MODULE HUMAN RESOURCE MANAGEMENT

TABLE OF CONTENTS

1. Strategic Role of Human Resource Management2

2. Job Analysis and Design14
3. Personnel Planning and Recruiting.23
4. Employee Testing and Selection27
5. Orientation and Placement..33
6. Performance Appraisal and Management.37
7. Employee Remuneration48
8. Training and Development53
9. Labour Laws.60

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Module 1: Strategic role of Human resource management

Objectives

Upon completion of this module you would be able to understand the following:
1.

Why is HR management important to all managers?

2.

The strategic challenges of HR

3.

The strategic management process

4.

Translating strategy into HR policies and practices

5.

HR Score card approach

What Is the strategic role of

HRM?
Objective 1: Describe the strategic role that
HRM plays
Why is HRM important to Managers?
Strategic challenges in HR
Strategic Management Process
HR Scorecard Approach
Benefits of HR Scorecard Metrics

Opening Case

Tata Consulting services (TCS) is a truly global company. It has 28,000 software
engineers drawn from 32 countries. TCS adopts unique system of hiring people.
Its starts its human resource sourcing right at the college level. The software

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leader sends more than 50 senior executives to interact with academic

institutions. At these institutions, TCS funds many events like conferences,
seminars, gets involved in improving curricula, establishing fellowships and
exchanges expertise through visiting faculty programmes. To top all these is the
annual retreat with over hundred top academics in Thiruvananthapuram, the
training hub of TCS.
TCS extends its relationships to several universities abroad as well. It has
sponsored projects at MIT, Harvard and Kellogg school and institutions in Japan,
Australia, China and Singapore. All the spade work being done, TCS finds it easy
to hire the best talent in campus recruitments.
Welcome to the exciting and challenging field of Human Resource management!

Meaning and definition:

Before quoting the definition it is essential for us to understand the following:
1.

Organizations are not mere bricks, machines and inventories. They are people.
It is people who staff and manage the organization.

2.

It involves the application of management functions and principles. The

principles

are

applied

in

acquisitioning,

developing,

maintaining,

and

remunerating employees in organization.

3.

Decisions made must influence the effectiveness of the organization.

4.

HRM functions are not just limited to business establishments only. They are
applicable to NGOs, Education, Recreation etc.

Definition:
HRM is the planning, organizing, directing and controlling of the procurement,
development, compensation, integration, maintenance and separation of human
resources to the end that individual, organizational and social objectives are
accomplished.

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Why is HR management important to all managers?

This is easily understood by personnel mistakes you dont want to make while
managing. For example, you dont want to:

Hire wrong person for the job

Experience high turnover

Have your people not doing their best

Waste time with useless interviews

Have company taken to court because of discriminatory actions

Ignorant about existing labor laws which land your company into
trouble

Strategic challenges of HR
The central challenge facing HRM is always provide a set of services that make
sense in terms of the companys strategic plan.
A strategic plan is the companys plan for how it will match its internal
strengths and weaknesses with external opportunities and threats in order to
maintain a competitive advantage.
The basic strategic planning process involves asking, Where are we now as a
business and where do we want to be? The manager then formulates specific
strategies to take the company from where it is now to where he or she wants it
to be. A strategy is thus a course of action. The companys various strategies
HRs, Sales, production etc need to support the companys strategic plan.
Suppose the strategic plan calls for improving quality of the companys products.
Then one of HR strategy might be to boost employee quality consciousness
through improved screening and training.
Example:
The essence of Dell computers strategic plan has always been to be what
strategic planner call a low-cost leader, by using the internet and phone to sell

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PCs directly to end users at prices competitors cannot match. The firms HR
managers have devised various HR strategies to support the firms low-cost
strategy. For example, Dell now delivers most of its HR services via the web. A
managers

tool

section

on

intranet

contains

about

30

automated

web

applications. This allows managers to perform HR tasks that previously required

costly participation by HR department personnel. The intranet also lets Dell
employees administer their own plans, check job postings and monitor the total
compensation statements. This dramatically reduces the number of HR people
required to administer these activities and thus cost of doing so.
In formulating HR strategies the HR managers must address three basic
challenges.

1.

The

need

to

support

corporate

productivity

and

performance

improvement efforts.
With the globalization of the world economy, competition has increased, and
with it need to continually improve the organizations performance.
2. The employees play an expanded role in the employers performance
improvement efforts.
This requires high level of employee competence and commitment.
3. The HR Department must be more involved in designing not just
executing the companys strategic plan.
In formulating the strategy the top management needs the input of the
managers charged with hiring, training and compensating the firms employees.
HR professionals therefore need to understand the basic strategic planning.
The strategic management process
Figure 1.1 below gives the idea of what strategic management process. Strategic
planning is the part of the firms strategic management process.

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It consists of several related tasks. Lets look at at the main ones.

Step1: Define the business and its mission:

The fundamental strategic decision managers face are these: where are we
now in terms pf the business were in, and what business do we want to be in,
given

our

companys

opportunities

and

threats,

and

its

strengths

and

weaknesses? Mangers then choose strategies course of action such as buying

competitors or expanding overseas to get company from where it is today to
where it wants it to be tomorrow.

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Management experts use the terms vision and mission to help define the
companys current and future business.
The companys Vision is a general statement of its intended direction that
evokes emotional feelings in organization members.
The firms mission is more specific and shorter term. It serves to communicate
who we are, what we do, and where we are headed.
Step 2: Perform external and internal audits:
Managers base their strategic plans on methodical analyses of their external
and internal situation. The basic point of strategic plan should be to choose a
direction for the firm that makes sense, in terms of the external opportunities
and threats it faces and the internal strengths and weaknesses it possesses.
Ideally managers begin their strategic planning by methodically analyzing their
external and internal situations. The strategic plan should provide a direction for
the firm that makes sense, in terms of the external opportunities and threats the
firm faces and the internal strengths and weaknesses it possess. To facilitate this
strategic external/internal audit many managers use SWOT analysis. This
involves using a SWOT chart to compile and organize the process of identifying
company Strengths, Weaknesses, Opportunities, and Threats.
Step 3: Translate missions into strategic goals:
The firms managers need long-term strategic goals. For example, what exactly
does that mission mean, for the next five years, in terms of how many and what
specific types of partnership to form, with whom and when?
Saying the mission is to make quality job one is one thing operating that mission
for your managers is another. What exactly does that mission mean, or each
department, in terms of how well boost quality?
As an example, WebMDs sales director needs goals regarding the number of
new medical related content providers vitamin forms, hospitals, HMOs it must
sign up per year, as well as sales revenue targets. The business development
managers needs goals regarding the number of new businesses such as using
WebMD to help manage doctors office online he or she is to develop and sign.
Similarly, Citicorp cant function solely with a mission, provide integrated,
comprehensive financial services worldwide. To guide managerial action, it needs
goals in terms of things like building shareholder value, maintaining superior

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rates of return, building a string balance sheet and balancing the business by
customer, product and geography.
Step 4 : Formulate a strategy to achieve the strategic goals:
The firms strategy is a bridge connecting where the company is today with
where it wants to be tomorrow. The question is how do we get from here to
there? A strategy is a course of action. It shows how the enterprise will from
the business it is in now to the business it wants to be, given its opportunities
and threats and its internal strengths and weaknesses. A knowledge of and
commitment to the strategy helps ensure that employees make decisions
consistent with the companys needs.
Again a strategy is a course of action. It shows how the enterprise will move
from the business it is in now to the business it wants to be in (as laid out by its
vision, mission, and strategic goals) given the firms opportunities, threats,
strengths, and weaknesses. The strategies bridge where the company is now,
with where it wants to be tomorrow. The best strategies are concise enough for
the manager to express in an easily communicated phrase that resonates with
employees.
For example,
Company

Strategic Principle

Dell

Be direct

eBay

Focus on trading communities

General Electric

Be number one or number two in every

industry in which we compete, or get out

Southwest Airlines

Meet

customers

short-haul

travel

needs

at fares competitive with the cost of

automobile travel
Vanguard

Unmatchable value for the investor-owner

Wal-Mart

Low prices, every day

Keeping the strategy clear and concise helps ensure that employees all share
that strategy and so make decisions that are consistent with it. For example the

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executive teams shared understanding of Nokias strategy reportedly helps

explain how the form can make thousands of decisions each week so coherently.

Step 5: Implement the strategy:

Strategy implementation means translating the strategies into actions and
results by actually hiring or firing people, building or closing plants, and adding
or eliminating products and product lines. It involves drawing on and applying all
the

management

functions:

Planning,

organizing,

staffing,

leading

and

controlling.
Step 6: Evaluate performance:
Strategies dont always succeed. Managing strategy is an ongoing process.
Strategic control keeps the companys strategy up to date. It is the process of
assessing progress toward strategic goals and taking corrective action as
needed.
For example, Procter & Gamble announced it was selling its remaining food
businesses Jif, Crisco, and Folgers coffee because management wants to
concentrate on household and cosmetics products.

Strategic Human resource management

Strategic human resource management means formulating and executing HR
systems Hr policies and activities that produce the employee competencies
and behaviors the company needs to achieve strategic aims.

Translating strategy into HR policy and practice

The HR managers needs a way to translate the firms new strategy into specific,
actionable HR policies and practices.
The basic process outlined in Fig 2 is simple and logical.

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Management formulates a strategic plan. That strategic plan implies certain work
force requirements, in terms of employee skills, attributes and behaviors that HR
must deliver to enable the business to achieve the strategic goals.
For Example, Must our employees dramatically improve the level of customer
service? Do we need more computer-literate employees to run our new
machines?
Given these work force requirements, HR management formulates HR strategies,
policies and practices aimed at achieving the desired workforce skills, attributes
and behaviors. (These may take the form of new selection, training, and
compensation policies and practices, for instance.
Ideally HR management then identifies the scorecard metrics it can use to
measure the extent to which its new HR initiatives are supporting management
strategic goals.

The HR score card Approach

Management ultimately judges the HR function based on whether it creates
value for the company, where value creation means contributing in a
measurable way to achieving the companys strategic goals.
HR creates value by engaging in activities that produce the employee behavior
the company needs to achieve these strategic goals.
Managers often use HR scorecard to measure the HR functions effectiveness
and efficiency in producing these employee behaviors and thus in achieving the
companys strategic goals.
The HR Score card is a concise measurement system. It shows the quantitative
standards, or metrics the firm uses to measure HR activities, and measure the
employee behaviors resulting from these activities and to measure the
strategically relevant organizational outcomes of those employees behaviors. In
doing so, it highlights, in a concise but comprehensive way, the causal link
between the HR activities, and the emergent employee behaviors and the
resulting firm wide strategic outcomes and performance.

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Information for creating an HR scorecard:

To create an HR score card the manager needs three types of information.
First he or she must know what the companys strategy is because the strategy
will determine what the important employee behaviors and strategically
important organizational outcome are, and how the firm will measure the
organizational performance.
Second, the manager must understand the causal links between the HR
activities, the employee behaviors, the organizational outcomes, and the
organizational performance.
Third, the manager must have metrics he or she can use to measure all
activities and results involved, specifically the HR activities, the emergent
employee behaviors, the strategically relevant organizational outcome and the
organizational performance.
How to use the HR scorecard approach?

There are seven steps in using the HR scorecard approach to create a strategic
results oriented HR system. Fig 1.2 illustrates this.

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Fig 1.2 The seven step process in HR scorecard approach.

Source Gary Dessler

Step 1: Define the Business strategy- Creating a strategy oriented HR system

starts by defining what the companys strategic plans are. Ideally senior HR
leaders insights regarding the human resources in their own company and in
those of the competition provide valuable planning input.
Toward the end of this stage the management translates its broad strategic
plans into specific, actionable strategic goals.
Step 2: Outline the companys value chain- to achieve its strategic goals,
any business must engage in certain strategically required activities.
Eg. Microsoft must write new programs. Each such activity requires certain
employee behaviors. The point is this: any manager who want to understand
what employee behaviors are essential for his or her firms success must first
understand what the firms required activities are.

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For this value chain analysis is useful. The companys value chain identifies the
primary activities that create value for customers and the related support
activities.
Lets refer to Fig 1.3 which demonstrates a sample value chain for a Hotel:

Fig 1.3 An example of a Hotels value chain

Source: Gary Dessler, Ph.D.

We can think of any business as consisting of a chain of crucial activities.

Each activity is a part of the process of designing, producing, marketing and
delivering companys products or services.
These activities might include bringing supplies and materials into the companys
warehouse; bringing these materials to the shop floor and designing the product
to the customers specifications; and various marketing, sales and distribution
activities that attract customers and get the companys product to them.
This can help managers better understand the activities that drive performance
in their company. In other words it is a tool of identifying, isolating,

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visualizing, and analyzing firms most important activities and strategic

costs.
Value chain analysis is more than just a tool for identifying the ways things are
done now. It prompts questions such as: How do our costs for this activity
compare with our competitors? is there some way we can gain a competitive
advantage with this activity?

Is there a more efficient way for us to deliver

these services? And, DO we have to perform these services in-house?.

Outlining and analyzing the companys value chain can also help the HR
manager create an HR system that makes sense in terms of the firms strategy.
For Example, it can help him or her identify the organizational outcomes the
company absolutely must achieve if it is to achieve its strategic goals. This in
turn can help the HR manager better understand what employee behaviors and
competencies required, and what HR policies and activities would produce these
behaviors and competencies.
Example:
At Dell computer, Phone technicians competently and courteously assisting Dell
customers with problems is a crucial value chain activity.
The critical nature of this activity would be apparent from any out-lining of Dells
value chain. Given this Dell HR manager might well decide that, one way HR
could add value is by improving phone technicians performance through the use
of special computerized job aids that show technicians what series of questions
to ask when customers call in with problems.

Step 3: Identify the strategically required organizational outcomesEvery company must produce critical, strategically relevant outcomes if it is to
achieve its strategic goals. At Dell we have seen earlier, receiving quick,
competent, and courteous technical advice by phone is one such outcome.
Based on his or her understanding of how the company operates, and perhaps
an analysis of firms value chain, the manager, in this step, now identifies and
specifies the strategically relevant organizational outcomes.

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Step 4: Identify the required workforce competencies and behaviors The question here is, What employee competencies and behavior must our
employees exhibit if our company is to produce the strategically relevant
organizational outcomes, and thereby achieve its strategic goals?
Step 5: Identify the strategically relevant HR system policies and
activities
Once the HR manager knows what is to be expected out of the employees he or
she can turn to the task of identifying the HR activities and policies that will help
to produce these employee competencies and behaviors.
In this step, the important thing is to be specific. It is not enough to say we
need training programs, or disciplinary processes. Instead the manage must
now ask, Exactly what sort of the new training programs do we need, to
produce the sorts of employee competencies and behaviors that we seek? How
and to what end should we change the disciplinary processes? In this step, the
HR manager must therefore become precise about the actual form and design of
the firms HR system.
Step 6: Design the HR scorecard Measurement system After choosing
required organizational outcomes, and employee competencies and behaviors,
and specific HR system policies and activities, the question is how shall we
measure them all?
For example, if we decide to improve the disciplinary system, how precisely will
the company measure such improvement?

Perhaps in terms of number of

grievances. If higher moral is one employee competency we want to improve,

how we will measure higher morale? Perhaps with surveys that measures
attitudes regarding satisfaction with supervision, and with pay.
Deciding on the proper measures or metrics requires considerable thought.
Fig 5 presents some illustrative performance measures.
Measures like these serve two functions. First to the extent that the manager
can

quantify

each

of

these

organizational

outcomes,

and

employee

competencies, and the HR policies and activities, the measures can help the
company and HR manager assess HRs performance, unambiguously and

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quantitatively. They make it clear whether and to what extent employee morale
is up or down.
Second, they can help HR manager to build a measurable and persuasive
business case for how HR contributes to achieving the companys strategic
financial goals. The manager will be able to show, quantitatively, how the firms
HR activities affect employee behaviour, customer satisfaction and therefore
fiancial performance.
The HR scorecard is crucial in this measurement process. It helps the HR
manager demonstrate how HR contributes to the companys strategic and
financial success.
Step 7: Periodically evaluate the measurement system The HR manager
cannot assume that the HR scorecards various measures and links will always
stay the same. He or she should periodically evaluate measures and links to
make sure they are still valid.

Exercise:
The Hotel Paris International: An example
Let us see how this seven step process works by considering a fictitious
company, The Hotel Paris international. Let us say this Paris based hotel has a
global expansion plan to stay competitive in the market. In doing so they believe
that it will let them capitalize on their reputation for good service, by providing
multi-city alternatives for their satisfied guests. The problem is, their reputation
for good services has been deteriorating. If they cannot improve the service, it
would be unwise for them to expand, since their guests might actually prefer
other hotels after trying the Hotel Paris.
Implement the above seven step process in the above example.
Refer to fig 1.4 for solution

Why Do Human Resource Managers Use HR Scorecard Metrics?

1.

To Check the Level of Transparency

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Transparency is such a crucial element for any organization. Those

organizations who dont value transparency they get failed shortly.
However

those

companies

who

look

after

their

organizational

transparency they get succeeded very soon. The Human Resource

(HR) managers can efficiently check the level of their employee
transparency by using hr scorecard metrics.

2.

To Measure the Volume of Sales

Sales ratio defines either growth or deficiency of the organization. With
the aid of HR scorecard metrics, HR managers can easily calculate the
sales volumes of their companies.

3.

To Calculate the Returns of the Organization

Returns

are

very

important

for

all

types

of

businesses

and

organizations. With the support of HR scorecard metrics, the human

resource

managers

can

efficiently

asses

the

returns

of

their

companies.

4.

To Measure the Level of Organizational Productivity

Another important usage of HR scorecard metrics is to measure the
organizational productivity. Therefore the HR managers should not
overlook these software applications as these would improve the
performance of human resource department efficiently.

5.

To Identify the Concerning Areas of the Company

These software applications will help the human resource (HR)
managers to identify both positive and negative aspects of their
organizations and companies effectively.

6.

To Evaluate Client and Employee Satisfaction Level

Last of all, these software applications will not only measure employee
satisfaction level but also calculate client pleasure. Therefore the
human resource managers should make use of HR scorecard metrics
to achieve their organizational goals successfully.

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Fig 1.4 Solution to Hotel Paris example

source Gary Dessler

Fig 1.4 shows an example of an HR Scorecard approach

Job Analysis and Design

Objective 2: Learn how to conduct
Job Description
Job Specification

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Job Analysis and design

The main purpose of this chapter is to show how to analyze a job and write job
descriptions. As those working in recruiting and hiring industry it is essential
for one to know job analysis to ensure appropriate candidate is recruited for
the right position.
What is Job analysis?
Definition: Job analysis is the process of studying and collecting information
relating to the operations and responsibilities of a specific Job. The immediate
products of this analysis are job descriptions and Job specifications.
By definition we see the process of Job analysis results in two sets of data:
1.

Job description and 2.Job specification. Figure below gives the difference
between the two.

Job Analysis
A process of obtaining all pertinent job facts

Job description
A statement containing items such
as:

Job title

Location

Job summary

Duties

Machine tools, and equipment

Materials and forms used

Supervision given or received

Working conditions

Hazards

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Job Specification
A statement of human qualifications necessary to
Do the Job. Usually contains such items as

Education

Experience

Training

Judgment

Initiative

Physical effort

Physical skills

Responsibilities

Communication skills

Emotional characteristics

Usually sensory demands such as sight, smell, hearing

Specifically, Job analysis involves the following steps:

1.

Collecting and recording job information

2.

checking the job information for accuracy

3.

Writing job descriptions based on the information

4.

using the information to determine skills, abilities and knowledge that are required on
the Job.

5.

updating information from time to time.

Benefits of Job Analysis

It lays the foundation for
1.

Human resource planning.

2.

Employee hiring

3.

Training and development

4.

Performance appraisal

5.

Salary and wage fixation

6.

Safety and wealth

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The process of Job analysis

Fig below illustrates the process of Job analysis.
1.Strategic choices
|
|
2.Gather information
|
|
3.Process information
|
|
4.Job descritption
|
|
5. Job specification
Lets understand these steps in much more detail.
1. Strategic choices
With regard to Job analysis at least five choices are made:
a.

Extent of employee involvement in Job Analysis

b.

The level of details of the analysis

c.

Timing and frequency of analysis

d.

Past-oriented versus future oriented job.

e.

Sources of Job data.

a.

Employee involvement:

Job analysis involves collecting job related information-duties, responsibilities, skills and
knowledge required to perform the jobs.
The focus here is not on the job not on the individual holding the job. However
individuals are consulted.
Employees are often asked to supply the vital information about the contents of the job,
given their familiarity with it.

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Care should be taken as we gather information from the employee as he or she may
inflate their duties and responsibilities of his/her job making it more important than it
actually is.
On the other hand lack of involvement from employees may lead to inaccurate and
incomplete information.
While involving employees in Job analysis they should be communicated why the
analysis is being conducted. (Further training, recruiting more employees, additional
responsibilities )
b.

Level of details

The nature of the job being analyzed determines the level of detail in Job analysis.
For Eg. Analyzing the number of movements and employee makes and the frequency of
job related movements will be more relevant for a crane operators job than a personal
managers position.
The level of details required in job analysis also depends upon the purpose for which job
related details are being collected. For Ex: if the primary purpose of Job analysis is for
mass input for intensive training programs or an input assessing how much the job is
worth, the level of details required may be great.
c.

When and how often

Another strategic choice relates to the timing and frequency of conducting Job analysis .
Job analysis is generally conducted when
(i) an organization is newly established and the Job analysis is initiated for the first
time.
(ii) A new job is created in an established company.
(iii) A Job is changed significantly due to change in technology, methods, procedures or
systems.
(iv) The organization is contemplating a new remuneration plan or
(v) The employees or the managers feel that there exists certain inequities between job
demands and remuneration it carries.

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d.

Past oriented Vs Future oriented

If an organization is changing rapidly due to fast growth or technological change, a more

future oriented approach to job analysis may be desired.
For example personal computers began to replace electronic typewriters, thus changing
character of many typist jobs. Many companies anticipated these changes and began
retraining their typists before changing over to personal computers.
e. Sources of Job data
Non-human sources

Human sources

Existing job descriptions and specifications

Job analysis

Equipment maintaining records

Job incumbents

Equipment design blue prints

Supervisors

Architectural blueprints of work area

Job experts

Films of employee working

Training manuals and other job training
methods
Popular literature such as magazines and
news paper

In deciding sources to be used in a given job analysis, the analyst should follow at least
two guidelines:
1.

For non-human sources, use such sources which are most recent, and

2.

Use several sources for information wherever possible.

2.

Information Gathering

This step involves decisions on three issues:

1.

What type of data is to be collected?

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2.

What methods are to be employed for data collection?

3.

Who should collect the data?

Following table brings out the elements to be gathered for a given Job. The type of data,
however, depends upon the end use of the information, as also on the time and budget
constraints.

Table: Types of Job analysis information

1.

Work Activities
a.

2.

3.

4.

Descritpion of work activities(tasks)

(i)

how is a task performed?

(ii)

Why is a task performed?

(iii)

When is the task performed?

b.

Interface with other jobs and equipment

c.

Procedures used

d.

Behaviour required on the jobs

e.

Physical movements and demands of the jobs.

Machines, tools, equipment and work Aids used

a.

List of machines, tools, etc used

b.

Materials processed with items listed in 2(a)

c.

Products made with items listed in 2(a)

d.

Services rendered with items listed in 2(a)

Job context
a.

Physical working conditions

1.

Exposure to heat, dust, toxic substances

2.

indoor versus outdoor environment

b.

Organisational context

c.

Work schedule

d.

Incentives (Financial & non-Financial)

Personal requirements
a.

Specific skills

b.

Specific education and training

c.

Work experience

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d.

Physical characteristics (Fitness requirements for the job)

e.

Aptitudes and skills

The most prominent methods by which data collection done are

a. Observation
b. Interview
c. Questionnaire
d. Checklists
e. Technical conference
f. Diary methods.

3. Information processing
After information is gathered it needs to be processed so that it would be useful in
various personal functions.(Performance appraisal, hiring, promotions, transfers). The
processed information is useful to prepare job description and job specification.
4. Job Description
A job description is a written statement of what the worker actually does, how he or she
does it and what the jobs working conditions are. This information is further used to
write a job specification; this lists the knowledge, abilities and skills required to perform
the job satisfactorily.

There is no standard format for writing a job description. However they usually contain
the following:
a.

Job identification

b.

Job summary

c.

Responsibilities and duties

d.

Authority of incumbent

e.

Standards of performance

f.

Working conditions

g.

Job specifications

Sample Job Description

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Job Title:
Recommended Salary Grade
Job Family:
Reports to :
Location :

Job Code:
Exempt/Non Exempt status:
Division :
Department :
Date:

Summary(write brief summary of Job)

Scope and impact of Job:

a. Financial responsibilities

b. Supervisory responsibilities (Direct and indirect) :

Other:

Required Knowledge and Experience (Knowledge and experience necessary to do

Job)
Related work experience:

Formal Education or equivalent:

Skills :

Other :

Primary responsibilities (List in order of importance and list amount of time

spent on task)
Submitted by :
Approval :
Human resources :

Date:
Date:
Date:

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Corporate compensation:

Date :

5. Writing Job specifications:

The job specification takes the job description and answers the question, what human
traits and experience are required to do this job well? It shows what kind of person to
recruit and for what qualities that person should be tested. Sometimes Job specification
can be separate or it can be a part of job description.
A sample Job Description for an HR Recruiter is shown below.
Position Description:

The Corporate Human Resources Recruiter is responsible for delivering all facets of recruiting
success throughout the organization. This will be achieved through the development of local and
national recruiting plans, employing traditional sourcing strategies and resources as well as
developing new, creative recruiting ideas. The Corporate Human Resources Recruiter will play a
critical role in ensuring we are hiring the best possible talent.
Primary Objectives of the Human Resources Recruiter:

Develop and execute recruiting plans.

Network through industry contacts, association memberships, trade groups and employees.

Coordinate and implement college recruiting initiatives.

Administrative duties and recordkeeping.

Develop and Execute Recruiting Plans

Work with hiring managers on recruiting planning meetings

Create job descriptions

Lead the creation of a recruiting and interviewing plan for each open position.

Efficiently and effectively fill open positions.

Conduct regular follow-up with managers to determine the effectiveness of recruiting plans
and implementation.

Develop a pool of qualified candidates in advance of need.

Research and recommend new sources for active and passive candidate recruiting.

Build networks to find qualified passive candidates.

Post openings in newspaper advertisements, with professional organizations, and in other

position appropriate venues.

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CBP

Utilize the Internet for recruitment.

--Post

positions

--Improve
--Research

the

to

company
new

ways

website
of

appropriate
recruiting
using

page
the

Internet
to

assist

Internet

sources.
in

for

recruiting.
recruitment.

--Use social and professional networking sites to identify and source candidates.
Network Through Industry Contacts, Association Memberships, Trade Groups and Employees

Locate and document where to find ideal candidates.

Aid public relations in establishing a recognizable employer of choice reputation for the
company, both internally and externally.

Communicate with managers and employees regularly to establish rapport, gauge morale,
and source new candidate leads.

Create contacts within industry.

Attend local professional meetings and membership development meetings.

Maintain regular contact with possible future candidates.

Coordinate and Implement College Recruiting Initiatives

Coordinate college recruiting initiatives.

Attend career fairs for recruiting and company recognition.

Develop working relationships within colleges to aid in recruiting.

Give presentations at colleges, attend student group meetings, and increase college
awareness of the company before and after career fairs.

Administrative Duties and Record Keeping

Manage the use of recruiters and headhunters.

Review applicants to evaluate if they meet the position requirements.

Conduct prescreening interviews

Maintain all pertinent applicant and interview data in the Human Resources Information
System (HRIS)

Assist in performing reference and background checks for potential employees.

Assist in writing and forwarding rejection letters.

Assist in interviewing and selecting employees onsite.

Assist in preparing and sending offer packages.

Assist in preparing and sending new employee orientation packages.

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CBP

Perform other special projects as assigned.

Required Knowledge, Skills and Abilities:

To perform this job successfully, an individual must be able to perform each essential duty
satisfactorily, as assigned. The requirements listed below are representative of the knowledge, skill,
and ability required. Reasonable accommodations may be made to enable individuals with disabilities
to perform the essential functions.

Experience with recruiting, technical recruiting a plus.

Proven candidate sourcing and relationship building skills.

Excellent computer skills in a Microsoft Windows environment.

Effective oral and written communication skills.

General knowledge of various employment laws and practices.

Excellent interpersonal and coaching skills.

Ability to work with various departments and foster teamwork.

Ability to work independently with minimal supervision.

Skills in database management and record keeping.

Ability to maintain the highly confidential nature of human resources work.

Ability to travel for recruitment meetings, college visits, and career fairs and maintain a
flexible work schedule.

Excellent organizational skills.

Must be able to identify and resolve problems in a timely manner.

Gather and analyze information skillfully.

Demonstrate resourcefulness and initiative in dealing with daily assumptions.

Education and Experience:

A bachelors degree is required.

One to two years of human resources experience required; one to two years of human
resources corporate recruiting experience preferred.

Professional in Human Resources (PHR) certification preferred.

Physical Demands:

The physical demands described here are representative of those that must be met by an employee
to successfully perform the essential functions of the job. Reasonable accommodations may be made
to enable individuals with disabilities to perform the essential functions. While performing the duties of

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CBP

this job, the employee is regularly required to see, talk and hear. The employee frequently is required
to sit and use hands along with fingers, to handle or feel. The employee is occasionally required to
stand, walk, reach with hands and arms, climb or balance, and stoop, kneel, crouch or crawl. The
employee must frequently lift and/or move up to 50 pounds. Specific vision abilities required by this
job include close vision.
Work Environment:

The work environment characteristics described here are representative of those encountered while
performing the essential functions of this job. Reasonable accommodations may be made to enable
individuals with disabilities to perform the essential functions. While performing the duties of this job,
the employee is occasionally exposed to moving mechanical parts and vehicles. The noise level in
the work environment is usually moderate.
This job description is intended to convey information essential to understanding the scope of the
position and is not an exhaustive list of skills, efforts, duties, responsibilities or working conditions
associated with it.

1.

Working individually or in groups, obtain copies of job description for clerical

position at the college or university where you study or the firm where you work.
What types of information do they contain? Do they give you enough information
to explain what the job involves and how to do it? How would you improve on
the description?

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CBP

Personnel Planning and Recruiting

Objective 3: Understand the process of
recruiting and selection.
Effective Recruiting
Hiring Externally
Developing and using application form

Personnel

Planning

and

recruiting

Personnel planning is the first step in recruiting and selection process. Following steps
are involved in this process to select the best candidate for the job:
1.

Decide what positions youll have to fill through personnel planning and
forecasting.

2.

Build a pool of candidates for these jobs by recruiting internal and external
candidates

3.

Have candidates complete application forms and perhaps undergo an initial

screening interview.

4.

Use selection techniques like tests, background investigations and physical

exams to identify right candidates.

5.

Decide who to make an offer to, by having the supervisor and perhaps others on
the team interview the candidates.
The need or importance of manpower planning may be assessed through the
following facts:
(i) Increase in the size of the business:- Wit the expansion of the plant, a
large number of workers are required to be recruited. At the time of taking the
decision for expansion of he plant, a stock of the existing manpower should be
taken and future need of the personnel should be assessed. Ti sis very essential
to know whether new responsibilities should be assigned from among the
existing personnel or personnel should be recruited afresh outside to met the
challenges

of

the

new

responsibilities.

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CBP

(ii) Effective recruitment an selection policy :- Future need may be

predicted by manpower planning, hence only right man on the right job at the
right time may be recruited and selected. The enterprise is not to invest much
amount on the training of such workers who are recruited and placed after
proper scrutiny. The rate of labour turnover is also reduced by an effective
manpower

planning.

(iii) Reduction in labour cost:- In order to maintain the supremacy over other
competitive firms, it is in the interest of eh organization to control the cost of
labour by effective use of manpower and thus reducing the wastage. This can be
well

done

by

manpower

planning.

(iv) Avoiding disruption in production :- Manpower planning may help the

organisation procuring the skilled and qualified workers because future needs of
personnel may be estimated before hand and they are recruited and trained on
the basis of a well developed recruitment and training policy thus lowering the
amount of expenditure on training. The production is carried on uninterrupted.
(v) National disruption in production:- National policy on employment does
not permit any employer to oust the worker recruited by the organisation.
Therefore, it is very essential to recruit the workers according to the needs of
the enterprise and to develop a recruitment policy of the organisation to avoid
any unnecessary hardship in the near future. Only manpower planning can help
the

organisation

in

this

regard.

(vi) National policy on employment:- No effective employee development

programme can be worked out unless it is linked with the manpower
requirements of the organisation. While developing e employee development
programmes, the talent, abilities and motives of he individuals as well as the
organizational objectives in relation to the manpower should be taken into
consideration. An effective manpower planning can only help the organisation to
make its employee development programmes effective.

Effective recruiting:
Assuming the company authorizes you to fill a position, the next step is to develop an
applicant pool. The more applicants you have, the more selective you can be in your

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CBP

hiring. If only two candidates apply for two openings, you may have little choice but to
hire them. But if 10 or 20 applicants appear, you can use techniques like interviews and
tests to screen out all but the best.
The recruiting yield pyramid:
It is a historical arithmetic relationships between recruitment leads and invitees, invitees
and interviews, interviews and offers made, and offers made and offers accepted.
It is used to calculate the number of applicants they must generate to hire the required
number of new employees.
Eg:
Lets say a company needs 50 new entry level accountants. From experience, the
company knows the ration of offers made to actual hires is 2:1; About half the people to
whom it makes offers accepts them.
Similarly the firm knows that the ratio of candidates interviewed to the offer made is
3:2 while the ratio of candidates invited to interviews to candidates actually interviewed
is about 4:3. Finally the firm knows that out of six leads that come in from all its
recruiting efforts, only one applicant typically gets an interview i.e say 6:1.
Given all these ratio, the firm knows it must generate 1200 (6:1)applications to be able
to invite 200 candidates (4:3) to its office for interviews. The firm will then get to
interview about 150 of those invited, and from these it will make 100 offers. Of those
100 offers, around 50 will accept.
Recruiting is done both internally and externally.
In case of internal recruiting the organization recruits for the posts from within.
Candidates fill in the vacancies in the form of promotions or through Job postings.
Job posting means publicizing the open job to the employees and listing the jobs
attributes, like qualifications, supervisor, work schedule and pay rate.
Hiring externally:

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CBP

Firms cant always get all the employees they need from their current staff, and some
times they just dont want to. Following are the sources that firms use to hire
candidates:
1.

Advertising

2.

Employment agencies.

3.

Internet.

4.

Campus placements

Developing and using application forms

Purpose of application forms:
Once you have pool of applicants, the prescreening process begin. The application form
is usually first step in this process.
A filled in form provides four types of information.
1) You can make judgments on whether the applicant has education and experience to
do the job.
2) You can draw conclusions about the applicants previous progress and growth, a trait
that is very important for management candidates.
3) You can draw tentative conclusions regarding applicants stability based on previous
work record.(Be careful not to assume that an unusual number of job changes
necessarily reflect on the applicants stability. For example, the persons last two
employers have had to lay-off employees.
4) You may be able to use the data in the application to predict which candidates will
succeed on the job and which will not.
In practice most organizations need several application forms. For technical and
managerial the form may require detailed answers to question concerning education and
training. The form for hourly factory workers might focus on the tools and equipment the
applicant used.
Employers need to keep several practical application form guidelines in mind. The
Employment History section

should request detailed information on each prior

employer, including the names of the supervisor and their telephone number all
essential for following up on the reference. Also in signing the application, the applicant
should certify his or her understanding of several things: that falsified statements may
be cause for dismissal; that medical examination may be requiredetc.

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CBP

What should an application form contain?

XYZ Company Limited

Preliminary application for the post of Accountant
Date:
I.

Personal History
a.

Name in full

b.

Marital status

c.

Date of birth

d.

Electoral card number/Pan no

e.

Current address

f.

Qualification (Detailed from Xth)

g.

Current address

h.

Home phone, mobile no

i.

Special qualification

II.

Employment History
a.

Details of previous employment.

b.

Reason for leaving

III.

Personal declarations
Individual and group activities:

1.

Bring to class several classified and display ads from the Wednesday Times ascent.
Analyze the effectiveness of these ads.

2. Develop your own application form for the post of Professor, Clerk and Asst. Engineer.

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CBP

Employee testing and Selection

Objective 4: Explain the need for Employee
testing and Selection
Why careful selection is important
Stages in the Selection Process

Why careful selection is important?

With a pool of applicants, the next step is to select the best candidates for the job.
Selecting the right employee is important for three main reasons.
1) Your own performance always depends in part on your subordinates. Employees with
right skills and attributes will do a better job for you and the company. Employees
without these skills wont perform effectively and your own performance and that of
firms will suffer.
2) It is important because it is costly to recruit and hire employees. Third it is important
because of legal implications of incompetent hiring.
Employers protect against negligent hiring claims by:
a.

Carefully scrutinizing all information supplied by the applicant on his or her employment
application. Ex. Look for unexplained gaps in employment.

b.

Getting the applicants written authorization for reference checks, and carefully checking
the references.

c.

Saving all records and information you obtain about the applicant.

d.

Rejecting applicants who make false statements of material facts or who have conviction
records for offences directly related and important to job in question.

e.

Keeping in mind the need to balance the applicants privacy rights with others need to
know, especially when you discover damaging information.

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CBP

f.

Taking immediate disciplinary action if problems arise.

Selection:
Selection is the process of differentiating between applicants in order to identify and hire
those with a greater likelihood of success in a job.
Recruitment refers to the process of identifying and encouraging prospective candidates
to apply for jobs whereas selection is concerned with picking the right candidates from a
pool of applicants.

A. Selection process:
Selection is a long process, commencing from preliminary interview of the applicants
and ending with the contract of employment. Selection process differs from organization
to organization and between two different jobs within the same organization. Selection
procedure for senior managers will be long-drawn and rigorous, but it is simple and
short while hiring shop floor workers.
B. Environmental factors affecting selection:
Selection is influenced by several factors. More prominent among them are supply and
demand of specific skills in the labour market, unemployment rate, labour market
conditions, legal and political considerations, companys image, companys policy and
cost of hiring.
C. Preliminary interview:
The purpose of this interview to reject misfits for reasons, which did not appear in the
application forms. Its a good public relations exercise.
D. Selection tests:
Job seekers who pass the screening and preliminary interview are called for tests.
Different types of tests may be administered, depending on the job of the company.
Generally,

tests

are

used

to

determine

the

applicants

ability,

aptitude

and

personality. Ability tests assist in determining how well an individual can perform tasks

37

CBP

related to the job. An excellent illustration of this is the typing test given to a
prospective employee for a secretarial job. An aptitude test help determine a persons
potential to learn in a given area. Personality tests are given to measure a prospective
employees motivation to function in a particular work environment. Interest tests are
used to measure an individuals activity preference. Graphology test is designed to
analyze the handwriting of an individual. It has been said that an individuals
handwriting can suggest the degree of energy, inhibitions and spontaneity, balance and
control. For example, big letters and emphasis on capital letters indicate the tendency
towards dominations and competitiveness. A slant to the right, moderate pressure and
good legibility show leadership potential. Polygraph tests are designed to ensure
accuracy of the information given in the applications. Medical tests reveal physical
fitness of candidate. Whatever tests one may conduct it should be reliable and valid.
E. Employment interview:
The next step in selection process is employment interview. The interview is conducted
at the beginning and at the end of the selection process.
Interview is a formal, in-depth conversation conducted to evaluate the applicants
acceptability. It is considered to be a excellent selection device. It can be adapted to
unskilled, skilled, managerial and professional employees. It allows a two-way exchange
of information, the interviewers learn about applicant, and the applicant about the
employer.
While conducting interview one must be careful of Absence of reliability, lack of validity
and Bias.
Interview has at least three objectives (i) helps obtain additional information from the
applicant; (ii) facilitates giving general information to the applicant such as company
policies, job, products manufactured and the like; (iii) help build the companys image
among the applicants.

Dos and Donts which interviewers should remember:

Dos:
a.

Plan the interview

b.

Establish an easy and informal relationship

c.

Encourage the candidate to talk

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CBP

d.

Cover the ground as planned

e.

Probe wherever necessary

f.

Analyze career and interests to reveal strengths, weaknesses, patterns and behaviour.

g.

Maintain control over the direction and time taken for the interview.
Donts:

a.

Start the interview unprepared.

b.

Plunge too quickly into to demanding questions.

c.

Ask leading questions

d.

Jump to conclusions on inadequate evidences.

e.

Pay too much attention to isolated strengths and weaknesses.

f.

Allow the candidate to gloss over important facts.

g.

Talk too much.

Other guidelines for effective interview are:

1.

Always use the structured form.

2.

Evaluate the interviewee immediately after the interview.

3.

focus on traits that are most accurately assessed in the interviews.

4.

get the interviewee talk and,

5.

respect the reservation policy concerned.

Interview questions from the employer

Openers

May I see your resume?

What can I do for you?

Why are you interested in joining our company?

What do you think you can do for us?

What attracts you to us?

Tell me about your experiences.

What pay do you have in mind. (Try tactfully to avoid answering this one early in the
interview)
Reading motivation

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CBP

Is your present employer aware of your interest in a job change?

Why do you want to change your job?

What caused you to enter your job field?

Why do you want to change your field of work?

What would like to be doing five years from now when you retire?

What is the ideal job for you?

Regarding education:

Describe your educational qualifications.

Why did you chose your major?

What was your class standing?

What extra-curricular activities did you take part in?

What honors did you earn?

What were your average grades?

Have you had any special training for this kind of job?

Regarding experience

Why should I hire you?

How did you fit the requirements of this job?

Who has exercised greatest influence on you? How?

What are your greatest strengths and limitations for this job?

Which supervisors you like best and why?

Why did you leave your previous job?

Could I see the samples of your work?

Regarding pay

What do you require?

What is the minimum pay will you accept?

What is your pay record for the last five years?

Why do you believe you are qualified for so much more?

F. Reference and background checks

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CBP

Many employers requests names, addresses and telephone numbers or references for
the purpose of verifying information and perhaps, gaining additional background
information on an applicant.
These references are to be checked for two important purposes. One purpose is to gain
insight about the potential employee from the people who have had previous experience
with him or her. The second purpose for reference checks is to access the potential
success of a prospect.
G. Selection decision
After obtaining information through the preceding steps, selection decision the most
critical of all steps must be made. The other stages of the selection process have been
used to narrow the number of candidates. The final decision has to be made from the
pool of individuals who pass the tests, interviews and reference checks. Other senior
managers and officers are pooled in before making decision on selection of candidate.
H. Physical examination
After the selection decision and before the job after offer is made, the candidate is
required to undergo a physical fitness test. A job offer, is often contingent upon the
candidate being declared fit after physical examination. The results of medical fitness
test are recorded in a statement and are preserved in the personnel records.
I. Job offer
The next step in the selection process is the job offer to those applicants who have
crossed all the previous hurdles. It is made through a letter of appointment. Such letter
generally contains a date by which the appointee must reply on duty. The appointee
must be given reasonable time for reporting. This is necessary for those who are already
in employment in which case he or she is required to obtain a relieving certificate from
the previous employer.
J. Contracts of employment
After the job offer has been made and the candidates accept the offer, certain
documents need to be executed by the employer and the candidate. One such form is an
attestation form. This form contains certain vital details about the candidate which are
then authenticated and attested by him/her. There is also need of preparing a contract
of employment. The basic information that should be included in a written contract of

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CBP

employment will vary according to the level of the job, but the following checklist sets
out the typical headings:
1.

Job title

2.

Duties, including phrase such as the employee will perform such duties and
will be responsible to such a person, as the company may from time to time
direct.

3.

Date when continuous employment starts and the basis for calculating
service.

4.

Rate of pay, allowances, overtime and shift rates, methods of payment.

5.

Hours of work including lunch break and overtime and shift arrangements.

6.

Holiday arrangements:
a.

Paid holidays per year.

b.

Calculation of holiday pay.

c.

Qualifying period.

d.

Accrual of holidays and holiday pay.

e.

Details of holiday year

f.

Dates when holidays can be taken.

g.

Maximum holidays that can be taken at any one time.

h.

Carryover of holiday entitlement.

i.

Public holidays.

7.

Sickness
a.

Pay for the time lost.

b.

Duration of sickness payments.

c.

Deductions of Medical insurance benefits.

d.

Termination due to continual illness.

e.

Medical certificate.

8.

Length of notice due to and from employee.

9.

Grievance procedure or reference to it.

10. Disciplinary procedure or reference to it.

11. Work rules.
12. Arrangements for terminating employment.
13. Arrangement for union membership.
14.

Special terms relating to rights to patents and designs, confidential

information and restraints on trade after termination of employment.

15.

Employers right to vary terms of the contract subject to proper notification

being given.

K. Concluding the selection process

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CBP

The selection process does not end with executing the employment contract. There is an
another step a more sensitive one reassuring those candidates who have not been
selected. Such candidates must be told that they were not selected, not because of any
serious deficiencies in their personalities, but because their profiles did not match the
requirements of the organization. They must be told that those who were selected were
done purely on relative merit.

Discussion questions:

1.

If you were a chairman of your company, what considerations would guide your
judgment on the following employment issues:

a.Hiring of relatives of employees?

b.Hiring the physically handicapped?

c. Hiring Scs, STs and candidates belonging to minority communities.

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CBP

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CBP

Orientation and Placement

Objective 5: Understand the need for
orientation of the employees
Purpose of Orientation
Topics to be covered in EOP
Placement

Orientation and placement

Orientation:
Orientation, also called induction, is designed to provide a new employee with the
information he or she needs to function comfortably and effectively in the organization.
A good induction programme has three main elements:
(i) Introductory Information: Introductory information regarding the history of the
company and company's products, its organisational structure, personnel policies, rules
an regulation of he company relating to leaves, attendance, pay etc., the place of the
company in the national economy, etc., should be given informally or in group sessions
in the personnel department. It will help the candidate to understand the company well
an the organisation in developing and maintaining the organizational policies and
standards.
(ii) On the Job Information: Further information should be given to the new
employee by the department supervisor in the department concerned where he is placed
on the job about departmental facilities and requirements such as nature of the job, the
extent of his liability, and employee's activities
associations,

safety

measures,

such as recreational facilities,

job

routine

etc.

(iii) Follow-up Interview: A follow-up interview should be arranged several weeks

after the employee has been on the job by the supervisor or a representative of the

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CBP

personnel department to answer the personnel department to answer the problems that
a new employee may have on the job and to respect some of information given earlier.

Induction is a follow-up action of hiring and concerned with the problem of introducing
or

orienting

new

employee

to

the

organisation.

When a new employee reports for duty, he should be welcomed as a new members of
the organization and must be helped to get acquainted and adjusted with his fellow
employees and work-environment. The first day of employment is long remembered by
most of the people. Initial impression counts much, later in the attitude of the employee
towards

the

job

and

the

company.

The new employee must be got introduced with the fellow employees and to the working
conditions, rules and regulations if he has not already been introduced at the time of
occupational test. It is a first step in the proper communication of the personnel policy
and seeks to build a two-way channel of information between management and
employees.

Purpose of Orientation
Orientation Helps
New Employees

Feel
Welcome and
At Ease

Understand
the
Organization

Know What
Is Expected
in Work and
Behavior

Begin the
Socialization
Process

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CBP

Orientation conveys three types of information

(i)

General information about the daily work routine;

(ii)

A review of the organizations history, founding fathers, objectives, operations and

products or services, as well as employees job contributes to the organizations
needs and

(iii)

A detailed presentation, perhaps in a brochure, of the organizations policies, work

rules and employee benefits

The primary reason the orientation is to make new employee feel at home in the new
environment. This helps them to overcome anxieties in the new working culture.
Topics that are covered in EOP
1. Organizational issues

History of Employer

Organisation of Employer

Names and titles of key executives

Employees title and department

Layout of physical facilities

Probationary period

Product line or services provided

Overview of production process

Company policies and rules

Disciplinary regulations

Employee handbook

Safety procedure and environment

2. Employee benefits

Pay scale and pay days

Vacations and holidays

Rest breaks

Training and education benefits

Counseling

Insurance benefits

Retirement programme

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CBP

Employer provided services to employees

Rehabilitation programmes

3. Introduction

To supervisor

To trainers

To co-workers

To employee counselor

4. Job duties

Job location

Job tasks

Job safety requirements

Overview of Job

Job objectives

Relationships to other job.

Company
Organization and
Operations

Employee Benefit
Information

Personnel
Policies

Daily
Routine

Employee
Orientation

Safety Measures
and Regulations

Facilities
Tour

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CBP

Placement:
After an employee has been hired and oriented, he or she must be placed in his/her
right job. Placement is understood as the allocation of people to jobs. It is the
assignment or re-assignment of an employee to a new or different job.
A few basic principles should be followed at the time of placement of a worker on the
job. These maybe enumerated below:

(i) Man should be placed on the job according to the requirements of the job. The jobs
should not be adjusted according to the qualifications or requirements of the man. Job
first,

Man

Next'

should

be

the

principle

of

placement

(ii) The job should be offered to the man according to his qualifications. Neither higher,
nor

lower,

except

in

case

of

interview

placement.

(iii) the employee should be made conversant with the working conditions prevailing in
the industry and all things relating to the job. He should also be made aware of the
penalties

if

he

commits

wrong.

(iv) While introducing the job to the new employee, an effort should be made to
develop a source of loyalty and co-operation in him so that he may realize his
responsibilities better towards the job and the organisation.

Notes:

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CBP

After studying this chapter, you should be able to:

1.

Describe the appraisal process.

2.

Develop, evaluate, and administer at least four performance appraisal tools.

3.

Explain and illustrate the problems to avoid in appraising performance.

4.

List and discuss the pros and cons of six appraisal methods.

5.

Perform an effective appraisal interview.

6.

Discuss the pros and cons of using different raters to appraise a persons performance.

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CBP

Objective 6: Understanding
Performance Appraisal & Performance
Management
Appraisal Methods
Appraisal Tools
Problems in Appraisal

Comparing Performance Appraisal and Performance Management

Performance appraisal

Evaluating an employees current and/or past performance relative to his or her

performance standards.
Performance management

The process employers use to make sure employees are working toward
organizational goals.
Why Performance Management?
Increasing use by employers of performance management reflects:

The popularity of the total quality management (TQM) concepts.

The belief that traditional performance appraisals are often not just useless but
counterproductive.

The necessity in todays globally competitive industrial environment for every

employees efforts to focus on helping the company to achieve its strategic
goals.

An Introduction to Appraising Performance

Why appraise performance?

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CBP

Appraisals play an integral role in the employers performance management

process.

Appraisals help in planning for correcting deficiencies and reinforce things done
correctly.

Appraisals, in identifying employee strengths and weaknesses, are useful for

career planning

Appraisals affect the employers salary raise decisions.

Realistic Appraisals
Motivations for soft (less-than-candid) appraisals

The fear of having to hire and train someone new

The unpleasant reaction of the appraisee

A company appraisal process thats not conducive to candor

Hazards of giving soft appraisals

Employee loses the chance to improve before being forced to change jobs.

Lawsuits arising from dismissals involving inaccurate performance appraisals.

Continuous improvement
A management philosophy that requires employers to continuously set and
relentlessly meet ever-higher quality, cost, delivery, and availability goals by:
Eradicating the seven wastes:

overproduction,

defective products,

unnecessary downtime,

transportation,

processing costs,

motion, and

inventory.

Requiring each employee to continuously improve his or her own personal

performance, from one appraisal period to the next.
The Components of an Effective Performance Management Process

52

CBP

Direction sharing
Role clarification
Goal alignment
Developmental goal setting
Ongoing performance monitoring
Ongoing feedback
Coaching and support
Performance assessment (appraisal)
Rewards, recognition, and compensation
Workflow and process control and return
Defining Goals and Work Efforts
Guidelines for effective goals

Assign specific goals

Assign measurable goals

Assign challenging but doable goals

Encourage participation

SMART goals are:

Specific, and clearly state the desired results.

Measurable in answering how much.

Attainable, and not too tough or too easy.

Relevant to whats to be achieved.

Timely in reflecting deadlines and milestones.

Performance Appraisal Roles

Supervisors

Usually do the actual appraising.

Must be familiar with basic appraisal techniques.

Must understand and avoid problems that can cripple appraisals.

Must know how to conduct appraisals fairly.

HR department

Serves a policy-making and advisory role.

53

CBP

Provides advice and assistance regarding the appraisal tool to use.

Prepares forms and procedures and insists that all departments use them.

Responsible for training supervisors to improve their appraisal skills.

Responsible for monitoring the system to ensure that appraisal formats and
criteria comply with EEO laws and are up to date.

Steps in Appraising Performance

Defining the job

Making sure that you and your subordinate agree on his or her duties and job
standards.
Appraising performance

Comparing your subordinates actual performance to the standards that have

been set; this usually involves some type of rating form.
Providing feedback

Discussing the subordinates performance and progress, and making plans for
any development required.

Designing the Appraisal Tool

What to measure?

Work output (quality and quantity)

Personal competencies

Goal (objective) achievement

How to measure?

Graphic rating scales

Alternation ranking method

MBO

Performance Appraisal Methods

Graphic rating scale

A scale that lists a number of traits and a range of performance for each that is
used to identify the score that best describes an employees level of performance
for each trait.

Alternation ranking method

54

CBP

Ranking employees from best to worst on a particular trait, choosing highest,

then lowest, until all are ranked.

Paired comparison method

Ranking employees by making a chart of all possible pairs of the employees for

each trait and indicating which is the better employee of the pair.
Forced distribution method

Similar to grading on a curve; predetermined percentages of ratees are placed in

various performance categories.

Example:

15% high performers

20% high-average performers

30% average performers

20% low-average performers

15% low performers

Narrative Forms

Behaviorally anchored rating scale (BARS)

An appraisal method that uses quantified scale with specific narrative examples

of good and poor performance.

Developing a BARS:

Generate critical incidents

Develop performance dimensions

Reallocate incidents

Scale the incidents

Develop a final instrument

Advantages of using a BARS

A more accurate gauge
Clearer standards
Feedback
Independent dimensions
Consistency

Management by Objectives (MBO)

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CBP

Involves setting specific measurable goals with each employee and then periodically
reviewing the progress made.
1.

Set the organizations goals.

2.

Set departmental goals.

3.

Discuss departmental goals.

4.

Define expected results (set individual goals).

5.

Performance reviews.

6.

Provide feedback.

Computerized and Web-Based Performance Appraisal

Performance appraisal software programs

Keep notes on subordinates during the year.

Electronically rate employees on a series of performance traits.

Generate written text to support each part of the appraisal.

Electronic performance monitoring (EPM)

Having supervisors electronically monitor the amount of computerized data an

employee is processing per day, and thereby his or her performance.

Potential Rating Scale Appraisal Problems

Unclear standards

An appraisal that is too open to interpretation.

Halo effect

Occurs when a supervisors rating of a subordinate on one trait biases the rating
of that person on other traits.

Central tendency

A tendency to rate all employees the same way, such as rating them all average.

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CBP

A Graphic Rating Scale with Unclear Standards

Note: For example, what exactly is meant by good, quantity

of work, and so forth?

Strictness/leniency

The problem that occurs when a supervisor has a tendency to rate all
subordinates either high or low.

Bias

The tendency to allow individual differences such as age, race, and sex to affect
the appraisal ratings employees receive.

How to Avoid Appraisal Problems

Learn and understand the potential problems, and the solutions for each.

Use the right appraisal tool. Each tool has its own pros and cons.

Train supervisors to reduce rating errors such as halo, leniency, and central
tendency.

Have raters compile positive and negative critical incidents as they occur.

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CBP

Who Should Do the Appraising?

The immediate supervisor

Peers

Rating committees

Self-ratings

Subordinates

360-Degree feedback

Advantages and Disadvantages of Appraisal Tools

The Appraisal Interview

Types of appraisal interviews

SatisfactoryPromotable

SatisfactoryNot promotable

UnsatisfactoryCorrectable

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CBP

UnsatisfactoryUncorrectable

How to conduct the appraisal interview

Talk in terms of objective work data.

Dont get personal.

Encourage the person to talk.

Dont tiptoe around.

Checklist During the Appraisal Interview

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CBP

Source: David Antonion, Improving the Performance Management Process Before Discontinuing Performance
Appraisals, Compensation and Benefits Review MayJune 1994, p. 33, 34.

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CBP

How to handle a defensive subordinate

Recognize that defensive behavior is normal.

Never attack a persons defenses.

Postpone action.

Recognize your own limitations.

How to criticize a subordinate

Do it in a manner that lets the person maintain his or her dignity and sense of
worth.

Criticize in private, and do it constructively.

Avoid once-a-year critical broadsides by giving feedback on a daily basis, so

that the formal review contains no surprises.

Never say the person is always wrong

Criticism should be objective and free of any personal biases on your part.

How to ensure the interview leads to improved performance

Dont make the subordinate feel threatened during the interview.

Give the subordinate the opportunity to present his or her ideas and feelings and
to influence the course of the interview.

Have a helpful and constructive supervisor conduct the interview.

Offer the subordinate the necessary support for development and change.

How to handle a formal written warning

Purposes of the written warning

To shake your employee out of bad habits.

Help you defend your rating, both to your own boss and (if needed) to
the courts.

Written warnings should:

Identify standards by which employee is judged.

Make clear that employee was aware of the standard.

Specify deficiencies relative to the standard.

Indicates employees prior opportunity for correction.

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CBP

Creating the Total Performance Management Process

What is our strategy and what are our goals?

What does this mean for the goals we set for our employees, and for
how we train, appraise, promote, and reward them?

What will be the technological support requirements?

The formal and systematic appraisal of employees in India is a comparatively recent

development.
Similarly, the systematic study of performance appraisal practices in India is also limited.
Either such sturdies have been carried out to investigate the total manpower practices,
including appraisal practices, or these have been directed to study appraisal practice
alone. In 1965, Negandhi and Estafen conducted a survey to make a comparative study
of personnel practices in 18 U.S, subsidiaries working in 1969 to make a comparative
study of personnel management practices in public, private, and co-operative, sectors In
1968, a comprehensive survey of performance appraisal practices was conducted taking
82 companies from different fields; however, the results of this survey were not
published immediately. Rather, the results were used for consultancy purposes. At the
time of this survey, very few articles about appraisal practices, either at micro level or at
macro level, appeared in journals. In 1976, the similar study the differences in appraisal
practices between two periods; however, this time only 49 of them responded.
A review of these studies show that all the companies included in the sample were not
using formal and systematic apprise of employees. For example, in the study of firms),
only 21 companies (12 U.S subsidiaries and 9 Indian) were using formal appraisal
Negandhi and Estafen, out of 36 companies, (18 U.S. subsidiaries and 18 Indian system;
remaining companies were appraising informally. In 1968 survey, out of 82 companies
only 234 were using formal appraisal system with an explicit statement of objectives; 25
were using formal system but without explicit statement of objectives, and remaining
companies were not using any formal system. However, the 1976 survey shows that the
number of companies using formal system with explicit statement increased significantly
(30 out of 49, 16 and 3 companies falling in other two categories respectively).
The studies suggest that appraisal is undertaken primarily for three objectives: (i) to
determine salary increments; (ii) to facilitate organisational planning, placement, or

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CBP

suitability; and (iii) for training and development purposes. Other objectives of appraisal
were:

informing

employee

where

he

stands,

follow-up

interviews,

discovering

supervisory personnel, little or no change in the statements o of objectives except for a

shift towards adopting a more formal statement of objectives at the time of introduction
of

forms

or

changing

from

design.

The surveys show that companies have different criteria to evaluate their employees.
There are basically three groups of criteria being used for appraisal purpose: (i)
evaluation of qualitative characteristics, such as, intelligence, integrity, honesty,
leadership an attitudes, abilities, etc., evaluation of actual performance- qualitatively
and quantitatively; and evaluation of development and future potential and development
by an employee during the period under consideration. However, companies face certain
problems in developing evaluative criteria. Such problems are in the area of developing
uniform and generally agreed-upon norms on any overall company basis; developing
quantitative an qualitative indices of work performance; developing criteria for
evaluating employee's potential; and fitting employee evaluation with organisational
objectives. Some other problems are in the area of implementation of the results of
appraisal. In many cases, where companies are using formal appraisal system,
independent decisions are taken by management in terms of rewards, promotion,
transfer, and development. Such decisions jeopardies the objectives of formal appraisal
system.
There is a wide variation in periodicity of appraisal of employees. Some companies
appraise annually, some appraise half-yearly, and a few quarterly; however, annual
appraisal is most common. Further, in terms of timing of appraisal, two situations exist;
(i) Every employee is appraised at the same time or staggered throughout the year in
certain predetermined groups: (ii) appraisal is made on the anniversary date of
employment.
Appraisal feedback in a formal way is provided buy very few companies, only. Many
companies provide feedback in the form of annual increments-normal, special, or
withholding promotion; placement, transfer, etc.; demotion, termination of service, etc.;
warning,

etc.

The above discussion brings out the facts that there is a wide variation in appraisal
practices, not only in terms of taking appraisal as formal or systematic or in terms of
objectives of appraisal but such variation is also in terms of the methods followed,
periodicity, and decisions based on appraisal. This further suggests that there is

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CBP

subjective approach in appraisal. Such fact is more relevant in the case of those
companies which do not follow formal and systematic appraisal systems.

Notes

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CBP

Objective 6: Understanding
Performance Appraisal & Performance
Management
Appraisal Methods
Appraisal Tools
Problems in Appraisal

What is Remuneration?
Remuneration is the compensation which an employee receives in return for the
contribution to the organization. It occupies an important place in the life of an employee.
Remuneration helps one lead a standard of living that is desired.
For the employer, employee remuneration is significant because
it

contributes to the cost of production. The retention of the

employee too is dependent on what the organization pays its
employees.
The HR specialist has a difficult task of fixing wages acceptable
to the employees and their leaders.
What are the components of remuneration?

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CBP

A typical remuneration of an employee comprises Wages and salary, incentives, fringe

benefits, perquisites and non monetary benefits.
Wages and Salary
Wages represent hourly rates of pay, and salary refers to the monthly rates of pay
irrespective of the number of hours put in by an employee. These are subject to annual
increments. They differ from employee to employee and depend upon the nature of job,
seniority and merit.
Incentives
These are also called Payment by results and are paid in addition to wages and salaries. It
depends upon the productivity, sales, profit or cost reduction efforts.
There are divided into:
(1) Individual incentive schemes and
(2) Group incentive programmes.
Individual incentive schemes are applicable to the specific employees performance.
Where as in a given task demand group effort for completion, incentives is paid to the
group as a whole. The amount here is equally divided among the group members.
Fringe benefits:
These include such benefits as provident fund, gratuity, medical care, hospitalization,
accident relief, health and group insurance, canteen, uniform, recreation and the like.
Perquisites:
These are allowed to executives and include company car, club membership, paid
holidays, furnished house and the like. It is offered to retain competent executives.
Non-Monetary benefits:
These include challenging job responsibilities, recognition of merit, growth prospects,
competent supervision, comfortable working conditions, job sharing and flextime.
Factors influencing wage and salary structure:

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CBP

1.

The organizations ability to pay.

2.

Supply and demand of labour.

3.

The prevailing market rate. (Wage survey is generated from time to time by
government which helps in understanding the minimum wage) For executives
Companies Act 1956 puts cap on salary and perquisites of managers. Sec 198 and
309 of the act contains provisions relating to the managerial remuneration.

4.

The cost of living.

5.

The living wage.

6.

Productivity.

7.

Trade unions bargaining power.

8.

Job requirements.

9.

Managerial attitudes.

10.

Psychological and sociological factors.

11.

Levels of skills available in the market.

There is no particular formula for fixing the wage or salary. Once an individual is aware
of how much the organization is willing to invest on man-power, he must study the
prevailing market rates, wage surveys and also Companies Acts fixation of salaries for
managers as a tool to come out with employees wage and salary structure.
Wage and Incentive Plans:
There are different methods of wage payment under incentive plans. They are as
follows:
For Blue collared workers:

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CBP

Halsey Premium Plan of incentive methods of wage payment:

Under this system, a time wage is guaranteed. The standard time required in
completing the standard job is determined before-hand on the basis of time and
motion studies and or prepast record.
In Halsey Plan, Bonus paid to a worker is equal to 50% of time saved multiplied by
rate per hour.
Eg:
Standard time = 10 hrs
Rate per hour = Rs.1
Case 1:
Time taken = 10 hrs Earnings = 10 x 1 = Rs.10
Case 2:
Time taken = 12 Hrs Earnings = 12 x 1 =Rs.12
Case 3:
Time taken = 8 hrs
Earnings: Time wages = 8 x 1 =
Bonus

8.00

= x 2 x 1 = +1.00

9.00

Rowan premium plan:

Under this method, hours is a fixed percentages of wages of time saved and worker
is given a guaranteed wage rate for the time taken to finish the job
Eg:
Standard time = 10 hrs
Rate per hour = Rs.1

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CBP

Case 1:
Time taken = 10 hrs Earnings = 10 x 1 = Rs.10
Case 2:
Time taken = 12 Hrs Earnings = 12 x 1 =Rs.12
Case 3:
Time taken = 8 hrs
Earnings: Time wages = 8 x 1 =
Bonus

8.00

= 2/10 x 8 = + 1.60
9.60

Taylor's differential piece rate system: This system was introduced by Taylor, the
father of scientific management. This system introduced to penalize a slow worker by
paying him a low piece rate for low production and to reward an efficient worker by
giving him a higher piece rate for a higher production.
Thus if a worker completes the work within or less than the standard time, he is paid a
higher piece rate and if he does not complete the work within the standard time, he is
given a lower piece rate.
Merricks multiple piece rate: Under this method, three piece rates are applied for
workers with different levels of performance. Wages are paid at ordinary piece rate to
those workers whose performance is less than 83% of the standard out put. 110% piece
rate is given to workers whose performance is between 83% and 100% of standard.
120% of ordinary piece rate is given to those workers who produce more than 100% of
the standard output.
Gants's task and bonus plan: This plan is based on careful time and motion study. A
standard time is fixed for doing a particular job, worker's actual performance is
compared with the standard time and his efficiency is determined. If a worker takes
more time then the standard time to complete the job (Below 100%) he is given wages
for the time taken by him and if a worker takes the standard time to perform job (100%
efficiency), he is given wages for the standard time and bonus of 20% of wages earned.

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CBP

If the worker take less time than the standard time his efficiency is more than 100%
and he is given wages for the actual time and bonus at the rate of 20%.

The above are the couple of plans that companies adopt to arrive at the bonus for the
blue collared workers.
The following are some methods used to motivate employees:
Motivation and morale are helped through a suggestion scheme. For example, the
suggestion scheme is described as partnership for progress scheme at Telco.
According to the Company, it has helped boost employee morale. Under this scheme,
handsome cash awards are offered to employees who come up with practice ideas to
save money, materials or man hours and increase productivity. Under this scheme, many
suggestions have been received and implemented dealing with diverse subjects such as
reuse of scrap, import substitution, saving in operation time, improvements in
procedures, safety and beautifying the town. This testifies to the popularity of scheme;.
The Company gives away, on an average, Rs. 40,0000 a year in Suggestions Box awards
which is probably the highest amount disbursed by an organisation in India.
ACC generates a sense of security and a family atmosphere by giving preference to
the employees' relatives in certain cases. In ACC Ltd., weightage is given to an applicant
who is related to an employee who has retired or died or is about to retire. The relative
must be a son, daughter, nephew or son-in-law who is likely to help such employee's
family. Such weightage preference is given only once. Some organizations in India do
create a strong family atmosphere. For example, in ACC Ltd., apart form this aspect
contributing to the family concept there is no formal induction of new employee in a
department. The induction automatically takes place in the department with all the
members of the department pitching in like a family to make the new entrant feel a part
of the family.
At the Indian Oil corporation, the promotion policy caters to the self-actualization
need of the employees by prescribing that vacancies for higher positions must be filled
up from within, wherever possible, i.e., whenever suitable departmental candidates
exist. Mid-level out-side recruitment is indulged in only when departmental candidates
do not possess the requisite qualifications, experience and expertise Promotions are
based on both merit and seniority. They are authorized by a duly constituted
departmental promotion committee.

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CBP

An interesting facet of Kirloskar Cummins is their belief that productivity or industrial

efficiency programmes can yield desired results only if there is a unity of purpose
between the workers and the management. The workers must therefore be allowed
their due share in the gains of productivity. Many other companies do agree ostensibly
with this concept. Kirloskar Cummins Ltd., on the other hand, has already gone ahead
and based its incentive schemes on this fundamental principle. The earnings from
incentives are scientifically linked with the company's monthly operating results and
standards are fixed and communicated publicly. Each one knows his incentive earnings
from the results produced and tries to improve on them.

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CBP

Training and Development

Objective: To understand the need for
Training and Development

Determine training needs

On the job methods

Off the job methods

Meaning of Executive Development

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CBP

The executive development is a planned, systematic and continuous process of learning

and growth designed to induce behavioral change in individuals by cultivating their
mental abilities and inherent qualities through the acquisition, understanding and use of
new knowledge, insights and skills as they are needed for more effective performance of
the work of managing.
Managers develop not only by participating in formal courses of instruction drawn by the
organisation but also through actual job experience in the organisation. It should be
recognized that it is for the organist ion to establish the development opportunities for
its managers and potential managers. But, an equal rather more important counterpart
to the efforts of organisation are those of the individuals. It should be accepted as
discipline of self education. Te individuals must have the motivation and the capacity to
learn and develop. As the individuals differ from one another in aptitudes, attitudes,
talents, aspiration, needs and motivation, they should by provided an effective
organizational climate to develop themselves and change their behavior in managing the
people and resources.
Since World War II, tremendous emphasis has been laid on the development of
executive talent in the field of management. There was a dramatic change in the area of
management development and it has been named as Management revolution. Now it
has become one of the most important and complex task of the personnel management.
It has now been well recognized that qualified execution needed throughout the industry
and trade do not just emerge from labor force without consciously planned action on the
part of the organisation. Good organizations select the talented employees and develop
them to have adequate inventory of management skill for us in the future to achieve the
desired

objectives

of

the

organisation.

The processes of development and training are often confused. Training means learning t
basic skill and knowledge for a particular job or a group of jobs and there is no choice
with the employer whether to train or not, the only choice is tat of method to be
employed. It occurs as a result of controlled external stimulation but development takes
place when the individual is internally motivated. Development means self development
and organizations only to provide for the necessary condition for the development. The
initiative for development should be taken by the individual himself. Moreover, it
develops the overall personality of the individual while on the other hand the training
programme seeks to develop the skill and knowledge for a particular job.

Selection of the method for organizing a training program

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CBP

After having decided the training needs, it is advisable to lay down the objectives of
training on the basis of needs an the circumstances of the case in consultation with the
true mangers.
It should also be decided which method it is to be adopted for the training on the basis
of the needs and the objectives of the training programme. The programme should be
chalked out with the aim to contribute towards the organisation objectives.

Steps to determine training needs

In order to assess the training needs, following steps may be taken.

(i) Jobs and the worth of the men should be analysed through job analysis and
performance appraisal techniques and if there is an imbalance between the man an the
job,

it

should

be

corrected

through

organising

training

programmes.

(ii) Production problems like low productivity, poor quality, high cost, high rate of
absenteeism and labour turnover indiscipline etc., should be identified to indicate the
need

for

training.

(iii) Opinions may be obtained from the management and the workers trough interviews
or through questionnaire regarding necessary and desirable training programme.
(iv) Line managers may forecast the manpower requirements in the future on the basis
of long term plans regarding business expansion, new plants; new designs and new
developed technology. Training may be given to existing employees to enable them to
meet the future requirements.
A training programme should be set up only after having decided the clear-cut objectives
in mind, otherwise it will be a sheer wastage of money in organising the training
programme.
Training is usually needed where there is a special problem interfering with production
such as excessive turnover among new employees, high rat of absenteeism, i rat of
accidents, spoilage of work etc., and management feels that such problems would be
solved if proper training programme is organised.

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CBP

The management should, therefore evolve a systematic programme of training workers

which will help in turn the management a lot. The major values of training may be
discussed

below:-

1. Increase in Productivity: Productivity, we mean, the more out-put at lesser costs.

Training brings about an improvement of the quality of output by increasing e skill of the
employee over a worker who as just staged working without proper training. The worker
also learns systematic way of doing the things, which improves the quality of the output.

2. Better and Economical use of Materials and Equipments: An advantageous by

product of training is that spoiled work and damages to machinery and equipments can
be kept at minimum by the well trained employees. Trained employees will be able to
make better and economical use of materials, machinery and equipments. Thus it helps
in

deducting

the

cost

of

production.

3. Reduced Supervisions and Direction: A well trained people of self reliant because
he knows what to do and how to do and understands is responsibilities well. Educes, not
eliminates, the need for detailed and constant supervision. Direction is generally not
required

by

trained

personnel.

4. Heightened morale: The moral of a well trained employee is increased because the
main objective of the training programme will mould employees attitudes to achieve
support for organisation actives and to obtain better co-operation and greater loyalty.
Dissatisfactions, complaints, absenteeism, and labour turnover can be greatly reduced
with

the

help

of

training.

5. Fill Manpower needs: Training helps in spotting out proposing mean and in
removing defects in the selection process. The promising trainee will naturally be
discovered on evidence of quick understanding or instruction. Training may also qualify
them

for

more

responsible

jobs.

6. Standardization: Training helps standardization of methods of performing e job for

all employees. By standardizing the methods, the workers will work intelligently an make
fewer

mistakes

because

they

possess

the

required

know-how

and

have

an

understanding of the output will be improved by standardizing the methods.

7. Reduced learning time: A well organized training programme will help to reduce
the learning time to reach the acceptable level of performance over t unsystematic way

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CBP

of learning trough trial and error. Skilled work-force can be developed by the
organisation

within

short

span

of

time.

8. Better Industrial Relations: training creates a feeling among the workers that
they are being properly cared for, and that the employer is sincere to them. This will
improve

the

relations

between

the

employees.

9. Reduced Accidents: Generally, industrial accidents are caused by deficiencies in

people than by deficiencies in equipments and working conditions. Proper training in job
skills and safety attitude will naturally contribute towards a reduction in the accident
rate.
10. Better Management: An effective training programme will assist the management
in maintaining higher standard of quality. Building a satisfactory organisation structure,
delegating

authority

and

stimulating

employees

which

will,

in

turn,

help

the

management in improving the planning, organising, controlling and actualizing.

A great variety of management development techniques are used by different

organisations to develop their executive manpower
The selection of techniques rests on the philosophy of development. There are two
principal methods of executive development which are generally used by the firms. One
is on-the-job development and the other is off-the job development. We shall discuss
here under the various one-the-job and off-the-job executive development technologic
There are various methods

1.

On-the-job

Method

2. Off-The-Job-Methods

On-the-job Method
It is most popular method of developing the executive talent. The main techniques are
(a) Coaching. Under this technique, the superior coaches the job knowledge and skill,
to his subordinates. He briefs the trainees what is expected of them and guides how to
get it. He also watches their performance and directs them to correct the mistakes. The
main objective of this training is to provide them diversified knowledge. Coaching is
recognised as one of t managerial responsibilities, and the manger as an obligation to
train an develop the subordinates working under him. He delegates his authority to the

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CBP

subordinates

to

prepare

them

to

handle

the

complex

situations.

(b) Understudy. This system is quite different from the system discussed above. Under
this system, a person is specifically designated as the their apparent who is called the
understudy. The understudy's future depends on what happens to his superior leaves his
post due to promotion, retirement or transfer. Te department manger picks up one
individual from the department to become his understudy. He guides him to learn his job
and

tackle

the

problems

tat

confront

the

manger.

(c) Job Rotation. Under this system, an individual is transferred one job to another or
from open department all to another in the coordinated and planned manager with a
view to broaden the general background of the trainee in the business. The trainees is
rotated from one job to another and thus the acquires a considerable degree of
specialized knowledge and skill but a man can never acquire t diversified skill needed for
promotion

unless

is

deliberately

put

in

different

types

of

situations.

(d) Special Project. A special assignment is a highly useful training device, under
which a trainee is assigned a project that is closely related to his job. He well study the
problem and submit the written recommendations upon it. It will not only provide the
trainee a valuable experience in tackling the problem but would also have the other
values of educating the trainees about t importance of t problem but would also have
the other values of educating the trainees about the importance of the problem and to
understand the organizational relationship of the problem with different angles. Thus the
trainee acquires knowledge of the assigned task and learns to work with other s having
different

view

points.

(e) Committee Assignments: This system is similar to special project. Under this
system an ad-hoc committee is constituted and is assigned a subject related to the
business to discuss and make recommendations. The committee will study the problem,
discuss

it

and

submit

to

be

report

containing

the

various

suggestions

and

recommendations to the departmental manager. With a view to avoid the unnecessary

hardships in studying the problem, the members of the committee should be selected
from different departments, having specialized knowledge in different fields but
connecting to the problem.

Off the Job Method

The main techniques under this method are:

77

CBP

(a) Special Courses. The method of special courses requires the trainee to leave the
work place and to devote is entire time to developmental objectives. The prime object of
such special courses is to provide an opportunity to te trainee to acquire knowledge with
full devotion. Development is primary and work is secondary. These courses may be
conducted in a number of ways-Firstly, the organisation establishes such courses to be
taught to the trains by the members of the firm or by the regular instructor appointed
by the firm or by the regular instructor appointed by the firm or by the specialists
(professors and lecturers_ from other outside institutions. The second approach to this
technique is to send the personnel to programmes established by the colleges or
universities. The organisation sponsors some of its members to the courses and bears
the expenses. The third approach to the technique is to work with a college or other
institutions in establishing a course or a series of courses to be taught by faculty
members.

big

organisation

may

starts

its

own

training

school.

(b) Role Playing. Under this method, two or more trainees are assigned different roles
to play by creating an artificial conflict situation. No dialogue is given before hand. The
role players are provided with he written or oral description of the situation and the role
to play. Sufficient time is given to the role players to plan tier actions and they must act
their parts before the class. For instance role playing situation may be a supervisor
discussing

grievances

with

is

subordinate.

(c) Case Study. Case study technique is extensively used in teaching law, business
management, human relation, etc., to let the trainee understand that there mat be
different solutions to a particular problem. Under this method, the trainees are given a
realistic problem to discuss, which is more or less related to the principles already
taught. This method provides an opportunity to the trainee to apply his skill to the
solution of realistic problems. Cases may be used in either of the two ways:- (i) They
can be used after exposing the formal theory under which the trainee applies their skill
to specific situation, or (ii) They may be assigned to the trainees for written analysis or
oral

discussion

without

any

prior

discussion

of

the

theory.

(d) Conference. A conference is a group meeting conducted according to an organised

plan is which members participate in oral discussion of a particular problem and thus
develop their knowledge and understanding. It is an effective training device for
conferences members and conference leaders. Both learns a lot from others view point
and compare his opinions with others. The conference leaders may also learn how to
develop his skill to motivate people through his direction of discussion. Conferences may
of three types:- (i) The directed or guided conference, (ii) Consultative conference, and
(ii) Problem solving conference. However guided conference is generally used for

78

CBP

training

purposes.

(e) Multiple Management. Under this system, a permanent advisory board or

committee of executives study the problems of organisation and make recommendations
to the higher management for final decision. There is another device, constituting a
junior board of directors in a company for training the executives. The board is given
power to discuss any problem which the senior board of directors (constituted by
shareholders) could discuss. The utility of junior board is only to train the junior
executives. Thus junior board discuss wide variety of subjects which a senior board can
discuss

or

in

other

way,

it

is

an

advisory

body.

(f) Managements Games. It is a classroom exercise, in which teams of students

compete against each other to achieve common objective. The game is designed to be a
close representations of real life conditions. The trainees are asked to make decisions
about production, cost, research and development, etc., for an organisation. Since they
are often divided into teams as competing companies, experience is obtained in team
work. Under tis method, the trainees learn by analyzing problems by using some
intention and by making trial and error type of decisions. Any wrong is corrected by the
trainer or sometimes a second chance is given to to something all other again.
(g) Syndicate Method. Under this method, 5 or 6 groups consisting of about 10
members are formed. Each group (Syndicate) is composed of carefully selected men
who, on the one and, represents fair cross section of the executive life of t country, i.e.
men from public sector and private sector undertakings, civil and defense services,
banking, insurance, etc., and on the other hand, a good well balance team of
management from different fields, i.e., production, marketing, personnel, finance, etc.
The groups are given assignments, made up before hand to be submitted within a
specified date and time. Each man in t group is appointed leader of the group for the
performance of the given task by rotation and so for the secretary for the subdivision of
the course. Each task is assigned in the form of a 'Brief', a document prepared by the
experts on the faculty with meticulous care. It also fixes the time by which the study is
to be completed. Lecturers by experts are also arranged to supplement the study. The
report prepared an submitted by a group is circulated among the members of the other
groups for comparative study and critical evaluation. The leader or chairman of the
group is required to present the views of his group in the joint session and justify his
group's

view

in

case

of

criticism

or

questions.

(h) Sensitivity Training Or T-Group. In sensitivity training, the executives spends

about two work-hours attending t lectures on the subject such as leadership and

79

CBP

communication. The members, under this method, sit around a table and discuss. The
trainer, usually a psychologist, neither leads the discussion nor suggests what should be
discussed but only guides the discussion. The members freely discuss and criticize the
behaviour

of

each

other

thereby

giving

feed

back

positive

or

negative.

(i) Programmed Instruction. Programmed instruction as gained a lot of importance

both in training and in industry in modern times it includes teaching machines, auto
instruction, automatic instruction and programmed learning. It is an application of
science of learning to the task of training and education. The core feature of
programmed instruction is the participation by the trainee and immediate fed back by
him. Programmed instruction machines include films, tapes, programmed books,
illustrations, printed material, diagrams, etc. it performs two functions:- (i) provides
information to the learner, and (ii) provides feed back whether the response is correct or
wrong.
(j) Selective Readings. Many executives find it very difficult to do much reading other
than that absolutely required in the performance of their jobs. Some organizations
provide some time for reading which will advance the general knowledge and
background of the individuals. Many organisations purchase some high level journals like
the Commerce, the Capitalist, the Management in Govt., etc,. And dailies like the
Economic Times, the Financial Express, etc.

Class room training:

Where concepts, attitudes and problem-solving abilities are to be learnt, the classroom
instruction is the most useful device. In other words it is more associated with
knowledge rater than skill.

Orientation

about

organizations;

safety

training

or

refresher

training

can

be

accomplished most effectively in the class room. There may be different methods of
instructions

such

are:

(a) Formal Lecture: When depth of theoretical knowledge (such as safety, health etc.)
is required, formal lectures are arranged by the orgnaisation and delivered by the
lecturer presumed to be a master of the the subject at hand. The lecture method may
be used for a large group and therefore, cost per trainee is know. Trainees should be
permitted

to

ask

questions.

80

CBP

(b) Conference and Seminar: There are two types of seminars. There first is that in
which a student gives a lecture on some predetermined topic and is followed by
discussion and exchange of views under a chairman who sums u the discussion by is
fruitful advice an comments. The second method is that where all students participate in
the

seminar.

(c) Case-Study: Case study is a practical problem faced by an industrial unit which is
discussed at large in the group, possibly to find an optimum solution. The Trainee
studies the problem and finds the solution. Te supervisor reviews the solutions an
discusses

it

with

the

trainees.

(d) Role- Playing: Under this system, the trainees play assigned role (such as the role
of supervisor, instructor, etc.) under an instructor who prepares them and assign
different roles for the play.

Vestibule Training
Under this method, the training is not given on the job but workers are trained on
specific jobs in a special part of the plant by models.
Training is given in a class room where working conditions are created which are similar
to the actual workshop conditions. After training, the worker is put on similar jobs in the
workshop. It should be noted that a well qualified and trained instructor should be the
in-charge

of

the

programme.

This method is expensive because there is a duplication of material, equipment and

conditions found in real work-place but it is a correct blending of theory an practical
work.
Apprenticeship Training programmes:

tend towards education than on-the-job

training or vestibule schools in which knowledge and skill in doing a craft or a series of
related jobs are involved.

Notes:

81

CBP

Chapter 9

Labor Laws

Objective:
To Understand the Labor Laws

82

CBP

Employee Provident Fund Scheme

Gratuity

Bonus Calculation

ESI Act

Managerial remuneration

EMPLOYEES' PROVIDENT FUND SCHEME 1952

Employee Definition:
"Employee" as defined in Section 2(f) of the Act means any person who is employee for
wages in any kind of work manual or otherwise, in or in connection with the work of an
establishment and who gets wages directly or indirectly from the employer and includes
any person employed by or through a contractor in or in connection with the work of the
establishment.

Membership:
All the employees (including casual, part time, Daily wage contract etc.) other then an
excluded employee are required to be enrolled as members of the fund the day, the Act
comes into force in such establishment.

Basic Wages:
"Basic Wages" means all emoluments which are earned by employee while on duty or on
leave or holiday with wages in either case in accordance with the terms of the contract
of employment and witch are paid or payable in cash, but dose not include
The cash value of any food concession;

83

CBP

Any dearness allowance (that is to say, all cash payment by whatever name called paid
to an employee on account of a rise in the cost of living), house rent allowance,
overtime allowance, bonus, commission or any other allowance payable to the employee
in respect of employment or of work done in such employment.
Any present made by the employer.

Excluded Employee:
"Exclude Employee" as defined under pare 2(f) of the Employees' Provident Fund
Scheme means an employee who having been a member of the fund has withdraw the
full amount of accumulation in the fund on retirement from service after attaining the
age of 55 years; Or An employee, whose pay exceeds Rs. Five Thousand per month at
the time, otherwise entitled to become a member of the fund.

Explanation:
'Pay' includes basic wages with dearness allowance, retaining allowance, (if any) and
cash value of food concessions admissible thereon.
Employee

Provident

Fund

Scheme:

Employees' Provident Fund Scheme takes care of following needs of the members:
(i)

Retirement

(ii) Medical Care

(iii)

Housing

(iv) Family obligation

(v)

Education

of

Children

(vi) Financing of Insurance Polices

How the Employees' Provident Fund Scheme works:

As per amendment-dated 22.9.1997 in the Act, both the employees and employer
contribute to the fund at the rate of 12% of the basic wages, dearness allowance and
retaining allowance, if any, payable to employees per month. The rate of contribution is
10% in the case of following establishments:
Any covered establishment with less then 20 employees, for establishments cover prior
to 22.9.97.
Any sick industrial company as defined in clause (O) of Sub-Section (1) of Section 3 of
the Sick Industrial Companies (Special Provisions) Act, 1985 and which has been
declared as such by the Board for Industrial and Financial Reconstruction,

84

CBP

Any establishment which has at the end of any financial year accumulated losses equal
to or exceeding its entire net worth and
Any establishment engaged in manufacturing of (a) jute (b) Breed (d) coir and (e)
Guar gum Industries/ Factories. The contribution under the Employees' Provident Fund
Scheme by the employee and employer will be as under with effect from 22.9.1997.

Employees' Provident Fund Interest rate:

The rate of interest is fixed by the Central Government in consultation with the Central
Board of trustees, Employees' Provident Fund every year during March/April. The
interest is credited to the members account on monthly running balance with effect from
the last day in each year. The rate of interest for the year 1998-99 has been notified as
12%. The rate of interest for 99-2000 w.e.f. 1.7.'99 was 11% on monthly balances.
2000-2001 CBT recommended 10.25% to be notified by the Government.

Benefits:
A) A member of the provident fund can withdraw full amount at the credit in the fund on
retirement from service after attaining the age of 55 year. Full amount in provident fund
can also be withdraw by the member under the following circumstance:
A member who has not attained the age of 55 year at the time of termination of service.
A member is retired on account of permanent and total disablement due to bodily or
mental infirmity.
On migration from India for permanent settlement abroad or for taking employment
abroad.
In the case of mass or individual retrenchment.
B) In the case of the following contingencies, the payment of provident fund be made
after complementing a continuous period of not less than two months immediately
preceding the date on which the application for withdrawal is made by the member:
Where employees of close establishment are transferred to other establishment, which is
not covered under the Act:
Where a member is discharged and is given retrenchment compensation under the
Industrial Dispute Act, 1947.

Withdrawal

before

retirement:

A member can withdraw up to 90% of the amount of provident fund at credit after

85

CBP

attaining the age of 54 years or within one year before actual retirement on
superannuation whichever is later. Claim application in form 19 may be submitted to the
concerned Provident Fund Office.

Accumulations

of

deceased

member:

Amount of Provident Fund at the credit of the deceased member is payable to nominees/
legal heirs. Claim application in form 20 may be submitted to the concerned Provident
Fund Office.

Transfer

of

Provident

Fund

account:

Transfer of Provident Fund account from one region to other, from Exempted Provident
Fund Trust to Unexampled Fund in a region and vice-versa can be done as per Scheme.
Transfer Application in form 13 may be submitted to the concerned Provident Fund
Office.

Nomination:
The member of Provident Fund shall make a declaration in Form 2, a nomination
conferring the right to receive the amount that may stand to the credit in the fund in the
event of death. The member may furnish the particulars concerning himself and his
family. These particulars furnished by the member of Provident Fund in Form 2 will help
the Organization in the building up the data bank for use in event of death of the
member.

Annual

Statement

of

account:

As soon as possible and after the close of each period of currency of contribution, annual
statements of accounts will de sent to each member through of the factory or other
establishment where the member was last employed. The statement of accounts in the
fund will show the opening balance at the beginning of the period, amount contribution
during the year, the total amount of interest credited at the end of the period or any
withdrawal during the period and the closing balance at the end of the period. Member
should satisfy themselves as to the correctness f the annual statement of accounts and
any error should be brought through employer to the notice of the correctness Provident
Fund Office within 6 months of the receipt of the statement.

86

CBP

What is Gratuity?
Gratuity is a retrial benefit. This act envisages in providing a retirement benefit to the
workman who have rendered long and unblemished service to the employer. Gratuity is
a reward for long and meritorious service.

Applicability

of

the

Act:

Every factory, mine, oilfield, plantation, port, railways, company, shop, establishment or
educational institutions employing ten or more employees.

When

is

Gratuity

Payable?

Gratuity shall be payable to an employee on the termination of his employment after

he has rendered continuous service for not less than five years.
a.

On

b.

On

his
his

superannuation.

retirement

or

resignation.

c. On his death or disablement due to accident or disease.

NOTE: However, the condition of five years of continuous service is not necessary if
service is terminated due to death or disablement.

To

whom

is

Gratuity

Payable?

Gratuity is normally payable to the employee himself, however in the case of death of
the employee it shall be paid to his nominee & nomination has been made to his heirs.
Incase the nominee is a minor; share of the minor shall be deposited with the controlling
authority who shall invest the same for benefit of the minor, until he/she attains
majority.

Amount

of

In
Gratuity

case
Payable

In
Gratuity

Gratuity
of
=

15

Maximum

wages

days

wages

Limit

of

seasonal
x

No

of
7

Method

non

days

case
Payable=

Payable

of

establishment:

completed

seasonal
x

No

of

seasons

of

Calculation:

years

of

service,

establishment:
for

which

employed.

Gratuity

The government through an ordinance has enhanced the maximum limit of the amount

87

CBP

of gratuity payable under the Act is Rs. 100,000 to Rs. 2,50,000 with effect from 02-0497.Now

at

present

the

maximum

Forfeiture

limit

is

3.5

of

lacs.

gratuity:

The gratuity of an employee whose service have been terminated for any Act of willful
omission or negligence causing any damage or loss to or destruction of property
belonging to the employer, gratuity shall be forfeited to the extent of the damage or loss
caused.
The

The

gratuity

right

of

forfeiture

payable

to

an

is

limited

employee

to
shall

the

extent
be

of

wholly

damage.
forfeited:

1. If the services of such employee have been terminated for his riotous or disorderly
conduct

or

any

other

act

of

violence

on

his

part,

or

2. If the service of such employee have been terminated for any act which constitutes
an offence involving moral turpitude, provided that such offence is committed by him in
the course of his employment.

PAYMENT OF BONUS CALCULATION

Recently an ordinance The Payment of Bonus (Amendment) ordinance was promulgated
by

The

President.

All those employees drawing Basic + DA up to Rs. 10,000/- per month are eligible to get
Bonus.
For the calculation of Bonus the maximum Basic + DA to be taken is Rs. 3500/- per
month.
If you calculate minimum bonus @ 8.33% of (Basic + DA) for the complete year, it will
come out to be one month's (Basic + DA).
In short the minimum bonus to be paid for the year is one month (basic + DA) subject
to

maximum

of

Rs.

3500/-

As for the period, it is taken as a Financial year in most cases. However some companies
also take the period until the month of Diwali while calculating bonus.

88

CBP

COVERAGE UNDER THE ESI ACT, 1948

The Act was originally applicable to non-seasonal factories using power and
employing 20 or more persons; but it is now applicable to non-seasonal power
using factories employing 10 or more persons and non-power using factories
employing 20 or more persons.
Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels,
restaurants, cinemas including preview theatre, road motor transport undertakings
and newspaper establishment employing 20 or more persons.
The existing wage-limit for coverage under the Act, is Rs.10,000/- per month (with
effect from 1.10.2006).
AREAS

COVERED

The ESI Scheme is being implemented area-wise by stages. The Scheme has already
been implemented in different areas in the following States/Union Territories.

89

CBP

Managerial remuneration:
671. SCHEDULE XIII
[SCHEDULE

XIII

Conditions to be fulfilled for the appointment of a managing or whole-time director or a

manager

without

the

approval

of

the

Central

Government

(See sections 198, 269, 310 and 311)

1. Inserted by the Companies (Amendment) Act, 1988, w.e.f. 15th.

June, 1988.
1

[PART I Appointments

1. Substituted by Notification No. GSR 48(E), dated 1st. February,

1994.
No person shall be eligible for appointment as a managing or whole-time director or a
manager (hereinafter referred to as managerial person) of a company unless he satisfies
the following conditions, namely:(a) he had not been sentenced to imprisonment for any period, or to a fine exceeding
one thousand rupees, for the conviction of an offence under any of the following Acts,
namely.(i)
(ii)
(iii)
(iv)
(v)

the
the
the

(viii)
(ix)

Central
Industries

the

the

the

Food

and

Contracts

1899

Salt

Act,

Act,

Act,

Act,

Act,

Act,

of
(1

1951

1954

1955

1956

(Regulation)

(2
1944

Regulation)

Adulteration

Commodities

Companies

Securities
the

of

Act,

and

(Development

Essential

the

Stamp
Excise

Prevention

the

(vi)
(vii)

Indian

of
(65

(37

(10
(1
1956

1899),
1944),
of
of

of
of
(42

1951),
1954),
1955),
1956),

of

1956),

Wealth-tax

Act,

1957

(27

of

1957),

Income-tax

Act,

1961

(43

of

1961),

90

CBP

(x)

the

Customs

Act,

1962

(52

of

1962),

(xi) the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), (xii) the
Foreign

Exchange

Regulation

Act,

1973

(46

of

1973),

(xiii) the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986),
(xiv) the Securities and Exchange Board of India Act, 1992 (15 of 1992),
(xv) the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);
(b) he had not been detained for any period under the Conservation of Foreign Exchange
and Prevention of Smuggling Activities Act, 1974 (52 of 1974): Provided that where the
Central Government has given its approval to the appointment of a person convicted or
detained under sub-paragraph (a) or sub-paragraph (b), as the case may be, no further
approval of the Central Government shall be necessary for the subsequent appointment
of that person if he had not been so convicted or detained subsequent to such approval;
[(c) he has completed the age of 25 years and has not attained the age of 70 years:

Provided that where(i) he has not completed the age of 25 years, but has attained the age of majority; or
(ii) he has attained the age of 70 years; and where his appointment is approved by a
special resolution passed by the company in general meeting, no further approval of the
Central Government shall be necessary for such appointment;
(d) where he is a managerial person in more than one company he draws remuneration
from one or more companies subject to the ceiling provided in section III of Part II;]
(e) he is resident in India.
Explanation.-For the purpose of this Schedule, resident in India includes a person who
has been staying in India for a continuous period of not less than twelve months
immediately preceding the date of his appointment as a managerial person and who has
come to stay in India,(i)

for

taking

up

employment

in

India,

or

(ii) for carrying on a business or vocation in India.

91

CBP

1. Earlier clauses (c) & (d) substituted by Notification No. GSR 418(E), dated 12th.
Where the effective capital of Company is -

Monthly
remuneration
payable

shall

not

exceed
(i)

Less than Rs. 1 crore

Rs. 75,000

(ii)

Rs. 1 crore or more but less than Rs. 5 crores

Rs. 1,00,000

(iii)

Rs. 5 crores or more but less than Rs. 25 crores

Rs. 1,25,000

(iv)

Rs. 25 crores or more but less than Rs. 100 crores

Rs. 1,50,000

(v)

Rs. 100 crores or more

Rs. 2,00,000

September, 1996.
PART II
Remuneration
Section I.- Remuneration payable by companies having profits
Subject to the provisions of section 198 and section 309, a company having profits in a
financial year may pay any remuneration, by way of salary, dearness allowance,
perquisites, commission and other allowances, which shall not exceed five per cent of its
net profits for one such managerial person, and if there is more than one such
managerial person, ten per cent for all of them together.
Section II.- Remuneration payable by companies having no profits or inadequate
profits
[1. Notwithstanding anything contained in this part, where in any financial year during

the currency of tenure of the managerial person a company has no profits or its profits
are inadequate, it may pay remuneration to a managerial person by way of salary,
dearness allowance, perquisites and any other allowances, not exceeding ceiling limit of
Rs.24,00,000 per annum or Rs.2,00,000 per month calculated on the following scale: 1. Substituted by Notification No. GSR 215(E) dated 2nd. March, 2000.
2. A managerial person shall also be eligible to the following perquisites which shall not
be included in the computation of the ceiling on remuneration specified in paragraph 1 of
this section:
(a) contribution to provident fund, superannuation fund or annuity fund to the extent
these either singly or put together are not taxable under the Income-tax Act, 1961,

92

CBP

(b) gratuity payable at a rate not exceeding half a month's salary for each completed
year

of

service,

and

(c) encashment of leave at the end of the tenure.

3. In addition to the perquisites specified in paragraph 2 of this section, an expatriate
managerial person (including a non-resident Indian) shall be eligible to the following
perquisites which shall not be included in the computation of the ceiling on remuneration
specified in paragraph 1 of this section:
(a) Children's education allowance: In case of children studying in or outside India,
an allowance limited to a maximum of Rs. 5,000 per month per child or actual expenses
incurred, whichever is less. Such allowance is admissible upto a maximum of two
children.
(b) Holiday passage for children studying outside India/ family staying abroad:
Return holiday passage once in a year by economy class or once in two years by first
class to children and to the members of the family from the place of their study or stay
abroad to India if they are not residing in India with the managerial person.
(c) Leave travel concession: Return passage for self and family in accordance with
the rules specified by the company where it is proposed that the leave be spent in home
country instead of anywhere in India.
Explanation I.-For the purposes of section II of this Part, "effective capital" means the
aggregate of the paid-up share capital (excluding share application money or advances
against shares); amount, if any, for the time being standing to the credit of share
premium account; reserves and surplus (excluding revaluation reserve); long-term loans
and deposits repayable after one year (excluding working capital loans, over-drafts,
interest due on loans unless funded, bank guarantee, etc., and other short-term
arrangements) as reduced by the aggregate of any investments (except in the case of
investment by an investment company whose principal business is acquisition of shares,
stock debentures or other securities), accumulated losses and preliminary expenses not
written

off.

Explanation II.(a) Where the appointment of the managerial person is made in the year in which
company has been incorporated, the effective capital shall be calculated as on the date
of

such

appointment;

93

CBP

(b) In any other case, the effective capital shall be calculated as on the last date of the
financial year preceding the financial year in which the appointment of the managerial
person

is

made.

Explanation III.
-For the purposes of section II of this Part, family means the spouse, dependent children
and dependent parents of the managerial person.
[Section III - Remuneration payable to a managerial person in two companies

Subject to the provisions of section I and II, a managerial person shall draw
remuneration from one or both companies, provided that the total remuneration drawn
from the companies does not exceed the higher maximum limit admissible from any one
of

the

companies

of

which

he

is

managerial

person.]

1. Inserted by Notification No. GSR 418(E), dated 12th. September, 1996.

PART-III
Provisions applicable to Parts I and II of this Schedule
1. The appointment and remuneration referred to in Parts I and II of this Schedule shall
be subject to approval by a resolution of the shareholders in general meeting.
2. The auditor or the secretary of the company or where the company has not appointed
a secretary, a secretary in whole-time practice shall certify that the requirements of this
Schedule have been complied with and such certificate shall be incorporated in the
return filed with the Registrar under sub-section (2) of section 269.]

94