appraisal Problems Keep Know A problems diary Control Use Outside Right influences Tool Train Supervisors Performance Management System Performance Management is a systematic process of : •Target setting - Planning work and output expectations •Performance Appraisal and Monitoring - Continually monitoring performance •Rewarding good performance and managing poor performance •Competency Management and Assessment •Personal Development Planning - Developing and enhancing the capacity to perform •Performance and Competency Rating - Periodically rating and assessing performance in a summary fashion COMPENSATION MANAGEMENT Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for attracting and retaining the best employees. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Employee compensation refers to all forms of pay going to employees and arising from their employment. Need of Compensation Management A good compensation package is important to motivate the employees to increase the organizational productivity. Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals. Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose. The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards. Motivation Compensation Employee Need Retention Satisfaction Components of Compensation System Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of a compensation system are as follows: Pay structure refers to the process of setting up the pay for a job in an organization. The process deals with internal and external analysis to estimate the compensation package for a job profile. Objectives of Salary Survey To gather information regarding the industry standards To know more about the market rate i.e. compensation offered by the Salary Survey competitors To design a fair compensation system To design and implement most competitive reward strategies Standard Custom To benchmark the compensation strategies Types of Compensation Compensation provided to employees can be direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity. Compensation Direct financial Indirect financial payments payments Basic Salary Medical Special Reimbursement Allowances Direct Compensation House rent Bonus allowances Leave travel Conveyance allowances Overtime policy Leave Insurance Policy Indirect Compensation Flexible Retirement Timings Benefits Holiday Homes Strategic Compensation Strategic compensation Using the compensation plan to support the company‘s strategic aims. Focuses employees‘ attention on the values of winning, execution, and speed, and on being better, faster, and more competitive.. Compensation Policy Issues Pay for performance Pay for seniority The pay cycle Salary increases and promotions Overtime and shift pay Probationary pay Paid and unpaid leaves Paid holidays Salary compression Geographic costs of living differences Forms of Equity External equity How a job‘s pay rate in one company compares to the job‘s pay rate in other companies. Internal equity How fair the job‘s pay rate is, when compared to other jobs within the same company Individual equity How fair an individual‘s pay as compared with what his or her co- workers are earning for the same or very similar jobs within the company. Procedural equity The perceived fairness of the process and procedures to make decisions regarding the allocation of pay. Methods to Address Equity Issues Salary surveys To monitor and maintain external equity. Job analysis and job evaluation To maintain internal equity, Performance appraisal and incentive pay To maintain individual equity. Communications, grievance mechanisms, and employees‘ participation To help ensure that employees view the pay process as transparent and fair. Establishing Pay Rates Step 1. The salary survey Aimed at determining prevailing wage rates. A good salary survey provides specific wage rates for specific jobs. Formal written questionnaire surveys are the most comprehensive, but telephone surveys and newspaper ads are also sources of information. Establishing Pay Rates (cont’d) Step 2. Job evaluation A systematic comparison done in order to determine the worth of one job relative to another. Establishing Pay Rates (cont’d) Step 3. Group Similar Jobs into Pay Grades A pay grade is comprised of jobs of approximately equal difficulty or importance as established by job evaluation. Establishing Pay Rates (cont’d) Step 4. Price Each Pay Grade — Wage Curve Shows the pay rates currently paid for jobs in each pay grade, relative to the points or rankings assigned to each job or grade by the job evaluation. Shows the relationships between the value of the job as determined by one of the job evaluation methods and the current average pay rates for your grades. Plotting a Wage Curve Figure 11–4 Establishing Pay Rates (cont’d) Step 5. Fine-tune pay rates Developing pay ranges Flexibility in meeting external job market rates Easier for employees to move into higher pay grades Allows for rewarding performance differences and seniority Correcting out-of-line rates Raising underpaid jobs to the minimum of the rate range for their pay grade. Freezing rates or cutting pay rates for overpaid (―red circle‖) jobs to maximum in the pay range for their pay grade. Wage Structure Note: This shows overlapping wage classes and maximum–minimum wage ranges. Figure 11–5 Pricing Managerial and Professional Jobs Compensating managers Base pay: fixed salary, guaranteed bonuses. Short-term incentives: cash or stock bonuses Long-term incentives: stock options Executive benefits and perks: retirement plans, life insurance, and health insurance. Pricing Managerial and Professional Jobs What Really Determines Executive Pay? CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in a short and long term. Firms pay CEOs based on the complexity of the jobs they filled. Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay. Pricing Managerial and Professional Jobs What Really Determines Executive Pay? CEO pay is set by the board of directors taking into account factors such as the business strategy, corporate trends, and where they want to be in a short and long term. Firms pay CEOs based on the complexity of the jobs they filled. Boards are reducing the relative importance of base salary while boosting the emphasis on performance-based pay. What Is Competency-based Pay? Competency-based pay Where the company pays for the employee‘s range, depth, and types of skills and knowledge, rather than for the job title he or she holds. Competencies Demonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performance. Why Use Competency-Based Pay? Traditional pay plans may actually backfire if a high-performance work system is the goal. Paying for skills, knowledge, and competencies is more strategic. Measurable skills, knowledge, and competencies are the heart of any company‘s performance management process. Other Compensation Trends Broadbanding Consolidating salary grades and ranges into just a few wide levels or ―bands,‖ each of which contains a relatively wide range of jobs and salary levels. Wide bands provide for more flexibility in assigning workers to different job grades. Broadbanded Structure and How It Relates to Traditional Pay Grades and Ranges Figure 11–7 Motivation, Performance, and Pay Incentives Financial rewards paid to workers whose production exceeds a predetermined standard. Individual Differences Law of individual differences The fact that people differ in personality, abilities, values, and needs. Different people react to different incentives in different ways. Managers should be aware of employee needs and fine-tune the incentives offered to meets their needs. Money is not the only motivator. Types of Incentive Plans Pay-for-performance plans Variable pay (organizational focus) A team or group incentive plan that ties pay to some measure of the firm‘s overall profitability. Variable pay (individual focus) Any plan that ties pay to individual productivity or profitability, usually as one-time lump payments. Why Incentive Plans Fail Performance pay can‘t replace good management. You get what you pay for. ―Pay is not a motivator.‖ Rewards punish. Rewards rupture relationships. Rewards can have unintended consequences. Implementing Effective Incentive Plans Ask: Is effort clearly instrumental in obtaining the reward? Link the incentive with your strategy. Make sure effort and rewards are directly related. Make the plan easy for employees to understand. Set effective standards. View the standard as a contract with your employees. Get employees‘ support for the plan. Use good measurement systems. Emphasize long-term as well as short-term success. Adopt a comprehensive, commitment-oriented approach. Benefits Benefits Indirect financial and nonfinancial payments employees receive for continuing their employment with the company. Types of employee benefit plans Supplemental pay: sick leave and vacation pay Insurance: workers‘ compensation Retirement: Pensions Employee services: child-care facilities Private-Sector Employer Compensation Costs, June 2003 Source: ―Total Employer Costs Rose to 22.61 in Second Quarter,‖ Figure 13–2 BNA Bulletin to Management, September 11, 2003, p. 293 Types of Employee Benefits Pay for time not worked Insurance benefits Retirement benefits Services Issues in Developing Benefits Plans Benefits to be offered. Coverage of retirees in the plan Denial of benefits to employees during initial ―probationary‖ periods Financing of benefits. Benefit choices to give employees. Cost containment procedures to use. Communicating benefits options to employees. Pay for Time Not Worked Unemployment insurance Provides for benefits if a person is unable to work through no fault of his or her own. Vacations and holidays Number of paid vacation days varies by employer. Number of holidays varies by employer. Premium pay for work on holidays. Pay for Time Not Worked (cont’d) Sick leave Provides pay to an employee when he or she is out of work because of illness. Parental leave The Family Medical Leave Act of 1993 (FMLA) Up to 12 weeks of unpaid leave within a one-year period Employees must take unused paid leave first. Employees on leave retain their health benefits. Employees have the right to return to their job or equivalent position. Pay for Time Not Worked (cont’d) Severance pay A one-time payment when terminating an employee. Reasons for granting severance pay: Acts as a humanitarian gesture and good public relations. Mirrors employee‘s two week quit notice. Avoids litigation from disgruntled former employees. Reassures employees who stay on after the employer downsizes its workforce of employer‘s good intentions. Insurance Benefits Workers‘ compensation Provides income and medical benefits to work- related accident victims or their dependents, regardless of fault. Death or disability: a cash benefit based on earnings per week of employment. Specific loss injuries: statutory list of losses Controlling worker compensation costs Screen out accident-prone workers. Make the workplace safer. Thoroughly investigate accident claims. Use case management to return injured employees to work as soon as possible. Insurance Benefits (cont’d) Hospitalization, health, and disability insurance Provide for loss of income protection and group- rate coverage of basic and major medical expenses for off-the-job accidents and illnesses. Accidental death and dismemberment Disability insurance Retirement Benefits (cont’d) Types of pension plans Contributory: employees contribute to the plan. Noncontributory plans: employer makes all contributions to the plan. Qualified plans: plans that meet requirements for tax benefits for employer contributions. Nonqualified plans: plans not meeting requirements for favorable tax treatment. Retirement Benefits (cont’d) Types of pension plans (cont‘d) Defined contribution: contributions of employees and employers are specified; plan payouts are not. Defined benefit plans: plan payouts are specified; however, contributions must be sufficient to insure payouts. Family-Friendly Benefits On-site or subsidized Educational subsidies child care Sabbaticals Elder care Loan programs for Fitness and medical home office equipment facilities Stock options Food services Concierge services Flexible work Trauma counseling scheduling Telecommuting Flexible Benefits Programs The cafeteria (flexible benefits) approach Each employee is given a benefits fund budget to spend on the benefits he or she prefers. Flexible spending accounts Enable employees to pay for medical and other expenses with pretax dollars by depositing funds in their accounts from payroll deductions. Flexible Work Arrangements Flextime A plan whereby employees‘ workdays are built around a core of mid-day hours when all workers are required to be present. Workers can arrange their own starting and stopping hours before and after the core period. Positive effects on employee productivity, job satisfaction, satisfaction with work schedule, and employee absenteeism. Positive effect on absenteeism was much greater than on productivity. Flexible Work Arrangements (cont’d) Compressed workweeks Increase productivity Less disruption from shift changes Longer time-off-work periods Reduced absenteeism Longer workdays; fewer workdays: Four-day workweeks, with four 10-hour days. Two days on, two days off, three days on, then two days off, two days on, and so forth. Three 12-hour shifts, and then off for the next four Other Flexible Work Arrangements Job sharing Allowing two or more people to share a single full- time job. Work sharing A temporary reduction in work hours by a group of employees during economic downturns as a way to prevent layoffs. Telecommuting Employees work at home using telephones and the Internet to transmit letters, data, and completed work to the home office.
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