BHARATHIAR UNIVERSITY

MBA (HR)

COURSE 2.1

PERSONNEL MANAGEMENT
CONCEPTS
(Notes For Examination)

Prepared By
Dr Abbas T. P
[email protected]

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 2.1. Personnel Management Concepts
UNIT I
Q 1. PERSONNEL MANAGER
A Personnel Manager (PM) is a person who performs the work of a human
resources specialist. A personnel manager is responsible for management
and administrative works such as recruitment, job analysis, job evaluation,
managing wages and salaries, training administration, resolving disputes,
labour law compliance and related tasks in any organization.
Personnel management
Personnel management is concerned with the proper use of human factors.
It may be defined as that field of management which is concerned with the
planning, organizing, directing and controlling various operative functions
of procurement, development, utilization and maintenance of a labour force
in such a way that objectives of company, those of personnel at all levels and
those of community are achieved.
Characteristics & Qualities of a PM
A Personnel Manager should have the following qualifications, qualities and
characteristics for proper discharge of the assigned duties:
1) Analytical Ability: To promptly interpret the issues at hand,
determine their importance and resolves them accordingly.
2) Approachable: A Personnel Manager should be approachable to
their employees.
3) Business Insight: A Personnel Manager should possess good
knowledge and understanding of the financial, accounting, marketing
and operational functions of an organization.
4) Capacity for persuasion: A personnel manager should have the
capacity for persuasion coupled with patience and tolerance.
5) Communication Skills: A personnel manager needs excellent
written and oral communication skills.
6) Compliance with Labour Laws: A personnel manager should have
deep knowledge of labour regulations.
7) Cooperation: A personnel manager should be ready to cooperate
with the subordinates.
8) Coordination: A personnel manager should be ready to coordinate
the subordinates activities.

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 9) Decision Maker: A Personnel Manager takes decisions which are apt
and considering all the facts.
10) Delegator: Personnel Managers delegate work to their team
members.
11) Emotional Intelligence: A personnel manager must be emotionally
mature and strong to cope with high-stress situations on the job.
12) Expert in Personnel Administration: A PM should be an expert in
personnel administration.
13) Expert in Problem-solving technique: A PM should know the art
of solving problems being encountered from time to time.
14) Expert in Time Management: Personnel Managers must be good
at managing their time.
15) Expertise in Human Resources: A personnel manager should
possess foundation on the functions of human resources.
16) Innovation: Successful Personnel Managers think out of the box and
deliver the best solution to their employees and the organization.
17) Integrity: Personal integrity is utmost essential so as not to the
employees lose confidence in a personnel manager.
18) Intelligence: A personnel manager should be intelligent enough for
analyzing the situations for objective reasoning, and for creative
thinking.
19) Leadership qualities: A personnel manager should be in a position
to inspire, motivate, and direct employees to achieve the objectives of
organization.
20) Motivator: Successful Personnel Managers are committed to
motivate employees.
21) Objectivity and Impartiality: A personnel manager should have an
objective and impartial mindset to accurately assess a situation.
22) Presenter: A PM must be a god presenter as he handles several
trainings and present the information to management.
23) Specialist in personnel psychology, organisation theory and
behaviour
Role of Personnel Manager
Personnel Mangers perform mainly three different types of roles, namely
Administrative Roles: The administrative roles of PM include:

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1) Administrative Expert: A PM deals with maintaining employees’ files
and databases, processing employee benefit claims and submitting
required reports to regulatory agencies.
2) Advisor: The PM helps the line managers in discharging their
responsibilities relating to grievance redressal, conflict resolution,
employee selection and training.
3) Counselor: The personal manager discusses various personal and
workplace problems of the employees and advises them on minimizing
and overcoming problems if any.
4) Housekeeper: A personnel manager is responsible for recruiting,
testing, wage and salary administration, benefits and pension
administration, maintenance of records etc.
5) Legal consultant: Personnel manager also responsible for grievance
handling, settling of disputes, handling disciplinary cases, doing
collective bargaining, etc.
6) Policy maker: The personnel manager helps management in the
formation of policies governing talent acquisition and retention, wage
and salary administration, welfare activities, working conditions etc.
7) Welfare officer: As a Welfare officer Personnel manager provides and
maintains canteens, hospitals, crèches, clubs, libraries, etc.
Operational Roles: These roles include:
1) Linking Pin: The personnel manager is often deputed to act as a
linking pin between various divisions of an organization.
2) Mediator: The personnel manager acts as a mediator in case of friction
between two employees, groups of employees, superiors and employees
and management for maintaining industrial harmony.
3) Recruiter: Personnel managers are responsible for recruiting people
possessing requisite knowledge, skills and experience.
4) Trainer developer motivator: For the purpose of talent retention,
personnel managers have to find skill deficiencies and offer training
opportunities.
Strategic Roles: These include:
1) Change Agent: As change agent, a PM replaces resistance with resolve
and fear of change with excitement about its possibilities.
2) Strategic Partner: A Personnel Manager must deliver strategic
services cost effectively.

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Q 2. PERSONNEL MANAGEMENT IN INDIA
Personnel management
Personnel management is concerned with the proper use of human factors.
It may be defined as that field of management which is concerned with the
planning, organizing, directing and controlling various operative functions
of procurement, development, utilization and maintenance of a labour force
in such a way that objectives of company, those of personnel at all levels and
those of community are achieved.
Scope of Personnel Management
Personnel management covers four types of functions:
1. Advisory function: Establish good relations between management
and employees.
2. Management function: Recruitment, training, education, etc. of
personnel.
3. Administrative function: Covers major administrative matters.
4. Workers Welfare: Pay attention to workers' physical and mental
health, and their social and economic conditions.
Objectives of Personnel Management
 Enterprise Objectives: The primary objective of personnel
management is to help in achieving organizational goals.
 Personnel Objectives: Personnel management aims at the material
and mental satisfaction to each employee in the organization.
 Social Objectives: Personnel management also aims at preserving
and advancing general welfare of the community.
Development of PM in India
The personnel management function in India has been a product of various
factors. Labour legislation has been considered as one of the important
factors contributing to the growth and development of personnel
management function in India.
After achieving Independence in 1947, the Factories Act of 1948 has come
into force in India. The Factories Act has set the provisions and rules for the
appointment, duties, and qualifications of statutory officers called ‘welfare
officers’.
These officers deal with labour welfare, industrial relations and personnel
administration, respectively. In the beginning, personnel management was

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neither given any particular status, attention, or place in the organization
system. Personnel officer is also treated as non-aligned professional.
Factors Responsible for Low Growth of PM in India
The following factors were responsible for the snail-paced growth and
development of personnel function in India:
(a) Section 49 of the Factories Act, 1948 has done more harm than good
to the personnel function by creating ‘welfare officers’. The statutory
welfare officers have not won support of line managers.
(b) Often, a personnel officer is trapped within the complex legal
provisions and complications. As a consequence, he is preoccupied
with legal procedures and is left with little time to attend to several
other important matters in an organization.
(c) The job of personnel management has some notable, inherent
weaknesses. For instance, the results of personnel management
cannot be measured in absolute terms.
(d) Often, personnel manager becomes the centre of controversy in spite
of his justified and genuine approach in solving labour-management
problems.
(e) The personnel manager sometimes becomes victim of the line and
staff conflicts.
(f) Personnel managers are, in general, found to be rigid, inflexible. As
a consequence, they do not possess the passion to change according
to the situational demands.
(g) Personnel management has not yet given the due acceptance by all
concerned because it would be very difficult to appraise the
performance of personnel managers.
Suggestions for improving the position of PM
The following points may be given due weightage in order to improve the
position of personnel manager:
(a) The present focus on legal aspect must be minimized.
(b) Personnel managers should be adequately trained before being
inducted in large organizations.
(c) Organizations should be designed in such a fashion that the line-
staff conflicts get minimized and their interdependence and
mutuality promoted.
(d) Personnel manager should be innovative rather than rigid.

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At present, the personnel officer in India plays multiple roles, namely that
of:
1. The buffer zone between labour and management.
2. The third force in the industry.
3. The non-aligned professional.
4. The social worker in an industrial setting.
5. The staff advisor in the organization.
6. The executive in personnel and welfare spheres.
Current Status of Personnel Management in India
These days, personnel management in India has become entirely
professionalized. Various institutions like IIPM (Indian Institute of
Personnel Management), NLRI (National Labour Relations Institute), XLRI
(Xavier Labour Relations Institute), etc., have been established. Personnel
management now satisfies all the attributes of a profession – body of
knowledge, a code of conduct, and a period of learning
In India personnel management practice is now being taken very seriously
as now the industry is aware that employees are no more just a ‘cost to
company’ but rather if properly taken care of, they are the real back bone of
the organization.
Employees in India are lacking proper clarity as to what they want from
their work and what should be done in order to achieve efficiency in their
work.
In a way the employers can indirectly help themselves by helping their
employees in finding a proper and efficient way of working. For this they
can impart training to their employees on the basis of the requirement.
Many issues which are also being seen by India is that employees do not
have a proper growth plan because of which they end up performing below
their actual capacity and ability.
Modern management focuses on involving employees into decision making
by the way of participative management. This helps the individuals feel
united with the organization.
Personnel management in India is right now not given much importance but
slowly and gradually Indian organizations will understand its importance.
Personnel management is now replaced by Human Resource Management
which covers all aspects of employees and is also given due importance in
the organization.

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UNIT II
Q. 3. PERSONNEL POLICIES
A policy may be defined as statement or general understanding which
provides guidance to decision making to members of an organisation in
respect of any course of action.
Personnel policies are well recognised intentions of the management with
respect to manpower management in the organisation.
Personnel policies guide action. They offer the general standards based on
which decisions are reached. They serve as a road map for managers on a
number of issues such as recruitment, selection, promotion and
compensation.
Objectives of Personnel Policies
Policies offer many advantages such as:
 Delegation: Personnel policies help managers operating at different
levels to act with confidence without the need for consulting superiors
every time.
 Uniformity: Personnel policies increase the chances of different
people at different levels of the organization making similar choices.
 Better control: As personnel policies specify the relationship shared
between the organization, management and its employees, they allow
members to work towards organizational objectives.
 Standards of efficiency: Policies can also serve as standards in the
execution of work.
 Confidence: Policies make the employees aware of where they stand
in the organization and create confidence in them while confronting
routine and recurring problems.
 Speedy decisions: Policies can speed up decision making.
 Coordinating devices: Personnel policies help in achieving
coordination.
Formulation of Personnel Policies
Policy formulation and implementation involves the following steps:
1) Identifying the need: Initially important areas of personnel
management (recruitment, selection, training, compensation,
bargaining) must have a policy formulation which is clearly spelt out.
2) Collecting data: Once priority areas are listed, steps should be taken

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 to collect facts before formulating a policy. Various sources could be
tapped for this purpose such as:
i. Company's records,
ii. Past practices,
iii. Survey of industry practices,
iv. Experience of personnel handling various issues,
v. Top management philosophy,
vi. Organizational culture, and
vii. Employee aspirations, etc.
3) Specifying alternatives: Policy alternatives should emerge clearly
after collecting relevant data from various sources. These have to be
evaluated in terms of their contribution to organizational objectives.
4) Communicating the policy: To gain approval at various levels, the
formulated policy should be communicated throughout the
organization.
5) Evaluating the policy: Personnel policies must be reviewed,
evaluated and controlled regularly against certain established
standards.
Types of Personnel Policies
These may be classified into several categories depending on
(i) Their source (originated, appealed and imposed),
(ii) Scope (general or specific), and
(iii) Form (written or implied).
Originated policies: These are established by top management
deliberately so as to guide executive thinking at various levels.
Appealed policies: These are formulated to meet the requirements of
certain peculiar situations which have not been covered by the earlier
polices.
Imposed polices: These are formed under pressure from external agencies
such as government, trade associations and unions.
General policies: They reflect the basic philosophy and priorities of the top
management in formulating the broad plan for the organization’s growth.
Specific policies: These policies cover specific issues such as hiring,
rewarding and bargaining. Such policies should be in line with the basic
framework offered by the general policies.

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Written or implied policies: Implied policies are inferred from the
behaviour of members (such as dress code). Written policies, on the other
hand, spell out managerial thinking on paper.
Contents of Personnel Policy
The following matters are covered in the personnel policies followed in India:
1. Recruitment or hiring of employees.
2. Manpower planning and development.
3. Training programmes.
4. Absenteeism.
5. Hours of work.
6. Conditions of employment.
7. Overtime.
8. Lay-off, termination of services and welfare.
9. Wage policy, motivation and incentives.
10. Recognition of trade union.
11. Promotion, demotion and transfer.
Structure of Personnel Policies:
Usually personnel policies are framed with regard to:
1. Recruitment and Selection (Employment) Policy:
(i) Minimum qualifications required in prospective employees
(ii) The sources from where labour supply will be available
(iii) Selection tests.
2. Promotion policy
3. Training policy. It covers
(i) Induction
(ii) Types of training.
(iii) Training of executives.
4. Wage policy. It includes:
(i) Minimum wages
(ii) Non-financial incentives
(iii) Incentive plans
(iv) Bonus, profit sharing etc.
5. Demotion and termination policy
6. Working conditions and motivation policy
7. Welfare policy
8. Integration policy: It covers (a) Processing of grievances (b) Recognition
of unions and (c) Workers participation in management.

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Q.4. PERSONNEL RECORD AND AUDIT
Personnel Records & Record Management
Personnel records provide information relating to the use of human
resources in an organization, e.g., personnel history cards, training records,
performance records, absence data, wage and salary records, etc.
Personnel records enable managers to obtain requisite information
regarding the use of human resources in various departments or divisions.
Records management is the planned control of records. Records
management concerns itself with the creation, distribution, maintenance,
retention, preservation, retrieval and disposal of records.
There can be conventional record management systems through file system
or can be modern record management system through software.
Importance of record management:
 To supply information required by the management
 To identify training needs
 To use them for succession planning
 To know validity of employment tests and interviews
 To take personnel decisions like transfer, promotions etc.
 To maintain up to date data about everything in the organization.
Essential Features of Good Records
Essentials of a good record and report
1. Simple: Record-keeping must be simple.
2. Accurate: Records should be error-free.
3. Unbiased: Reports must be objective and prepared without bias.
4. Economical: The cost of maintaining records must not be high.
5. Data based: Reports must be built around facts.
6. Useful: Records must provide information which could be put to use.
7. Clarity and Simplicity: The report must be clearly worded so that
people could use it easily.
8. Timely: Reports must be submitted keeping the time limits in mind.
Significance of Personnel Records
Personnel records play a significant role in performing various personnel
functions including audit and research. They are specially needed to:

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 1) To supply information required by the management
2) To identify training needs
3) To use them for succession planning
4) To know validity of employment tests and interviews
5) To take personnel decisions like transfer, promotions etc.
6) To maintain up to date data about everything in the organization.
7) To conduct research in personnel and industrial relations areas.
8) To revise pay scales and benefits from time to time.
Types of Personnel Records
Personnel records include the following:
 Job application and test scores
 Job descriptions and job specifications
 Interview results
 Employment history
 Medical reports
 Attendance records
 Payroll
 Employee ratings
 Training records
 Leave records
 Accident and sickness records
 Grievances, disputes records
 Contracts of employment
 Records to be kept under various statutes

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Q.5. PERSONNEL AUDIT
Personnel Audit is a systematic formal process to examine the current
personnel policies, procedures, documentation and systems to identify needs
for improvement and enhancement of the HR function as well as to assess
compliance with ever-changing rules and regulations.
The personnel audit is concerned with every aspect of management that
involves relationships with the human resources of the organisation.
The need for personnel audit increases as the organisation grows.
In many organisations audit is conducted at the end of the calendar or
financial year. In some organisations, personnel audit may be conducted
periodically or on ad-hoc basis according to the specific needs of the
organisations. Besides, in some cases audit may be conducted by individuals
employed in the organisation itself (Internal Audit) while in other cases, the
services of experts outside the organisation may be utilised in conducting
the audit (External Audit).
Objectives of Personnel Audit
Objectives of personnel audit are:
1. To review the whole organizational system of human resource
practices, i.e., acquiring, developing, allocating and utilizing human
resources in the organization.
2. To evaluate the effectiveness of various personnel policies and
practices.
3. To identify shortcomings in the implementation of human resource
practices in the organization.
4. To modify the existing human resource practices to meet the
challenges of personnel/human resource management.
Audit Process
Steps in Personnel Auditing Process
Step 1: Briefing and orientation: Key staff members meet:
 To discuss particular issues considered being important
 To chart out audit procedures
 To develop plans and program of audit
Step 2: Scanning Material Information: Scrutiny of all available information
pertaining to personnel, personnel handbooks and manuals, guides,
appraisal forms, computer capabilities and any other related information.

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Step 3: Surveying Employees: Interview with the key managers, functional
executives, top functionaries in the organisation and the employees’
representatives if necessary. The purpose is to pinpoint issues of concern,
present strengths, anticipated needs and managerial views on human
resources.
Step 4: Conducting Interviews: What questions to be asked are developed
during scanning of information.
Step 5: Synthesizing:The data gathered is synthesized to show the current
situation, priorities, staff pattern and issues Identified.
Step 6: Reporting:The results of the audit are discussed with the managers
and staff specialists in several rounds. Important issues are identified for
inclusion in the formal report.

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Q.6. PERSONNEL RESEARCH
Personnel research is a systematic and scientific process of collecting
information, analyzing the information and drawing conclusions for better
decision-making in HR function.
Purposes of Personnel Research
The basic purpose of personnel research is to seek answers to problems
through the application of scientific methodology which guarantees that the
information is reliable and unbiased.
The various purposes of personnel research can be listed as follows:
1. To build upon existing knowledge.
2. To evaluate the present conditions in human resource management.
3. To appraise proposed personnel programmes in the organisation.
4. To predict future problems.
5. To evaluate current policies, programmes and practices.
6. To offer a justified basis for modification and revision of current
policies, programmes and practices.
7. To keep management abreast of its competitors and replace obsolete
techniques by new ones.
8. Discover ways and means how to keep employees at a high level of
morale on continuous basis.
Types of Personnel Research
There are five types of personnel research.
1. Pure Basic Research: This research intends to develop a basic discipline
by resolving, illuminating and exemplifying a theoretical issue. Therefore,
its basic purpose is to enhance knowledge and understanding. The results
of such research become the source of knowledge for the practicing
managers. Most of the core management concepts developed from pure basic
research.
2. Objective Research: This research focus on how to overcome a general
problem in application of an established knowledge. However, it is not
intended to solve a specific management problem. For doing such research,
the researcher frames certain clear objectives and hypotheses and then tests
the validity of established knowledge in a given situation.
3. Evaluative Research: This research, assesses some aspects of the
organisational function by analysing the effectiveness of a given problem.

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This type of research is most common in organisations as it helps the
managers to look into some issues and develops a framework for future
management.
4. Applied Research: This type of research is more specific to solve a
particular problem within an organisation by application of appropriate
knowledge.
5. Action Research: In this research, action, i.e., solution of a problem, is
an outcome of the research process. Its main purpose is to improve the stock
of knowledge by tackling a problem, which has relevance to theory.
Methods and Tools of Personnel Research
Various methods of research in the field of personnel management include:
1. Historical studies: These studies undertake a planned and
structured investigation of company records and reports. They may
include interviews with those employees who have been concerned
with them. Such studies propose to find out precisely the important
elements and relationship in the event under consideration.
2. Case studies: Case study means a systematic, thorough and in-depth
investigation of the relationships which have been significant in a
single important situation or set of circumstances. A series of case
studies may lead to the formulation of general hypothesis.
3. The Survey Method: It has an important distinctive feature in its
concentration on the collection of data in problems relating to
compensation, collective bargaining etc., through a structured
interview or by administering a questionnaire. The data collected
through survey are useful to draw meaningful conclusions.
4. Statistical Studies: These studies seek to collect, analyse, classify
and interpret quantitative data. They put emphasis upon
quantification, statistical manipulation and statistical inference.
5. Mathematical Models: These studies seek to develop and test
designs that can describe behaviour in terms of mathematical process.
6. Simulation: It make use of computers to suggest hypothetical models
to simulate the interaction of variables, weights and coefficients. The
model is used in studying problems of production and inventory
control, hiring and training of personnel, collective bargaining etc.
7. Action and Field Research: Here, researchers involve themselves
directly in the behaviour to be studied. This method may be used in
understanding group behaviour in working organisations.

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 8. Experimental Studies: These are characterised by the investigator’s
control of the variables that can be simulated through appropriate
statistical analysis.
Research Procedure
The following steps must be followed while carrying out personnel research:
1. Statement of Purpose: Statement of purpose is a statement to justify
the present research. Here, the researcher has to state what he
actually proposes to study and why. It also needs to be pointed out
that given the problem, the present research is the most suitable way
of seeking answers to the problem.
2. Statement of Problem: The foremost step involved in carrying out
personnel research is to state the problem to be studied clearly and
concretely. Problem can be identified by going through the existing
literature, discussion with knowledgeable persons in the subject and
getting first-hand information and observation on the matter. The
problem so identified should be reduced to manageable size. Once the
problem is clearly identified, the next step is to develop the
hypotheses, also called ‘suggested answers’.
3. Statement of Method: Method refers to the manner followed to
collect data for the study. The method will differ across researches
depending upon the nature of research problems and hypotheses set
for them. An important aspect of methodology is the identification and
selection of study group. In case of large universe, it may be difficult
to contact each individual of the universe. Hence, either random or
purposive sample can be selected for the study. What are the
dependent and independent variables of the study should be clarified.
Dependent variables are the responses, reactions and behaviour,
whereas independent variables are ones that affect dependent
variables. Method of data collection with its justification must also be
clearly decided.
4. Statement of Results: Results, based on information gathered, refer
to the relationship between dependent and independent variables of
the study. They may support or reject the hypotheses set in the
beginning of the study. The results can be found out by applying
statistical tools and, then, can be presented in the form of tables,
graphs, charts, bar diagrams, etc.
5. Statement of Analysis and Implications: The personnel
researchers’ main concern is to visualize the implications of the result.
The result should not be narrowly viewed to find only the answer to
the problem faced. It should also be seen in a larger perspective.

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UNIT III
Q.7. HUMAN RESOURCE PLANNING
Human resource is an important corporate asset and the overall
performance of companies depends upon the way it is put to use. In order to
realize company objectives, it is essential to have a human resource plan.
Human Resource Planning is essentially the process of getting the right
number of qualified people into the right job at the right time so that an
organization can meet its objectives.
Human Resource Planning (HRP) tries to assess human resource
requirements in advance keeping the production schedules, market
fluctuations, demand forecasts, etc., in the background.
Human resource plan are prepared for varying time periods, i.e., short term
plans covering a time frame of 2 years and long term plans encompassing a
period of 5 or more years.
Need of HRP
HR planning is required to meet the following objectives:
 Forecast personnel requirements: HR planning is essential to
determine the future manpower needs in an organization.
 Cope with changes: HR planning is required to cope with changes in
market conditions, technology, products and government regulations
in an effective way.
 Use existing manpower productively: By keeping an inventory of
existing personnel in an enterprise by skill, level, training,
educational qualifications, work experience, it will be possible to
utilize the existing resources more usefully.
 Promote employees in a systematic manner: HR planning
provides useful information on the basis of which management
decides on the promotion of eligible personnel in the organization.
Benefits of HRP
Human Resource Planning, if used properly, offers a number of benefits:
 Reservoir of talent: The organization can have a reservoir of talent
at any point of time.
 Prepare people for future: People can be trained, motivated and
developed in advance and this helps in meeting future needs for high-
quality employees quite easily.
 Expand or contract: If the organization wants to expand its scale of

2.1 – Personnel Management Concepts 18 | Page

 operations, it can go ahead easily.
 Cut costs: Planning facilitates the preparation of an appropriate HR
budget for each department or division. This, in turn, helps in
controlling manpower costs by avoiding shortages/excesses in
manpower supply.
 Succession planning: Human Resource Planning prepares people
for future challenges.
Process of Human Resource Planning
The process of HRP usually followed in a large organization, consists of the
following steps:
1. Forecasting the Demand for Human Resources
Most firms estimate how many employees they require in future. The
demand for human talent at various levels is primarily due to the following
factors:
a. External challenges: These challenges arise from three important
sources:
 Economic developments
 Political, legal, social and technical changes
 Competition
b. Organizational decisions: The organization’s strategic plan, sales
and production forecasts and new ventures must all be taken into
account in employment planning
c. Workforce factors: Demand is modified by retirements,
terminations, resignations, deaths and leaves of absence.
2 Preparing Manpower Inventory (Supply Forecasting)
The basic purpose of preparing manpower inventory is to find out the size
and quality of personnel available within the organization to man various
positions.
Every organization will have two major sources of supply of manpower:
(a) Internal labour supply: A profile of employees in terms of age, sex,
education, training, experience, job level, past performance and future
potential should be kept ready for use whenever required.
(b) External labour supply: When the organization grows rapidly or
when it is not able to find the people internally to fill the vacancies, it
has to look into outside sources.
3. Determination of the Quality of Personnel The existing number of

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personnel and their skills (from human resource inventory) are compared
with the forecasted manpower needs (demand forecasting) to determine the
quantitative and qualitative gaps in the workforce. A settlement of demand
and supply forecasts will give us the number of people to be recruited. This
forms the basis for preparing the HR plan.
4. Formulating HR Plans
The human resource requirements identified need to be translated into a
concrete HR plan, backed up by detailed policies, programmes and
strategies (for recruitment, selection, training, promotion, retirement,
replacement, etc.).
 Recruitment plan: Will indicate the number and type of people
required and when they are needed
 Redeployment plan: Will indicate the programmes for transferring
or retraining existing employees for new jobs.
 Redundancy plan: Will indicate who is redundant, when and where;
the plans for retraining, where this is possible; and plans for golden
handshake, retrenchment, lay-off, etc.
 Training plan: Will indicate the number of trainees or apprentices
required and the programme for recruiting or training them
 Productivity plan: Will indicate reasons for employee productivity
or reducing employee costs through work simplification studies,
mechanization, productivity bargaining, incentives and profit sharing
schemes, job redesign, etc.
 Retention plan: Will indicate reasons for employee turnover and
show strategies to avoid wastage through compensation policies;
changes in work requirements and improvement in working
conditions.
 Control points: The entire manpower plan be subjected to close
monitoring from time to time. Control points be set up to find out
deficiencies, periodic updating of manpower inventory, in the light of
changing circumstances, be undertaken to remove deficiencies and
develop future plans.

2.1 – Personnel Management Concepts 20 | Page

Q.8. JOB ANALYSIS
Meaning of Job Analysis
Job analysis is a formal and detailed investigation of the tasks, duties and
responsibilities necessary to do a job.
Aspects of JA
There are two major aspects of job analysis:
1. Job Description: Job description is a written description of the
activities and duties to be performed in a job, the relationship of the
job with other jobs, the equipment and tools involved, the nature of
supervision, working conditions and hazards of the job, etc. Thus,
job description differentiates one job from the other.
2. Job Specification: While job description focuses on the job, job
specification focuses on the job holder. Job specification is a
statement of the minimum levels of qualifications, skills, physical
and other abilities, experience, judgment and attributes required for
performing job effectively.
Uses of Job Analysis
The uses of job analysis are:
1. Human resource planning: Job analysis helps in forecasting
human resource requirements in terms of knowledge and skills.
2. Recruitment and Selection: Job analysis is used to find out how and
when to hire people for future job openings.
3. Placement and orientation: As job analysis provides information
about what skills and qualities are required to do a job, the
management can gear orientation programmes towards helping the
employees learn the required skills and qualities.
4. Training and Development: Since job analysis provides information
about the knowledge and skills required to perform a job, it enables
the management to design the training and development programmes
to acquire these job requirements.
5. Counselling: Managers can properly counsel employees about their
careers when they understand the different jobs in the organization.
6. Employee safety: Since job analysis reveals unsafe conditions
associated with a job, it helps managers find unsafe practices.
7. Performance appraisal: By comparing what an employee is
supposed to be doing to what the individual has actually done, the

21 | Page 2.1 – Personnel Management Concepts

 worth of that person can be assessed.
8. Job design and redesign: Once the jobs are understood properly, it
is easy to locate weak spots and undertake remedial steps.
9. Job evaluation: Job analysis helps in finding the relative worth of a
job, based on criteria such as degree of difficulty, type of work done,
skills and knowledge needed, etc.
Process of Job Analysis
The major steps involved in job analysis are as follows:
1. Organizational analysis: First of all, an overall picture of various
jobs in the organization has to be obtained. This is required to find the
linkages between jobs and organizational objectives, inter-
relationships between jobs and contribution of various jobs to the
efficiency and effectiveness of the organization.
2. Selection of representative positions to be analyzed: It is not
possible to analyze all the jobs. A representative sample of jobs to be
analyzed is decided keeping the cost and time constraints in mind.
3. Collection of job analysis data: This step involves the collection of
data on the characteristics of the job, the required behaviour and
personal qualifications needed to carry out the job effectively.
4. Preparation of job description: This step involves describing the
contents of the job in terms of functions, duties, responsibilities,
operations, etc.
5. Preparation of job specification: This step involves conversion of
the job description statements into a job specification.
Methods of Job Analysis
A variety of methods are used to collect information about jobs. None of
them, however, is perfect. In actual practice, therefore, a combination of
several methods is used for obtaining job analysis data. These are discussed
below.
1. Job performance: In this method, the job analyst actually performs
the job in question. The analyst thus receives first-hand experience of
contextual factors on the job including physical hazards, social
demands, emotional pressures and mental requirements. This method
is useful for jobs that can be easily learned. It is not suitable for jobs
that are hazardous (e.g., fire fighters) or for jobs that require extensive
training (e.g., doctors, pharmacists).
2. Personal observation: The analyst observes the worker(s) doing the

2.1 – Personnel Management Concepts 22 | Page

 job. The tasks performed, the pace at which activities are done, the
working conditions, etc., are observed during a complete work cycle.
This method allows for a deep understanding of job duties. It is
appropriate for manual, short period job activities. On the negative
side, the method fails to take note of the mental aspects of jobs.
3. Critical incidents: The critical incident technique (CIT) is a
qualitative approach to job analysis used to obtain specific,
behaviourally focused descriptions of work or other activities. Here
the job holders are asked to describe several incidents based on their
past experience. The incidents so collected are analyzed and classified
according to the job areas they describe. The job requirements will
become clear once the analyst draws the line between effective and
ineffective behaviours of workers on the job.
4. Interview: The interview method consists of asking questions to both
incumbents and supervisors in either an individual or a group setting.
The reason behind the use of this method is that job holders are most
familiar with the job and can supplement the information obtained
through observation. Workers know the specific duties of the job and
supervisors are aware of the job’s relationship to the rest of the
organization.
5. Panel of experts: This method utilizes senior job incumbents and
superiors with extensive knowledge of the job. To get the job analysis
information, the analyst conducts an interview with the group. The
interaction of the members during the interview can add insight and
detail that the analyst might not get from individual interviews.
6. Diary method: Several job incumbents are asked to keep diaries or
logs of their daily job activities and record the amount of time spent
on each activity. By analyzing these activities over a specified period
of time, a job analyst is able to record the job’s essential
characteristics. However, it is a time consuming and costly exercise in
that the analyst has to record entries for a painfully long time.
7. Questionnaire method: The questionnaire is a widely used method
of analyzing jobs and work. Here the job holders are given a properly
designed questionnaire aimed at eliciting relevant job-related
information. After completion, the questionnaires are handed over to
supervisors. The supervisors can seek further clarifications on various
items by talking to the job holders directly.

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Q.9. ROLE ANALYSIS

Role analysis (also known as Job Evaluation) is a systematic approach used

to determine the relative value (or size) of roles within an organisation by
measuring the demands and responsibilities of the role.
Role Analysis is an orderly and systematic technique of determining the
relative worth of the various jobs within the organisation so as to develop
an equitable wage and salary structure.
Objectives of Role Analysis:
a) To determine equitable wage differentials between different jobs in the
organisation.
b) To eliminate wage inequities.
c) To develop a consistent wage policy.
d) To establish a rational basis for incentive and bonus schemes.
e) To provide a frame work for periodic review and revision of wage rates.
f) To provide a basis for wage negotiation with Trade Unions.
g) To minimize wage discrimination on the basis of age, sex, region etc.
h) To enable management to gauge and control the pay roll costs.
Process of Role Analysis:
Role Analysis develops a plan for comparing jobs in terms of those things
the organization considers important determinants of job worth. This
process involves the following steps:
1. Job Analysis. Through job analysis, information on job content is
obtained, together with worker requirements for successful performance
of the job.
2. Compensable Factors. The next step is deciding the compensable
factors that place one job at a higher level in the job hierarchy than
another. Choosing compensable factors is the heart of Role Analysis.
3. Developing the Method. The next step is to select a method of
appraising the job according to the factors chosen.
4. Job Structure. The next step is to compare jobs to develop a job
structure or job hierarchy.
5. Wage Structure. The final step is pricing the job structure to arrive at
a wage structure

2.1 – Personnel Management Concepts 24 | Page

Methods of Role Analysis
Role Analysis methods can be classified as:
1. Non-Quantitative Methods:
Here a job is compared as a whole with other jobs. There are 2 non-
quantitative approaches for Role Analysis:
(a) Ranking or Job Comparison:
Ranking of job is normally done by an “expert committee” formed by the
organisation. Three techniques can be used for ranking jobs.
(i) Job Description: In this technique, a written description of jobs noting
the differences between them in terms of duties, responsibilities, skill
requirements etc, is prepared. Each job is then assigned a rank depending
upon its relative significance. Several raters may independently rank each
job. The average of these ratings is calculated to determine the final
rankings.
(ii) Paired Comparison: In this technique each job is paired with every other
job in the series. The more difficult job in each pair is identified. Rank is
then assigned on the basis of the number of times a job is rated more
difficult.
(iii) Ranking along a Number Line: In this technique, ranks obtained
through job descriptions and paired comparisons are spread along a number
line. Each job is then placed along the line on the basis of its closeness to the
highest ranked job.
Advantages of Ranking Method are:
1. Simple and easy to understand.
2. Faster and inexpensive.
Disadvantages:
1. Subjective and influenced by personal bias.
2. Specific job requirements are not taken into account.
3. Ranking does not give indications of actual differences between jobs in
terms of difficulties or responsibilities.
(b) Grading Method:
In grading method, different “grades” of jobs are predetermined based on
certain criteria such as skill, knowledge, responsibility etc. The steps
involved in this method are as follows:

25 | Page 2.1 – Personnel Management Concepts

(i) Prefix the grade.
(ii) Prepare job description.
(iii) Identify key jobs in each grade
(iv) Allocate all jobs in each grade based on criteria.
Advantages of grading method:
(i) This method is easy to understand and simple to operate.
(ii) It is more accurate and systematic than the ranking method.
(iii) It is economical and therefore suitable for small concerns.
Disadvantages of grading method:
(i) It is very difficult to write accurate and precise description of job grades.
(ii) Some job may involve tasks which overlap more than one grade.
(iii) Personal judgment is involved in deciding job classes and assigning jobs
to specific classes.
2. Quantitative Methods:
In quantitative methods key factors of the job are selected and measured.
There are 2 quantitative approaches for Role Analysis:
(a) Point Rating: In this most widely used method of Role Analysis, jobs
are divided into component factors. Points are assigned to each factor
depending on the degree of its importance in a particular job. The total
points for a job indicate its relative worth.
Advantages of point rating:
(i) It is the most comprehensive and accurate method of Role Analysis.
(ii) Minimizes bias and human judgment.
(iii) Systematic wage differentials according to content of the job can be
determined.
Disadvantages of point rating:
(i) It is expensive and time consuming.
(ii) It is complicated and an average worker cannot understand it easily.
(b) Factor Comparison:
Under this method, a few key jobs are selected and compared in terms of
common factors. The procedure involved is as follows.

2.1 – Personnel Management Concepts 26 | Page

Q.10. RECRUITMENT & SELECTION
ERCRUITMENT
Recruitment is the first step in the process of filling a vacancy. Recruitment
is the process of identifying, screening, shortlisting and hiring potential
resource for filling up the vacant positions in an organization.
Sources of Recruitment
1. Internal Sources of Recruitment: Internal sources of recruitment refer
to hiring employees within the organization internally. Internal sources of
recruitment are the best and the easiest way of selecting resources as
performance of their work is already known to the organization.
Various internal sources of recruitments are:
a) Promotions: Promotion is the process of shifting an employee from a
lower position to a higher position with more responsibilities,
remuneration, facilities, and status. Many organizations fill the higher
vacant positions with the process of promotions, internally.
b) Transfers: Transfer refers to the process of interchanging from one job
to another without any change in the rank and responsibilities. It can
also be the shifting of employees from one department to another
department or one location to another location, depending upon the
requirement of the position.
c) Recruiting Former Employees: Here the ex-employees are called back
depending upon the requirement of the position. This process is cost
effective and saves plenty of time. As former employees are very well
versed with the roles and responsibilities of the job, the organization
needs to spend less on their training and development.
d) Internal Advertisements: Internal Advertisements is a process of
advertising jobs within the organization. This job posting is an open
invitation to all the employees inside the organization.
e) Employee Referrals: Employee referrals is an effective way of sourcing
the right candidates at a low cost. It is the process of hiring new
resources through the references of employees, who are currently
working with the organization.
f) Previous Applicants: Here, the hiring team checks the profiles of
previous applicants from the organizational recruitment database.
These resources can be easily approached and the response will be
positive in most of the cases.
2. External Sources of Recruitment

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External sources of recruitment refer to hiring employees outside the
organization externally.
Various external sources of recruitment are:
a) Direct Recruitment: Direct recruitment refers to the external source
of recruitment where the recruitment of qualified candidates is done by
placing a notice of vacancy on the notice board in the organization.
b) Employment Exchanges: This external recruitment is helpful in
hiring for unskilled, semi-skilled, and skilled workers.
c) Employment Agencies: These agencies hold a database of qualified
candidates and organizations can use their services at a cost.
d) Advertisements: Here, the job vacancy is announced through various
print and electronic media with a specific job description and
specifications of the requirements.
e) Professional Associations: Professional associations that act as a
bridge between the organizations and the job-seekers can help an
organization in hiring professional, technical, and managerial
personnel.
f) Campus Recruitment: Campus recruitment is an external source of
recruitment, where the educational institutions such as colleges and
universities offers opportunities for hiring students.
g) Word of Mouth Advertising: Word of mouth is an intangible way of
sourcing the candidates for filling up the vacant positions.
Recruitment Process: The recruitment process consists of the following:
1. Recruitment Planning: It involves drafting a comprehensive job
specification for the vacant positions outlining their responsibilities,
skills, experience and qualifications needed, grade and level of pay, etc.,
of the jobs to be filled.
2. Strategy development: Devise a suitable strategy for recruiting the
candidates in the organization, including the type of recruitment
method, the geographical area to be considered for the search, source of
recruitment, etc.
3. Searching: Searching involves deciding internal or external sources.
Sometimes both internal and external may be decided.
4. Screening: Screening is done on the basis of qualification, knowledge,
skills, abilities, interest and experience mentioned in job specification.
5. Evaluation and control: Evaluation and control in recruitment is

2.1 – Personnel Management Concepts 28 | Page

 needed as considerable cost is involved in the process.
SELECTION PROCESS
Selection starts where recruitment ends. Selection refers to the process of
offering jobs to one or more applicants from the applications received
through recruitment.
Selection process: Following are the steps involved in a standard selection
process:
1. Preliminary Interview: The purpose of preliminary interview is to
eliminate unsuitable or unqualified candidates from the selection
process.
2. Application Blank: This is a method for getting information from a
prospective candidate. This serves as a personal record of the candidate.
3. Selection Tests: In order to select a right person for the job, individual
differences in abilities and skills are to be adequately and accurately
measured for comparison through psychological testing and testing of
specific abilities and skills.
4. Selection Interview: Interview is a face-to-face interaction between
interviewer and the interviewee. There are four types of selection
interviews:
a. Preliminary Interview: This process would be initiated to screen the
applicants to decide whether a further detailed interview will be
required.
b. Patterned Interview: In this type of interview, the pattern of the
interview is decided in advance. What kind of information is to be
sought, how the interview is to be conducted and how much time is
to be allotted, all these are worked in advance
c. Depth Interview: Under this method, the interviewer tries to
portray the interviewee in depth and detail.
d. Stress Interview: The objective of stress interview is to make
deliberate attempts to create stressful conditions for the interviewee
to observe how the applicant behaves under stressful conditions.
5. Reference checks: The reference checks are used to verify information
or to obtain additional information through reference which are given
by the job aspirants.
6. Physical Examination: The main purpose of conducting physical or
medical examination is to have proper matching of job requirement with
the physical ability of the candidate.

29 | Page 2.1 – Personnel Management Concepts

7. Final selection: Final selection follows the above procedures outlined.
Selected candidates would be sent with appointment orders. Additional
names than required vacancies may be kept in the waiting list.

2.1 – Personnel Management Concepts 30 | Page

Q.11. HUMAN RESOURCE ACCOUNTING (HRA)
Human Resource Accounting (HRA) is a new branch of accounting. It is an
attempt to identify and report investments made in the human resources of
an organization that are not presently accounted for under conventional
accounting practice.
Basically, it is an information system that tells the management what
changes overtime are occurring to the human resources of the business, and
of the cost and value of the human factor to the organization.
The system may serve both the internal and external users, providing
management (internal users) with relevant data on which to base recruiting,
training and other development decisions and supplying investors, lenders
and other external users of financial statement with information concerning
the investment in and utilization of human resources in the organization.
The American Association of Accountants (AAA) defines HRA as the process
of identifying and measuring data about human resources and
communicating this information to interested parties
HRA is similar in principle to the financial accounting, that is, just as
financial accounting reflects the costs of assets such as building and
machinery, HRA shows human resources as capital not as expenses.
Thus, HRA shows the investment, the organization makes in its people and
how their values change over a period of time. HRA is a sophisticated way
to measure the effectiveness of personnel management activities and the
use of people in an organization.
Benefits of Human Resource Accounting
The main benefits of Human Resource Accounting are:-
1. HR Accounting helps the company ascertain how much Investment it
has made on its Employees and how much return it can expect from
this investment
2. The Ratio of Human Capital to Non-Human Capital computed as per
the HR Accounting Concept indicates the degree of labour intensity of
an organization.
3. HR Accounting provides a basis for planning of physical assets of the
type Human Resources
4. HR Accounting provides valuable information to investors interested
in making long term investments in service sector companies
Methods of Human Resource Accounting

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The various approaches to the valuation of human resources may be broadly
grouped under two categories:
 Monetary measures and
 Non-monetary measures
Monetary Models
1. Capitalization of Historical Costs: In this method, all costs of
recruitment, training and other costs involved in developing an
employee are capitalized. The amount so capitalized is written off over
the period an employee serves the organization. If the employee leaves
before the expected service period, the remaining amount is written off
completely in that particular year.
2. Replacement Costs: Replacement cost is the cost of replacing an
existing employee. It is the cost of replacing a set of services provided
by one person with an equivalent set of services provided by another.
The underlying costs include the cost of recruitment, training and
development, the opportunity cost during the intervening period till the
new recruit attains the efficiency level of the old employee, the higher
wages that organization is compelled to pay to hire the services of an
equally competent person, especially where skill shortages (for
example, software, telecom industry) prevail..
3. Opportunity Cost Model: In this approach, all managers within an
organization will be encouraged to bid for any scarce employee they
want and the one who is able to acquire his services puts the bid price
as his investment base in respect of that employee. If an employee can
be hired easily externally, there is no opportunity cost for him.
4. Economic value method: In this method human resources are valued
on the basis of the contribution they are likely to make to the
organization during their continuance in the organization. The
payments to be made to the person by the employing organization in
the form of pay, allowances, benefits, etc., are estimated and discounted
appropriately to arrive at the present economic value of the individual.
5. Asset multiplier method: In this method, the employees working in
an organization are classified into four categories: top management,
middle management, supervisory management, operative and clerical
staff. The salary bill of each category is multiplied with a suitable
multiplier to calculate the total value of each.
6. Discounted present value of future earnings method: This model
recognizes humans as wealth producing sources of income and relies on
measurement of such wealth as a present value of future earnings. The

2.1 – Personnel Management Concepts 32 | Page

 method involves three steps
(a) Employees are classified into homogeneous groups based on age,
experience, skill, nature of job, etc., into office/technical/managerial
staff, skilled or unskilled, etc.,
(b) Earnings of each group are estimated, and,
(c) The present value of earnings of each group till retirement is taken
as the value of human resources, using an appropriate discounting
rate.
Non-monetary Measures
1. Expected realizable value method: The elements of expected
realizable value such as productivity, transferability and
promotability can be measured through personnel research, appraisal
techniques and other objective methods. Productivity can be measured
by objective indices and managerial assessment. Promotability and
transferability can be measured in terms of the measures of potential
such as psychometric tests and subjective evaluations. Attitude
surveys can be used to measure satisfaction, motivation, rewards, etc.
2. Discounted net present value of future earnings: Causal
variables such as leadership style and behaviour affect intermediate
variables such as morale, motivation, commitment to goals, etc., which
in turn, affect output variables such as production, sales, net profit,
etc.

33 | Page 2.1 – Personnel Management Concepts

Q.12. HUMAN RESOURCE INFORMATION SYSTEM (HRIS)
A human resource information system (HRIS) is a software package
developed to aid human resources professionals in managing data. Human
resource professionals utilize these systems to facilitate work flow, improve
efficiency and store and collect information.
Several companies offer HRIS packages to employers. HRIS packages can
be customized to the specific needs and requirements of the employer.
A very basic HRIS is composed of a database and a database management
system. More complex systems include tools for human resource
management like recruiting, applicant- tracking, payroll, time and
attendance, performance appraisals, benefits administration, employee self-
service and accounting functions.
A human resource information system (HRIS) is an information system or
managed service that provides a single, centralized view of the data that a
human resource management (HRM) or human capital management (HCM)
group requires
Operational HRIS: Operational human resource information systems
provide the manager with data to support routine and repetitive human
resource decisions.
Several operational-level information systems collect and report human
resource data. These systems include:
1. Employee Information Systems: The human resource department
must maintain information on each of the organization’s employees for
a variety of decision and reporting purposes.
2. Position Control Systems: The purpose of a position control system is
to identify each position in the organization, the job title within which
the position is classified, and the employee currently assigned to the
position.
3. Applicant Selection and Placement Information Systems: After
jobs and the employee requirements for those jobs have been identified
and after a suitable pool of job candidates has been recruited, the
candidates must be screened, evaluated, selected, and placed in the
positions that are open.
4. Performance Management Information Systems: Performance
Management Information Systems include performance appraisal data
and productivity information data. Performance management
information systems data is frequently used as evidence in employee
grievance matters.

2.1 – Personnel Management Concepts 34 | Page

5. Government Reporting and Compliance Information Systems:
Government Reporting and Compliance Information Systems provide
information needed both to maintain compliance with government
regulations and to improve productivity and reduce costs associated
with employees.
Tactical HRIS
Tactical information systems provide managers with support for tactical
decisions including recruitment decisions, job analysis and design decisions,
training and development decisions, and employee compensation plan
decisions.
1. Job Analysis and Design Information Systems: The information
inputs to the job analysis and design information system include data
from interviews with supervisors and workers and affirmative action
guidelines.
2. Recruiting Information Systems: To direct the recruiting function,
the organization needs to develop a recruiting plan. The plan specifies
the positions to be filled and the skills required of the employees for
these positions.
3. Compensation and Benefits Information Systems: The
Compensation and Benefits Information Systems support a variety of
tactical human resource decisions, especially when compensation and
benefits information is related to information from internal and external
sources.
4. Employee Training and Development Systems: The training offered
by the employee training and development systems must meet the needs
of jobs available in the organization as identified through the position
control system and the job analysis and design system.
Strategic HRIS
Strategic HRIS helps the organization to implement strategic human
resource management.
1. Information Systems Supporting Workforce Planning:
Organization involved in long-term strategic planning, such as those
planning to expand into new market areas, construct factories or offices
in new locations, or add new products, will need information about the
quantity and quality of the available workforce to achieve their goals.
Information systems that support workforce planning serve this
purpose.
2. Information Systems Supporting Labour Negotiations:

35 | Page 2.1 – Personnel Management Concepts

 Negotiating with labour unions requires information gathered from
many of the human resource information systems. The negotiating team
needs numerous ad hoc reports that analyze the organization’s and
union’s positions within the framework of both the industry and the
current economic situation.
3. Specialized Human Resource Information Systems Software:
This Software can be divided into two basic categories: comprehensive
human resource information systems software and limited-function
packages that support one or a few human resource activities.

2.1 – Personnel Management Concepts 36 | Page

UNIT IV
Q.12. TRAINING AND DEVELOPMENT
Training and Development is an integral part of the human resource
development activity. It ensures continuous skill development of employees
working in organisation.
Importance of Training: Training offers innumerable benefits to both
employees and employers
Benefits to Employers:
1. Faster learning of new skills by employees.
2. Increased productivity by increasing the skill of the employees.
3. Training can help the standardization of operating procedures.
4. Trained employees need lesser supervision.
5. Trained personnel will be able to make better and economical use of
the materials and the equipment and reduce wastage.
6. The morale of employees is increased as training programme can
mould employees’ attitudes towards organizational activities
7. Management can identify the talents, who can be groomed as
managers for assigning responsibility in the organizations.
Benefits to Employees:
1. Creates a feeling of confidence in the minds of employees.
2. Develops skills, which serves as a valuable personal asset of a worker.
3. Employees can develop for Career advancement.
4. A highly trained employee can earns higher salary in the job market.
5. Develops adaptability among workers.
6. Trained workers handle the machines safely and thus they are less
prone to accidents
Methods of Training
There is a wide range of training methods and techniques that are suitable
for different categories of people in the organization.
On-the-job training (OJT)
On-the-job training (OJT) is considered to be the most effective method of
training the operative personnel because it is planned, organized, and

37 | Page 2.1 – Personnel Management Concepts

conducted at the employee's worksite. The worker is given training by his
immediate supervisor and is based on the principle of ‘learning by doing’.
There are six methods of on-the-job training:
1. Job Instruction Training (JIT): The JIT is a four-step instructional
process where a trainer, supervisor or co-worker acts as the coach.
1. Preparation: The trainee receives an overview of the job.
2. Presentation: The trainer demonstrates the job.
3. Performance Try Out: The employee is permitted to copy the
trainer’s way.
4. Follow-Up: The employee does the job independently without
supervision
2.Coaching: Coaching is a kind of informal, unplanned daily training and
feedback given to employees by immediate supervisors. In coaching, the
supervisor
 explains things and answers questions;
 throws light on why things are done the way they are;
 offers a model for trainees to copy;
 conducts lot of decision making meetings with trainees;
3.Mentoring: Mentoring is a relationship in which a senior manager in an
organization assumes the responsibility for grooming a junior person.
Technical, interpersonal and political skills are generally conveyed in such
a relationship from the more experienced person.
4.Job Rotation: This kind of training involves the movement of trainee
from one job to another. This helps him to have a general understanding of
how the organization functions.
5.Apprenticeship and Internship Training: Apprenticeships are a form
of on-the-job training in which the trainee works with a more experienced
employee for a period of time, that will qualify the trainee to perform a new
job. Internships are a form of apprenticeship that combines on-the-job
training under a more experienced employee with classroom learning
6.Committee Assignments: In this method, trainees are assigned to
important committees and are asked to solve an actual organizational
problem.
Off-The-Job Training
On-the-job training methods may not be feasible when the training is
specialized, or needs the use of sophisticated equipment, or needs a

2.1 – Personnel Management Concepts 38 | Page

specialist trainer. For such situations, off-the-job training methods are used
by the organizations.
In off-the-job training, the trainee is separated from the job situation and
his attention is focused upon learning the material related to his future job
performance. The workers are free of tension of work while they are
learning.
There are several off-the-job methods of training and development as
described below:
1.Vestibule training: Vestibule training is used to designate training in a
cabin (or a classroom) for semi-skilled jobs. In this method, actual work
conditions are simulated in a class room. Material, files and equipment that
are used in actual job performance are also used in the training.
2.Lecture method: The lecture is a traditional method of instruction. The
instructor organizes the material and gives it to a group of trainees in the
form of a talk. An advantage of lecture method is that it is direct and can be
used for a large group of trainees.
3.Role playing: In Role Playing, the participants play the role of certain
characters, such as the production manager, mechanical engineer,
maintenance engineers, quality control inspectors and the like.
4.Conference approach: In this method, the trainer delivers a lecture and
involves the trainee in a discussion so that his doubts about the job get
clarified.
5.Demonstration: In this method, an experienced trainer demonstrates by
performing the working activity, at pre-determined speeds, telling the
trainee how to do the task, showing the trainee the movements involved and
coaching the trainee while he practices.
6.Simulation Games: In this method, trainees are presented with
information about the concern – its market, products, workforce, financial
position, etc. – and the trainees assume given management roles usually in
groups. These groups then run the company making decisions, dealing with
people and taking action.
7.Case Study: The case method is a non-directed method of study whereby
trainees are provided with practical case reports to analyze. By analyzing
the problems presented in the case report and developing possible solutions,
trainees can be encouraged to think independently.
8.In-basket Exercises: These are more elaborate simulation exercises in
which a complex organization is created in the form of an office
environment. The trainees work in an office setting with their in-basket full

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of interdepartmental memos, letters, reports and other data on their desks,
as one receives in an office. The normal phone calls, emails and face to face
meetings also keep on happening to give a real office-like environment.
9.Critical Incident Method: Under this method each employee developed
in a group process. Incidents are prepared on the basis of actual situations
which happened in different organizations. Each Employee in the training
group is asked to study the incident and to make short term decisions in the
role of a person who has to cope with the incident in the actual situation.
10.T-Group Training: The T-Group provides participants, 10 to 15
persons, with an opportunity to learn about themselves, their impact on
others and how to function more effectively in group and interpersonal
situations. Usually there is no leader, no planned agenda and stated goal.
The trainees can be given any assignment like case study, role play, etc.,
that leads the group interaction. The participants would be encouraged to
be thoughtful and understanding towards the feeling of others.
11.Distance Training: Online and distance learning offers flexible, office-
based training. Employees can complete the training at their convenience.
It eliminate travel or accommodation costs and often cost less than
classroom-based programmes.
12.Computer-Based Training: Computer-based training (CBT) involves
the use of computers and computer-based instructional materials as the
primary medium of instruction. A main benefit of CBT is that it allows
employees to learn at their own pace, during convenient times.

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Q.13. MANAGEMENT DEVELOPMENT
Management development is a planned, systematic and continuous process
of learning by which managers develop their conceptual and analytical
abilities to manage.
Types of Management Development
Management development can be divided into three categories:
a. Informal managerial development
The characteristics of this type of management development include:
 It occur within managerial activities
 The explicit intention is task performance
 There are no clear development objectives
 It is unstructured in development terms
 It is not planned in advance
The development consequences of this type of management development is
that learning is real, direct, unconscious and insufficient
b. Integrated managerial development
This management development process has the following characteristics:
 It occur within managerial activities
 The explicit intention is both task performance and development
 It has clear development objectives
 It is structured for development by boss and subordinate
 It is planned beforehand
The development consequence of this is that learning is real, direct,
conscious and more substantial
c. Formal management development
These processes have the following characteristics:
 They are often away from normal managerial activities
 The explicit intention is development
 There are clear development objectives
 They are structured for development by developers
 They are planned beforehand
The development consequences of these are that learning may be real or
detached and is more likely to be conscious and relatively infrequent.
Methods of Developing Managers
Different types of techniques are used to acquire and develop various types

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of managerial skills and knowledge. They are
1. Decision-Making Skills: The decision-making skills of managers can be
enhanced through various techniques such as:
a. In-basket Training: In-basket training is a form of simulation exercises
in which a complex organization is created in the form of an office
environment. The trainees work in an office setting with their in-basket full
of interdepartmental memos, letters and other data on their desks, as one
receives in an office. The normal phone calls, emails and face to face
meetings also keep on happening to give a real office-like environment.
b. Business Games: In this method, trainees are presented with
information about the concern – its market, products, workforce, financial
position, etc. – and the trainees assume given management roles usually in
groups. These groups then run the company making decisions, dealing with
people and taking action.
c. Case Study: The case method is a non-directed method of study whereby
trainees are provided with practical case reports to analyze. By analyzing
the problems presented in the case report and developing possible solutions,
trainees can be encouraged to think independently.
d. Interpersonal Skills: Managerial skills in the area of inter-personal
relations can be enhanced through the following techniques:
e. Role play: In Role Playing, the participants play the role of certain
characters, such as the production manager, mechanical engineer,
maintenance engineers and the like.
f. T-Group Training/Sensitivity Training: The T-Group (T-Stands for
Training) provides participants, 10 to 15 persons, with an opportunity to
learn about themselves, their impact on others and how to function more
effectively in group and interpersonal situations. Usually there is no leader,
no planned agenda and stated goal. The trainees can be given any
assignment like case study, role play, etc., that leads the group interaction.
2. Job Knowledge: Managers can acquire job knowledge through the
following techniques:
a. Behaviour Modelling: This is an approach that demonstrates desired
behaviour, gives trainees the chance to practice and role-play those
behaviours and receive feedback.
b. On the Job Training: This is a four-step instructional process. A
trainer, supervisor or co-worker acts as the coach. The four steps followed
in the methods are:
1. Preparation: The trainee receives an overview of the job.

2.1 – Personnel Management Concepts 42 | Page

 2. Presentation: The trainer demonstrates the job.
3. Performance Try Out: The employee is permitted to copy the
trainer’s way.
4. Follow-Up: The employee does the job independently
c. Coaching: Coaching is a kind of informal, unplanned daily training and
feedback given to employees by immediate supervisors. In coaching, the
supervisor
 explains things and answers questions;
 throws light on why things are done the way they are;
 offers a model for trainees to copy;
 conducts lot of decision making meetings with trainees;
d. Understudy: An understudy is a person who is in training to assume at
a future time, the full responsibility of the position currently held by his
superior. An understudy is usually chosen by the head of a particular
department. The head will then teach him what all his job involves and
involves him in decision-making by discussing the daily operating problems.
3. Organisational Knowledge: Managers can acquire various
organizational knowledge through techniques such as:
a. Job Rotation: This kind of training involves the movement of trainee
from one job to another. This helps him to have a general understanding of
how the organization functions.
b. Multiple Management: Multiple management is a system in which
permanent advisory committees of managers study problems of the
company and make recommendations to higher management.
4. General Knowledge: Managers can acquire the required general
knowledge through techniques such as:
a. Special courses: Special courses – like the workshops or executive
development programmes help the trainees to acquire general knowledge.
b. Special meetings: Special meetings organised in Consumers’ Forums,
Voluntary Organisations, etc., help the trainees develop their general
knowledge.
c. Specific readings: Specific articles published by various journals,
specific portions of important books are provided to the trainees to improve
their general knowledge
5. Specific Individual Needs: Some trainees may be weak in some areas.
Such trainees are provided with special facilities for development. These
facilities include:

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a. Special projects: In this method, a trainee is put on a project closely
related to the objectives of his department. For example, a new recruit in a
property evaluation firm may be asked to do a small project reviewing the
prospects of selling commercial space.
b. Committee assignment: In this method, an adhoc committee is
appointed to discuss, evaluate and offer suggestions relating to an
important aspect of business. For example, a group of experts may be asked
to look into the feasibility of developing a Software Technology Park in an
upcoming area.

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Q.14. PERFORMANCE APPRAISAL
People differ in their abilities and their aptitudes. There is always some
difference between the quality and quantity of the same work being done by
two different people. Therefore, performance appraisal is necessary to
understand each employee’s abilities, competencies and relative worth for
the organization.
After the candidates are recruited, selected, placed and trained they are
given certain standards to maintain and targets to achieve over a
predetermined period of time. Performance appraisal evaluates the
employee’s performance over a period of time against these standards and
targets
Objectives of Performance Appraisal: Below are the main objectives of
performance appraisal
(1) Pay Rise: It plays a role in making decision about salary increase.
(2) Promotions: It plays a role in making decision about promotion.
(3) Feedback System: It provides feedback to employees about their
performance.
(4) Training and development program: The information collected
from performance appraisal can be used for devising training and
development programmes.
(5) Improves Supervision: Since performance appraisal happens
periodically, supervisors observe their subordinates closely and
continuously.
(6) Career Planning: Performance appraisal facilitates career planning
for the employees.
(7) Healthy and Productive work environment: Since the
achievements and hard work of the employees are identified and
awarded, there is a sense of satisfaction amongst the workers and are
motivated to achieve higher standards and quality.
(8) Improves communication: Being a continuous process, performance
appraisal improves communication between the supervisor and the
subordinate.
Basis of Performance Appraisal: The basis of Performance appraisal
may include the following
 Knowledge about the job
 Quantum of work
 Quality of work

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  Ability to plan, organize, delegate and control
 Cost consciousness
 Use of discretion and judgment
 Initiative
 Leadership skills
 Power of expression and communication
 Personality traits such as Integrity, Adaptability, Dependability and
Loyalty
Performance Appraisal Process: Performance appraisal can be
undertaken either on informal basis or on formal and systematic basis.
Following is the steps in the systematic performance appraisal
1. Defining Objectives: Whether the appraisal is reward providing
appraisal, such as salary revision or promotion or it is an appraisal for
training and development.
2. Defining Appraisal Norms: Appraisal is done in the context of certain
standards. These may be in the form of various traits of the appraisee
or their expected work performance results.
3. Designing Appraisal Programme: In the design for appraisal
programme, types of personnel to act as appraisers, appraisal
methodology and types of appraisal are all to be decided.
4. Implementation: In implementing appraisal programme, the
appraisal is conducted by the appraisers.
5. Appraisal Feedback: The appraisal feedback with plus and minus
points should be listed out and communicated to the appraisees.
6. Post – Appraisal Action: Rewards, promotions, training, etc., follow
in the post-appraisal action
Methods of Performance Appraisal
There are several methods of performance appraisal that can be broadly
classified into
1. Traditional methods of performance appraisal
a) Ranking Method: In ranking, a person is ranked against others on the
basis of certain traits or characteristics. This is very simple method
when the number of persons to be ranked is small.
b) Paired comparison: In this method, each person is compared with
other persons taking only one at a time. The appraiser puts a tick mark
against the person whom he considers the better of the two, and the final
ranking is determined by the number of times that person is judged

2.1 – Personnel Management Concepts 46 | Page

 better than others.
c) Grading: This is a method where certain categories of abilities of
performance are defined well in advance. Persons are put in a particular
category depending on their traits and characteristics. The categories
may be outstanding, good, average, poor, very poor or may be in terms
of letter like A,B,C,D etc., with A indicating the best and D indicating
the worst.
d) Forced Distribution Method: As there is a tendency to rank many of
the employees high, the basic assumption in this method is that the
employee’s performance conforms to a normal statistical distribution.
For example, 10 percent of the employees may be rated as excellent, 20
per cent as above average, 40 per cent as average, 20 per cent below
average and 10 per cent as poor.
e) Forced – Choice Method: This system is adopted to avoid subjectivity
and the tendency of the rater to give consistently high or low ratings to
the employees. The rater will be given a group of statements out of which
he will have to choose the one that best describes the characteristics of
the employee being evaluated. The choices may consist of both negative
and positive statements.
f) Check List Method: Under this method HR department prepares a
series of questions. Each question has alternative answers ‘Yes’ or ‘No’.
The appraiser concerned has to tick appropriate answers relevant to the
appraisals.
g) Critical Incidence Method: This method involves three steps. A test
of noteworthy on the job behaviour (good or bad) is prepared. A group of
experts then assigns scale values depending on the degree of desirability
for the job. Finally, a check list of incidents which define good and bad
employees is prepared. The appraiser is given this checklist for rating.
h) Graphic Scale Method: In this method, a printed appraisal form is
used for each appraisee. The form contains various employee
characteristics and his job performance information. The degree of
quality may be measured on three point or five point scale. On five point
scale, ‘excellent, very good, average, poor or very poor’ may be used for
measurements.
i) Essay Method: Instead of using structured forms for performance
appraisal, some companies use free essay method. In essay method
appraiser assesses the employees on certain parameters in his own
word.
j) Field Review Method: To get a more objective view in appraisal, in

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 this method, an employee is not appraised by his direct superior but by
another person. The appraiser appraises the employee based on his
records of output and other quantitative information. The appraiser also
conducts interviews of the employees and his superior to ascertain
qualitative aspects of job performance.
2. Modern methods of performance appraisal
a) Appraisal by Results or Objectives: Appraisal by results draws its
root from management by objective.
b) BARS: Behaviorally anchored rating scales (BARS) approach measures
observable, critical behaviors that are related to specific job dimensions.
c) Assessment Centre Method: This method is to test candidates in a
social situation by a number of assessors, using a variety of criteria. The
assessors or evaluators are drawn from experienced executives, working
at different levels of management.
d) 360 Degree Appraisal: In 3600 appraisal, appraisal of an employee is
done by his superior, his peers, his subordinates clients and outsiders
with whom he interacts in the course of his job performance. In this
appraisal, besides appraising the performance of the assessee, his other
attributes such as talents, behaviour, values, and technical
considerations are also subjected to appraisal.

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UNIT V
Q.15. WAGE DETRMINATION PROCESS
Compensation is the direct and indirect monetary and non-monetary
rewards given to employees on the basis of the value of the job, their
personal contributions, and their performance.
Basically there are two types of compensation:
 Direct compensation and
 Indirect compensation.
Direct compensation refers to the monetary benefits provided to employees
in return of the services they provide to the organization. The monetary
benefits include wage/salary, house rent allowance, conveyance, leave travel
allowance, medical reimbursements, special allowances, bonus, provident
fund/gratuity, etc. They are given at a regular interval at a definite time.
Indirect compensation refers to non-monetary benefits provided to
employees in return of the services provided by them to the organization.
They include leave policy, overtime policy, hospitalization, insurance, leave
travel assistance limits, retirement benefits, holiday homes and flexible
timings.
Wage Determination Process
Determination of an equitable wage and salary structure is one of the most
important phases of employer-employee relations.
For good industrial relations, each employee should
1. Receive sufficient wages and salaries to sustain himself and his
dependents.
2. Feel satisfied with a relationship between his wages and wages of
other people performing the same type of work in some other
organization.
The primary objective of wage and salary administration program is that
each employee should be equitably compensated for the services rendered
by him to the enterprise on the basis of
 The nature of the job.
 The present worth of that type of job.
 The effectiveness with which the individual performs the job.
A sound wage and salary administration tries to achieve these objectives:
a. For employees

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 1. Employees are paid according to requirements of their jobs, i.e.,
highly skilled jobs are paid more compensation than low skilled jobs.
2. The chances of favoritism are greatly minimized.
3. Job sequences and lines of promotion are established wherever they
are applicable.
4. Employees’ morale and motivation are increased.
b. To Employers
1. They can systematically plan for and control their labor costs
2. In dealing with a trade union, they can explain the basis of their
wage programme
3. Reduces the likelihood of friction and grievances over wage
inequities.
4. It enhances an employee’s morale and motivation.
5. It attracts qualified employees
Steps in Wage Determination Process
The steps involved in determining wage rates are:
1. Performing job analysis,
2. Wage surveys,
3. Analysis of relevant organizational problems forming wage
structure,
4. Preparation of wage structure,
5. Assigning grades and price to each job and
6. Differential employee appraisal for fixing the wage
The Process of Job Analysis: Job Analysis is the process of gathering
information about the job. Job analysis describes the duties, responsibilities,
working conditions and inter-relationships between the job and the other
jobs with which it is associated. It also attempts to record and analyze
details concerning the training, skills, required efforts, qualifications,
abilities, experience, and responsibilities expected of an employee. Job
analysis results in job descriptions which lead to job specifications.
Wage Surveys: Once the relative worth of jobs has been determined by job
evaluation, the actual amounts to be paid must be determined. This is done
by making wage or salary surveys in the area concerned. Such surveys seek
to answer questions like:
 What are other firms paying?
 What are they doing by way of social insurance?
 What is the level of pay offered by other firms for similar
occupations?

2.1 – Personnel Management Concepts 50 | Page

etc, by gathering information about ‘benchmark jobs’, which are usually
known as good indicators.
Relevant Organizational Problems: In addition to the results of job
analysis and wage surveys, several other variables have to be given due
consideration in establishing wage structure. For example,
 Whether there exists a well-established and well-accepted
relationship among certain jobs,
 Whether the organization would recruit new employees after
revised wage structure
 Are the prevailing rates in industry inconsistent with the results of
job evaluation?
 What will be the result of paying lower or higher compensation; and
 What should be the relationship between the wage structure and the
fringe benefit structure?
Preparation of Wage Structure: The next step is to determine the wage
structure. While determining pay ranges the following consideration should
be attended to
1. It is important to keep in mind that there is an adequate differential
between superiors and subordinates
2. When the pay-range of one group is changed, equal attention must
be given to the pay-level of the other.
3. Because of the continuous rise in wage and salary levels,
considerable attention must be given to handling upward changes
in wage-structure.
4. The existing pay structure should be regularly reviewed and
revised.
5. Regional differences in wages should invariably be maintained.
Assigning grades and price to each job: The next step in the wage
determination process is to create appropriate differentials between
different levels of jobs in accordance with their relative value. Any wage
structure has a number of rate ranges and pay grades.
Differential employee appraisal for fixing the wage: Job evaluation
helps to establish satisfactory wage differentials among jobs. Performance
appraisal helps award pay increases to employees who show improved
performance. Rewarding performance motivates the employee to do better.
Managements prefer performance to effect pay increases but unions view
seniority as the most objective criterion for pay increases.

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Q.17. FACTORS AFFECTING WAGE
Wage/compensation are the direct and indirect monetary and non-monetary
rewards given to employees on the basis of the value of the job, their
personal contributions, and their performance.
Basically there are two types of compensation:
 Direct compensation and
 Indirect compensation.
Direct compensation refers to the monetary benefits provided to employees
in return of the services they provide to the organization. The monetary
benefits include wage/salary, house rent allowance, conveyance, leave travel
allowance, medical reimbursements, special allowances, bonus, provident
fund/gratuity, etc. They are given at a regular interval at a definite time.
Indirect compensation refers to non-monetary benefits provided to
employees in return of the services provided by them to the organization.
They include leave policy, overtime policy, hospitalization, insurance, leave
travel assistance limits, retirement benefits, holiday homes and flexible
timings
Factors Affecting Wage/Compensation Levels in an Org
The main factors affecting salary levels within an organization are:
1.External relativities: The market rates for a job are affected by supply
and demand and general movements in pay levels. If the salary system does
not maintain external equity with market rates, the organization may not
be able to attract and retain good quality personnel.
2.Internal relativities: The values of jobs within an organization is
relative and the pay levels will be affected by differences between the values
of jobs. The ideal salary structure should establish and maintain
appropriate differentials based on an objective system of measuring relative
internal values..
3.Individual worth: The salary of an individual is also influenced by the
performance of the individual. The salary system should reward the
individuals according to the contribution and not restricted by the artificial
barriers contained in a rigid salary structure.
Factors Affecting Wage Administration: The factors that affect the
wage and salary administration are:
1. The organization’s ability to pay: The wages and salaries paid to
employees must meet both the organization's ability to pay and any
governing legal regulations. All employers, irrespective of their profits

2.1 – Personnel Management Concepts 52 | Page

 or losses, must pay no less than their competitors. During the time of
prosperity, employers pay high wages to carry on profitable operations
and because of their increased ability to pay. But during a period of
depression, wages are cut because funds are not available.
2. Supply and Demand of Labour: The supply and demand forces
operate at the national, regional and local levels determine
organizational wage structure and level. If the demand for certain
skills is high and the supply is low, the result is a rise in the price to
be paid for these skills. The strategy usually employed is to pay higher
wages if the labour supply is scarce; and lower wages when it is
excessive.
3. Prevailing Market Rate: Conformance to the prevailing market rate
is the most widely used strategy for fixing an organization’s
compensation policies. This is done for several reasons:
a. Competition demands that competitors adhere to the same
relative wage level.
b. Various government laws and judicial decisions make the
adoption of uniform wage rates.
c. Trade unions encourage this practice so that their members can
have equal pay, equal work and geographical differences may be
eliminated.
d. Results in uniformity in wage and salary rates among the
functionally related firms requiring essentially the same quality
of employees.
e. If the same general rates of wages are not paid to the employees
as are paid by the organization’s competitors, it will not be able to
attract and maintain a sufficient quantity and quality of
manpower
4. The Cost of Living: The cost-of living pay criterion is usually
regarded as an auto minimum equity pay criterion. This criterion calls
for pay adjustments based on increases or decreases in an acceptable
cost of living index. When the cost of living increases, workers and
trade unions demand adjusted wages to offset the erosion of real
wages. However, when living costs are stable or decline the
management does not resort to this argument as a reason for wage
reductions.
5. The Living Wage: This criterion states that wages paid should be
adequate to enable an employee to maintain himself and his family at
a reasonable level of existence. However, employers prefer to base the

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 wages of an employee on his contribution rather than on his need.
6. Productivity: Productivity is measured in terms of output per man
hour. It is not due to labour efforts alone. Technological
improvements, better organization and management, the
development of better methods of production by management, greater
skill by labour are all responsible for the increase in productivity.
7. Trade Union’s Bargaining Power: Trade unions do affect rate of
wages. Generally, the stronger and more powerful the trade union, the
higher the wages. A trade union’s bargaining power is often measured
in terms of its membership, its financial strength and the nature of its
leadership.
8. Job Requirements: Generally, the more difficult a job, the higher are
the wages. Jobs are graded according to the relative skill, effort,
responsibility, and job conditions required.
9. Managerial Attitudes: These have a decisive influence on the wage
structure and wage level since managerial decisions on whether the
firm should pay below or above average rates, the weight to be given
for performance or length of service, desires to attract high-caliber
employees, etc., are bound to be affected by these decisions.
10. Psychological and Social Factors: These factors determine in a
significant way how hard a person will work for the compensation
received or what pressures he will exert to get his compensation
increased.

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Q.18. TYPES OF COMPENSATION
An employee in the organized sector is entitled to several types of financial
as well as non-financial benefits:
Basically there are two types of compensation:
1. Direct compensation and
2. Indirect compensation
Direct compensation refers to the monetary benefits offered and provided to
employees in return of the services they provide to the organization. They
are given at a regular interval at a definite time.
Indirect compensation refers to non-monetary benefits offered and provided
to employees in return of the services provided by them to the organization.
Below is given the different types of compensation:
1. Wages and Salaries: In payroll accounting, wages refers to the
earnings of employees whose pay is calculated on an hourly basis
and salary refers to the earnings of employees whose pay is
calculated on a weekly, bi-weekly, semi-monthly, or monthly basis.
2. Pension: Pensions are a kind of deferred pay that provides a
guaranteed income on retirement. They are financed by
contributions from the company, with facilities for contribution by
employees as well.
3. Gratuity: This is a statutory component appearing in the salary
break-up, but is paid only at the time of employee’s exit after serving
more than five years.
4. Sick Pay: Sick pay is any amount paid to an employee because of
illness or injury under a plan providing for such benefits.
5. Maternity Leave and Maternity Pay: Benefit given to the female
employees of the organization
6. Holidays with Pay: Many of the organizations provide holidays
with pay such as public holidays, vacations, paternity leave,
maternity leave, casual leave, sabbatical leave, etc.
7. Transport Assistance: Examples may include loans for the
purchase of annual season tickets, or bulk buying of tickets by
employers for distribution to staff.
8. Housing assistance: In the form of allowances like removal and
traveling expenses, lodging, convincing fees and so on or assistance
with house purchase to staff who have been transferred or relocated.

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 9. Medical Benefits: In the form of medical insurance and medical
reimbursements. Some medical services may also be provided at the
workplace: for example eye and hearing tests.
10. Catering Services: Most commonly, subsidized food and drink at
the workplace or Luncheon Vouchers.
11. Recreational Facilities: It is a subsidy and organization of social
and sports clubs or provision of facilities such as a gymnasium or
clubs.
12. Educational Programmes: In-house study opportunities, or
sponsorship of external study.
13. Family-friendly Policies: Such as workplace nurseries, term-time
hours contracts, career break schemes.
14. Fringe Benefits: Fringe benefits are marginal extra earnings to
make workers feel comfortable at the workplace. These include
employee benefits such as provident fund, gratuity, medical care,
hospitalization, accident relief, health and group insurance,
canteen, uniform, recreation and the like.
15. Employee Security Payments: These include
 Employers contribution to old age, survivor, disability, health
and unemployment insurance,
 Accident insurance,
 Pensions,
 Contributions to saving plans and health and welfare funds
16. Payment for Time not Worked: These include holiday pay, layoff
pay, paid lunch periods, pay for rest periods, paid sick leave,
vacation pay, etc.
17. Commission: When compensation is based on volume or some form
of performance, this is known as commission based remuneration.
18. Incentives: Incentives are paid in addition to wages and salaries.
Incentives depend upon productivity, sales, profit, or cost reduction
efforts. Incentives can be either individual or group incentive plans.
19. Allowances: Various allowances like Dearness allowance, House
Rent Allowance (HRA), Conveyance Allowance and Leave Travel
Allowance (LTA) also form part of compensation.
20. Bonus and Awards These consist of financial amenities and
advantages such as holiday, over-time and shift premiums,
attendance bonus, festival bonus, year-end bonus, etc

2.1 – Personnel Management Concepts 56 | Page

21. Profit Sharing Payments: A profit sharing plan, like a bonus plan,
can be structured in a number of different ways. An employer may
elect to pay cash to employees, give them stock in the business, or
set up a deferred compensation fund for retirement.
22. Draws: Draws are often given to salespeople who work only for
commission. A draw is an advance given to a salesperson that will
be collected when future sales transactions are closed.
23. Reimbursements: Employees, depending upon their gradations in
the organization may get reimbursements based on the expenses
incurred. Some examples are: travel expenses, entertainment
expenses, refreshments expenses, etc.
24. Claims: A part of monthly salary may be made up by billed claims.
These include telephone/mobile allowance, Internet allowance,
medical allowance and the like. These are subject to a limit and are
generally paid against submission of valid bills.
25. Tips: In certain businesses, employees receive compensation in the
form of tips. A tip is an additional amount from a customer for
services rendered.
26. Supplemental Wages: Supplemental wages differ from regular
wages only in that they may be based on a different payroll period,
computed on a different compensation plan, or paid at a different
time than regular wages.
27. Perquisites: In addition to the normally allowed perks like
provident fund, gratuity and the like, executives enjoy special
parking, plush office, vacation travel, membership in clubs and well-
furnished houses, etc.
28. Disability Benefits: When employees are unable to work because
of an accident or some health-related problem, weekly or monthly
disability payments in place of the regular earned income assist
them in maintaining their existing lifestyle without major
modification.
29. Non-monetary Benefits: These include challenging job
responsibilities, recognition of merit, growth prospects, competent
supervision, comfortable working conditions, job sharing and flexi
time.
30. Voluntary Retirement Scheme (VRS): Voluntary Retirement is a
legally acceptable facility provided to employees for early retirement
with all retirement benefits plus a particular percentage of the
salary for the remaining years of service.

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