CHAPTER 4

HRM

Performance Appraisal

The term performance appraisal refers to the regular review of an employee's job performance and overall
contribution to a company. Also known as an annual review, performance review or evaluation, or
employee appraisal, a performance appraisal evaluates an employee’s skills, achievements, and growth, or
lack thereof.

Companies use performance appraisals to give employees big-picture feedback on their work and to justify
pay increases and bonuses, as well as termination decisions. They can be conducted at any given time but
tend to be annual, semi-annual, or quarterly.

1. A performance appraisal is a regular review of an employee's job performance and contribution to a

company.
2. Companies use performance appraisals to determine which employees have contributed the most to
the company’s growth, review progress, and reward high-achieving workers.
3. Although there are many different kinds of performance reviews, the most common is a top-down
review in which a manager reviews their direct report.
4. Employees who believe the evaluation's construction isn't reflective of their company's culture may
feel dissatisfied with the appraisal process.
5. Performance appraisals are also called annual reviews, performance reviews or evaluations, or
employee appraisals.

Definition

According to Gomej-Mejia – “Performance Appraisal involves the identification, measurement and

management of human performance in organisation.”

According to Slabbert and Swanepoel – “Performance appraisal is a formal and systematic process by
means of which the relevant strengths and weaknesses of the employees are identified, measured, recorded
and developed.”

According to Beach – “Performance appraisal evaluates systematically performance of individual with

regard to his or her performance on the job and his potential for development.”

Performance Appraisal in HRM – Characteristics

A system which may have the following qualities or characteristics may become sound appraisal system:

(1) It should be simple and understandable by the employees. Any complications need to be avoidable.

(2) It should be suitable to be adopted for appraisal at regular intervals because periodic appraisal enables
the employees to improve.

(3) It should create the atmosphere of mutual understanding and confidence.

(4) The system should be capable of giving equitable justice to all employees. Therefore, it should be
objective and free from personal bias.

(5) The employees should be taken in confidence while preparing performance appraisal.
(6) The system should be suitable to the organisation from the points of its structure, needs and more
essentially based on latest development in the area.

(7) It should be able to fulfil the desired purpose by locating potential for promotion, increments,
placements, transfers etc.

(8) Special training is given to evaluated” for making him more impartial and free from bias.

(9) Negative appraisal of any employee should be immediately communicated to him so that he can adopt
measures for improvement.

(10) The employee should be allowed to go in appeal in case his performance appraisal is negative if he is
not satisfied. By this the management will win the confidence of the employees.

(11) The performance appraisal system should not be aimed at harassing the employees who are vital
human resources and play very important role in achieving organisational goals. On the other hand, the top
bosses should be made aware that performance appraisal is aimed at improving performance,
organisational effectiveness and to accomplish organisational goals.

Performance Appraisal in HRM – 8 Main Objectives

Performance appraisal plans are designed to meet the needs of the organisation and the individual. It is
viewed as core to good human resource management. According to Cummings, “the overall objective of
performance appraisal is to improve the efficiency of an enterprise by attempting to mobilize the best
possible efforts from individuals employed in it. Such appraisals achieve four objectives including the
salary reviews, the development and training of individuals, planning job rotation and assistance
promotions.”

The following main objectives of employee performance appraisal are:

I. To identify employee weaknesses and strengths;

ii. To identify and meet training needs and aspirations;

iii. To generate significant, relevant and valid information about employee;

iv. To provide inputs to increments of rewards, transfers, promotion and salary administration.

v. To help in improving employee’s performance if he is not found to be suitable during the review period;

vi. To create a desirable culture and tradition in the organisation;

vii. To help in planning career development and human resources planning based on potentialities.

viii. To provide ‘deadlock’ and research data for improving overall human resources information system.

Performance Appraisal in HRM – Process

Performance appraisal is planned, developed and implemented in the following manner:

1. Establish Performance Standards:

The performance standards for each and every job should be developed and discussed with the superiors
after thorough analysis of the job. These standards should be clear and not vague. They must be measurable
after certain period.

2. Communicate the Standards:

After setting the performance standards of job, the next activity is to communicate these standards to all
concerned; at least two parties – (a) appraiser (b) appraise. It is necessary, these standards must be
modified. The appraiser must ensure that the information communicated by him has been received by
appraise and understood clearly.

As per opinion De Cenzo and Robbins, “too many jobs have vague performance standards and the problem
is compound when these standards are set in isolation and do not involve the employee.”

3. Measure Actual Performance:

Now the next activity is to measure actual performance of appraise on the job after certain period.
Generally, four common sources are used by appraiser to measure actual performance, personal
observation, statistical reports, oral reports and written reports.

4. Compare Actual Performance with Standards:

The fourth activity is the comparison of actual performance with standards. Sometimes actual performance
may be better than standards and sometimes it may go off the track. Any deviations between actual
performance and standard performance may be noted carefully for next activity.

5. Feedback to the Employee:

In this activity the results of stage forth are discussed with employee. The information which is received by
appraise about his assessment has a great impact on his performance. Communicating poor performance is
difficult task of appraiser.

6. Taking Corrective Action, if Necessary:

This is the final or last activity of the performance appraisal process. In this stage two types of corrective
action may be recommended by the appraiser. One is positive means salary increase or promotion if actual
performance of appraise is up to the mark and second is negative means coaching and counselling may be
done if the performance is poor. If necessary, appraise may be deputed for formal training courses.

Purpose of Carrying out Performance Appraisals / importance

1. A performance review is pivotal as it helps to recognize the abilities and competencies of an

employee and also aids the company to find out how an employee’s abilities can be used and
improved for future growth and development.
2. The most substantial benefit of the performance evaluation system from the point of view of a
manager or the department head is that it helps maintain an employee’s performance documentation
for the time period he/ she is serving in the organization and even beyond that.
3. Performance appraisal sessions are the time feedback and assessments to identify the quality of the
performance, set of expectations of both employee and the employer from each other, and provide
an opportunity to work upon weak areas that can be improved.
4. Performance reviews also help identify the type of training requirements needed by the employees
to improvise them.
5. Performance review sessions open up the communication channel between the management and the
employees, giving them an opportunity to speak their minds out.
 6. It helps to identify the potential and other areas of expertise of the employee, which can be useful
for the organization providing them with the chance to explore more.

Traditional Methods:

1. Ranking Method:

It is the oldest and simplest formal systematic method of performance appraisal in which employee is
compared with all others for the purpose of placing order of worth. The employees are ranked from the
highest to the lowest or from the best to the worst.

In doing this the employee who is the highest on the characteristic being measured and also the one who is
L lowest, are indicated. Then, the next highest and the next lowest between next highest and lowest until all
the employees to be rated have been ranked. Thus, if there are ten employees to be appraised, there will be
ten ranks from 1 to 10.

However, the greatest limitations of this appraisal method are that:

(I) It does not tell that how much better or worse one is than another,

(ii) The task of ranking individuals is difficult when a large number of employees are rated, and

(iii) It is very difficult to compare one individual with others having varying behavioural traits. To remedy
these defects, the paired comparison method of performance appraisal has been evolved.

2. Paired Comparison:

In this method, each employee is compared with other employees on one- on one basis, usually based on
one trait only. The ratter is provided with a bunch of slips each coining pair of names, the ratter puts a tick
mark against the employee whom he insiders the better of the two. The number of times this employee is
compared as better with others determines his or her final ranking.

3. Grading Method:

In this method, certain categories of worth are established in advance and carefully defined. There can be
three categories established for employees: outstanding, satisfactory and unsatisfactory. There can be more
than three grades. Employee performance is compared with grade definitions. The employee is, then,
allocated to the grade that best describes his or her performance.
Such type of grading is done is Semester pattern of examinations and in the selection of a candidate in the
public service sector. One of the major drawbacks of this method is that the ratter may rate most of the
employees on the higher side of their performance.

4. Forced Distribution Method:

This method was evolved by Tiffin to eliminate the central tendency of rating most of the employees at a
higher end of the scale. The method assumes that employees’ performance level confirms to a normal
statistical distribution i.e., 10,20,40,20 and 10 per cent. This is useful for rating a large number of
employees’ job performance and promo ability. It tends to eliminate or reduce bias.

It is also highly simple to understand and easy to apply in appraising the performance of employees in
organisations. It suffers from the drawback that improve similarly, no single grade would rise in a rating.

5. Forced-Choice Method:

The forced-choice method is developed by J. P. Guilford. It contains a series of groups of statements, and
ratter rates how effectively a statement describes each individual being evaluated. Common method of
forced-choice method contains two statements, both positive and negative.

Examples of positive statements are:

1. Gives good and clear instructions to the subordinates.

2. Can be depended upon to complete any job assigned.

A pair of negative statements may be as follows:

1. Makes promises beyond his limit to keep these.

2. Inclines to favour some employees.

Each statement carries a score or weight, which is not made known to the ratter. The human resource
section does rating for all sets of statements— both positive and negative. The final rating is done on the
basis of all sets of statements. Thus, employee rating in this manner makes the method more objective. The
only problem associated with this method is that the actual constructing of several evaluative statements
also called ‘forced-choice scales’, takes a lot of time and effort.

6. Check-List Method:

The basic purpose of utilizing check-list method is to ease the evaluation burden upon the ratter. In this
method, a series of statements, i.e., questions with their answers in ‘yes’ or ‘no’ are prepared by the HR
department (see Figure 28-2). The check-list is, then, presented to the ratter to tick appropriate answers
relevant to the appraise. Each question carries a weight-age in relationship to their importance.

7. Critical Incidents Method:

In this method, the ratter focuses his or her attention on those key or critical behaviours that make the
difference between performing a job in a noteworthy manner (effectively or ineffectively). There are three
steps involved in appraising employees using this method.

First, a list of noteworthy (good or bad) on-the-job behaviour of specific incidents is prepared. Second, a
group of experts then assigns weightage or score to these incidents, depending upon their degree of
desirability to perform a job. Third, finally a check-list indicating incidents that describe workers as “good”
or “bad” is constructed. Then, the check-list is given to the ratter for evaluating the workers.

The basic idea behind this rating is to apprise the workers who can perform their jobs effectively in critical
situations. This is so because most people work alike in normal situation. The strength of critical incident
method is that it focuses on behaviours and, thus, judge’s performance rather than personalities.

Its drawbacks are to regularly write down the critical incidents which become time-consuming and
burdensome for evaluators, i.e., managers. Generally, negative incidents are positive ones. It is ratter’s
inference that determines which incidents are critical to job performance. Hence, the method is subject to
all the limitations relating to subjective judgments.

8. Graphic Rating Scale Method:

The graphic rating scale is one of the most popular and simplest techniques for appraising performance. It
is also known as linear rating scale. In this method, the printed appraisal form is used to appraise each
employee.

The form lists traits (such as quality and reliability) and a range of job performance characteristics (from
unsatisfactory to outstanding) for each trait. The rating is done on the basis of points on the continuum. The
common practice is to follow five points scale.

This method is good for measuring various job behaviours of an employee. However, it is also subjected to
ratter’s bias while rating employee’s behaviour at job. Occurrence of ambiguity in design- mg the graphic
scale results in bias in appraising employee’s performance.

9. Essay Method:

Essay method is the simplest one among various appraisal methods available. In this method, the ratter
writes a narrative description on an employee’s strengths, weaknesses, past performance, potential and
suggestions for improvement. Its positive point is that it is simple in use. It does not require complex
formats and extensive/specific training to complete it.

However, essay method, like other methods, is not free from drawbacks. In the absence of any prescribed
structure, the essays are likely to vary widely in terms of length and content. And, of course, the quality of
appraisal depends more upon ratter’s writing skill than the appraiser’s actual level of performance.

Moreover, because the essays are descriptive, the method provides only qualitative information about the
employee. In the absence of quantitative data, the evaluation suffers from subjectivity problem.
Nonetheless, the essay method is a good start and is beneficial also if used in conjunction with other
appraisal methods.

10. Field Review Method:

When there is a reason to suspect ratter’s biasedness or his or her rating appears to be quite higher than
others, these are neutralised with the help of a review process. The review process is usually conducted by
the personnel officer in the HR department.

The review process involves the following activities:

(a) Identify areas of inter-ratter disagreement.

(b) Help the group arrive at a consensus.

(c) Ensure that each ratter conceives of the standard similarity.

However, the process is a time-consuming one. The supervisors generally resent what they consider the
staff interference. Hence, the method is not widely used.

11. Confidential Report:

It is the traditional way of appraising employees mainly in the Government Departments. Evaluation is
made by the immediate boss or supervisor for giving effect to promotion and transfer. Usually a structured
format is devised to collect information on employee’s strength weakness, intelligence, attitude, character,
attendance, discipline, etc. report.

Modern Methods:
1. Management by Objectives (MBO):

Most of the traditional methods of performance appraisal are subject to the antagonistic judgments of the
ratters. It was to overcome this problem; Peter F. Drucker propounded a new concept, namely,
management by objectives (MBO) way back in 1954 in his book.

The Practice of management. The concept of MBO as was conceived by Drucker, can be described as a
“process whereby the superior and subordinate managers of an organization jointly identify its common
goals, define each individual’s major areas of responsibility in terms of results expected of him and use
these measures as guides for operating the unit and assessing the contribution of each its members”.

In other words, stripped to its essentials, MBO requires the manager to goals with each employee and then
periodically discuss his or her progress toward these goals.

In fact, MBO is not only a method of performance evaluation. It is viewed by the Practicing managers and
pedagogues as a philosophy of managerial practice because.t. as a method by wh.ch managers and
subordinates plan, organise, communicate, control and debate.

An MBO programme consists of four main steps: goal setting, performance standard, comparison, and
periodic review. In goal-setting, goals are set which each individual, s to attain. The superior and
subordinate jointly establish these goals. The goals refer to the desired outcome to be achieved by each
individual employee.

Limitation of MBO:

MBO is not a panacea, cure for all organisational problems.

As with other methods, it also suffers from some limitations as catalogued below:

(I) Setting Un-Measurable Objectives:

One of the problems MBO suffers from is unclear and un-measurable objectives set for attainment. An
objective such as “will do a better job of training” is useless as it is un-measurable. Instead, “we’ll have
four subordinates promoted during the year” is a clear and measurable objective.

(ii) Time-consuming:

The activities involved in an MBO programme such as setting goals, measuring progress, and providing
feedback can take a great deal of time.
(iii) Tug of War:

Setting objectives with the subordinates sometimes turns into a tug of war in the sense that the manager
pushes for higher quotas and the subordinates push for lower ones. As such, goals so set are likely to be
unrealistic.

(iv) Lack of Trust:

MBO is likely to be ineffective in an environment where management has little trust in its employees. Or
say, management makes decisions autocratically and relies heavily on external controls.

2. Behaviourally Anchored Rating Scales (BARS):

The problem of judgmental performance evaluation inherent in the traditional methods of performance
evaluation led to some organisations to go for objective evaluation by developing a technique known as
“Behaviourally Anchored Rating Scales (BARS)” around 1960s. BARS are descriptions of various degrees
of behaviour with regard to a specific performance dimension.

It combines the benefits of narratives, critical incidents, and quantified ratings by anchoring a quantified
scale with specific behavioural examples of good or poor performance. The proponents of BARS claim that
it offers better and more equitable appraisals than do the other techniques of performance appraisal we
discussed so far.

Developing BARS typically involves five steps:

1. Generating Critical Incidents:

Critical incidents (or say, behaviours) are those which are essential for the performance of the job
effectively Persons who are knowledgeable of the job in question (jobholders and/or supervisors) are asked
to describe specific critical incidents of effective and ineffective performance. These critical incidents may
be described in a few short sentences or phrases using the terminology.

2. Developing Performance Dimensions:

The critical incidents are then clustered into a smaller set of performance dimensions, usually five to ten.
Each cluster, or say, dimension is then defined.

3. Reallocating Incidents:

Various critical incidents are reallocated dimensions by another group of people who also know the job in
question. Various critical incidents so reallocated to original dimensions are clustered into various
categories, with each cluster showing similar critical incidents. Those critical incidents are retained which
meet 50 to 80% of agreement with the cluster as classified in step 2.

4. Scaling Incidents:

The same second group as in step 3 rates the behaviour described in each incident in terms of effectiveness
or ineffectiveness on the appropriate dimension by using seven to nine points scale. Then, average
effectiveness ratings for each incident are determined to decide which incidents will be included in the final
anchored scales.

5. Developing Final BARS Instrument:

A subset of the incidents (usually six or seven per cluster) is used as a behavioural anchor for the final
performance dimensions. Finally, a BARS instrument with vertical scales is drawn to be used for
performance appraisal.

3. Assessment Centres:

The introduction of the concept of assessment centres as a method of performance method is traced back in
1930s in the Germany used to appraise its army officers. The concept gradually spread to the US and the
UK in 1940s and to the Britain in 1960s.

The concept, then, traversed from the army to business arena during 1960s. The concept of assessment
centre is, of course, of a recent origin in India. In India, Crompton Greaves, Eicher, Hindustan Lever and
Modi Xerox have adopted this technique of performance evaluation.

In business field, assessment centres are mainly used for evaluating executive or supervisory potential. By
definition, an assessment centre is a central location where managers come together to participate in well-
designed simulated exercises. They are assessed by senior managers supplemented by the psychologists
and the HR specialists for 2-3 days.

Assesse is asked to participate in in-basket exercises, work groups, simulations, and role playing which are
essential for successful performance of actual job. Having recorded the assesses behaviour the ratters meet
to discuss their pooled information and observations and, based on it, they give their assessment about the
assesse. At the end of the process, feedback in terms of strengths and weaknesses is also provided to the
assesses.

The distinct advantages the assessment centres provide include more accurate evaluation, minimum
biasedness, right selection and promotion of executives, and so on. Nonetheless, the technique of
assessment centres is also plagued by certain limitations and problems. The technique is relatively costly
and time consuming, causes suffocation to the solid performers, discourages to the poor performers
(rejected), breeds unhealthy competition among the assesses, and bears adverse effects on those not
selected for assessment.

4. 360 – Degree Appraisal:

Yet another method used to appraise the employee’s performance is 360 – degree appraisal. This method
was first developed and formally used by General Electric Company of USA in 1992. Then, it travelled to
other countries including India. In India, companies like Reliance Industries, Wipro Corporation, Infosys
Technologies, Thermal, Thomas Cook etc., have been using this method for appraising the performance of
their employees. This feedback based method is generally used for ascertaining training and development
requirements, rather than for pay increases.

Under 360 – degree appraisal, performance information such as employee’s skills, abilities and behaviours,
is collected “all around” an employee, i.e., from his/her supervisors, subordinates, peers and even
customers and clients.
In other worlds, in 360-degree feedback appraisal system, an employee is appraised by his supervisor,
subordinates, peers, and customers with whom he interacts in the course of his job performance. All these
appraisers provide information or feedback on an employee by completing survey questionnaires designed
for this purpose.

All information so gathered is then compiled through the computerized system to prepare individualized
reports. These reports are presented to me employees being rated. They then meet me appraiser—be it
one’s superior, subordinates or peers—and share the information they feel as pertinent and useful for
developing a self-improvement plan.

In 360 – degree feedback, performance appraisal being based on feedback “all around”, an employee is
likely to be more correct and realistic. Nonetheless, like other traditional methods, this method is also
subject to suffer from the subjectivity on the part of the appraiser. For example, while supervisor may
penalise the employee by providing negative feedback, a peer, being influenced by ‘give and take feeling’
may give a rave review on his/her colleague.

5. Cost Accounting Method:

This method evaluates an employee’s performance from the monetary benefits the employee yields to
his/her organisation. This is ascertained by establishing a relationship between the costs involved in
retaining the employee, and the benefits an organisation derives from Him/her.

While evaluating an employee’s performance under this method, the following factors are also taken into
consideration:

1. Unit wise average value of production or service.

2. Quality of product produced or service rendered.

3. Overhead cost incurred.

4. Accidents, damages, errors, spoilage, wastage caused through unusual wear and tear.

5. Human relationship with others.

6. Cost of the time supervisor spent in appraising the employee.

Step 1: Establish performance standards

Performance standards are set to ensure achievement of departmental goals and objectives and the
organization’s overall strategy and objectives. Standards are based on the position, rather than an
individual. In order to be clearly understood and perceived as objective, standards should adhere to the
same rules that apply to goal-setting; that is, they should be “SMART:” specific, measurable, achievable,
relevant and time bound.

Step 2: Communicate performance standards

In order to be effective, performance standards must be clearly communicated and understood to be

expectations. Performance standards assume that an individual is competent, so initial and corrective
training should be factored into the performance management process. If there is a specific training period
after which an employee is assumed to be competent and performing to standards, that should be
communicated as well.

Step 3: Measure performance

Performance that is expressed in numeric terms—for example, cost, quantity, quality, timeliness—is
relatively easy to measure. Performance in the area of soft skills—for example, communication, customer
service and leadership—is more difficult to evaluate. DeCenzo, Robbins and Verhulst recommend using a
variety of sources of information including personal observation, oral reports and written reports. They
note, however, that what is measured is probably more critical than how an aspect is measured. The focus
should be on measuring what matters rather than measuring what’s easy to measure.
Step 4: Compare actual performance to performance standards

In this step of the appraisal process, actual performance is compared to the performance standards.
Documentation should highlight actions and results. For example, “Amir left confidential documents on the
printer even after he had been warned to maintain control of confidential information.” Or “Amir’s process
improvement recommendations saved the department $3,500.”

Step 5: Discuss the appraisal with the employee

This is generally the step in the process that is the most difficult for managers and employees alike and it
can be a challenge to manage emotions and expectations. Even when performance is strong, there can be
differences of opinion on the next action. A significant difference of opinion regarding performance can
create an emotionally-charged situation. If the manager is providing feedback and coaching on a regular
basis, this shouldn’t be the case. Related point: If an employee has consistently poor performance, the issue
should be addressed—corrective action taken—in a timely manner and not deferred to an annual review.
To identify and prepare for differences of opinion, management can ask employees to complete and submit
a self-evaluation prior to the appraisal meeting. A key point to keep in mind is that the manager’s ability to
remain calm and civil will have a significant impact on the employee’s confidence, motivation and future
performance.

Step 6: Implement personnel action

The final step in the appraisal process is the discussion and/or implementation of any next steps: a reward
of some sort—a raise, promotion or coveted development opportunity—or corrective action—a
performance plan or termination. Note, however, that corrective action that might help an employee
achieve expectations shouldn’t be tabled until the next formal appraisal. As performance gaps are
identified, supervisors and managers should take the time to identify why performance is not meeting
expectations and determine whether the employee can meet expectations with additional training and/or
coaching. As mentioned above, if performance is such that termination is warranted, that action should be
taken in a timely manner as well.

Some of the major limitations of performance appraisal are:

1. Bias of Appraiser:

The presence of ‘Halo Effect’ in evaluation of employees is the biggest weakness of this method. A high
rate is given to favoured employees whereas unfriendly employees are rated low.

2. Ambiguity in Standards:

If the standards are not clear, the supervisors may follow different standards for different employees.

3. Insufficient Evidence:

An employee who can impress the boss may get a positive evaluation though his impression in his own
department may be very poor. In such cases, the performance appraisal will be superfluous.

4. Several Qualities Remain Without Appraisal:

Through performance appraisal, only few qualities of employees can be measured. All individuals differ
from each other in terms of background, values and behaviour.

5. Leniency or Strictness Tenancy:

Every evaluator has his own valuation procedure which is regarded as his own standard for evaluation. For
example, some teachers are strict in evaluation of answer books whereas others are lenient. The lenient
tendency is known as ‘Positive Leniency Error’ whereas strict tendency is called as ‘Negative Leniency
Error’. The rating may be high or low depending upon the nature of evaluators.

6. Average Rating Problem:

In order to give very low or very high rating, the top managers are required to give reasons to justify the
rating. The most common error committed in performance appraisal is to give average rating to all
employees. Moreover, low rating antagonizes the subordinates.

7. Influence of Man’s Job:

There is a tendency to give a high rating to highly paid jobs. So a senior employee may get a higher rating
than a junior employee.

8. Similarity Error:

The evaluator tries to look those qualities in subordinates which he himself possesses. Those who show the
similar characteristics are rated high.

Promotion
Promotion means the advancement of an employee to a higher job involving more work, greater
responsibility and higher status. It may or may not be associated with the increment in salary.

Promotion is one of the best forms of incentives and it provides higher responsibilities, better salary, high
morale and job satisfaction to the employees. Practically, all the employees aspire for career advancement
and promotion is an advancement of the employee in the organisational hierarchy.

Edwin B. Flippo, “A promotion involves a change from one job to another that is better in terms of status
and responsibilities.”

Promotion – Top 6 Features

a. Promotion is a reward for consistently good performance of the employee.

b. It enhances employee morale and job satisfaction.

c. It involves higher responsibilities, better job status and increase in salary.

d. Provides opportunities for career advancement.

e. Promotion is beneficial to both employees as well as organisation. It motivates, increases the

involvement and commitment of the employees, leading to increased productivity.

f. It helps the organisation to attract and retain good performers.

Promotion – 7 Main Purposes (With Some Other Purposes Mentioned by Watkins, Dodd and Others)

Promotion from within is a very good policy. It is useful for both – employees as well as organisation.
Every organisation, therefore, needs a formal and systematic programme of promotion. This promotion
programme can be said to be promotion policy.

The main purposes of promotion are:

(a) To recognize and reward the efficiency of an employee.

(b) To attract and retain the services of qualified and competent people.

(c) To increase the effectiveness of the employee and of the organisation.

(d) To motivate employees to higher productivity.

(e) To fill up higher vacancies from within the organisation.

(f) To impress upon those concerned that opportunities are available to them also in the organisation if they
perform well.

(g) To build, loyalty, morale and sense of belongings in the employees.

Watkins, Dodd and others mention the purposes of promotion as under:

(a) To reduce discontent and unrest.

(b) To furnish an effective incentive for initiative, enterprise and ambition.

(c) To conserve proved skill, training and ability

(d) To attract suitable and competent workers.

(e) To suggest logical training for advancement.

As Youder and others observe, “Promotion provides incentive to initiative, enterprise and ambition,
minimizes discontent and unrest, attracts capable individuals, necessitates logical training of advancement
and forms an effective reward for loyalty and cooperation, long service, etc.”

Promotions have a salutary effect on the satisfaction of the promoted person’s needs for esteem, belonging
and security. They are also offered an opportunity for greater self-actualization through more varied and
challenging assignments.

Bases of Promotion: Seniority, Merit and Seniority-Cum-Merit Based Promotion

Bases of Promotion – Top 3 Basis: Seniority, Competence/Merit and Seniority-Cum-Merit Basis (With
Advantages and Disadvantages)

A promotion is an increase in rank which may also be accompanied by a raise in pay, benefits, and
responsibility. Most people view promotions positively, as they indicate that the individual being promoted
is successful, valuable, and useful. In many workplaces, people actively work towards promotion and its
accompanied benefits.

Basis # 1. Seniority:

Seniority of an employee refers to the relative length of service in an organization. When seniority is
considered as the basis of promotion, the rule is to promote the employee having the longest length of
service, irrespective of the employee is competent to occupy a higher post or not.

The reason behind seniority as the basis of promotions is that there is a positive correlation between the
length of service in the same job and the amount of knowledge and the level of skill acquired by an
employee in an organization.

This practice of promoting employees is followed in unionized industrial establishments, government-

owned undertakings and sometimes in private corporate and educational institutions.
This basis of promotion has the following advantages and disadvantages:

Advantages:

a. Seniority being quantifiable provides an objective means of identifying the personnel eligible for
promotion.

b. It is easy to measure the length of service and administer the rule.

c. There is less scope for subjectivity or arbitrariness in fixing seniority.

d. It gives a sense of certainty of getting promotion to every employee and their turn of promotion.

e. It is also considered that seniority and experience go hand in hand. Hence it is right to have promotions
on this basis.

f. Subordinates are interested to work under a senior and experienced boss.

g. As promotion is predictable under this system, it generally reduces employee turnover.

Disadvantages:

a. Seniority always does not indicate competence.

b. The idea that employees learn more with length of service is not valid.

c. Employees learn up to a particular stage. After that grasping power diminishes.

d. This basis of promotion de-motivates the young and competent employees.

e. It kills the zeal and interest to learn and develop.

f. It does not guarantee quality staffing of promotional vacancies as merit or ability is altogether ignored.

g. Judging seniority practically is a difficult task.

h. It discourages creativity and innovation in the organization.

Basis # 2. Competence/Merit:

In this case an employee is promoted on the basis of excellent and superior performance in the current job.
This is known through performance appraisal done by the organization. Merit indicates an employee’s
knowledge, skills, abilities and efficiency measured from the employee’s educational qualifications,
experience, job performance and training records.

To get promotion on the basis of merit requires hard work and sincerity on the part of the employee. In
non- unionized organizations promotions are made on the basis of merit. In unionized organizations merit
is the basis of promotion for non-productive employees. Seniority should be considered as the basis of
promotion, when there are more than one employees of equal merit.

This basis of promotion has the following advantages and disadvantages:

Advantages:

a. It motivates the employees to work hard, improve their knowledge, acquire new skills and become a part
of increasing organizational efficiency and effectiveness.
b. Efficiency is encouraged, recognized and rewarded.

c. Competent employees are retained.

d. It motivates the competent employees to exert all their resources and contribute them to the
organizational efficiency and effectiveness.

Disadvantages:

a. This creates unhappiness among the senior employees.

b. Many senior and experienced employees leave the organization.

c. This basis of promotion leads to favouritism and jealousy.

d. It is not easy to measure merit. Personal prejudices, biases and union pressures usually come in the way
of promoting the best performer.

e. Loyalty and length of service are not rewarded.

Basis # 3. Seniority-Cum-Merit/Merit-Cum-Seniority:

Managements mostly prefer merit as the basis of promotion as they are interested in enriching
organizational effectiveness by enriching its human resources. But trade unions favour seniority as the sole
basis for promotion in order to satisfy the interests of majority of their members. Both seniority and merit
as the bases of promotions have their advantages and disadvantages.

Hence it is necessary for the organizations to give due weightage to both seniority and merit while
promoting their employees. A combination of both seniority and merit can be considered as the basis of
promotions, there by satisfying the management for organizational effectiveness and the employees and
trade unions for respecting the length of service.

There are various ways for striking a balance between seniority and merit which are as follows:

I. Minimum Length of Service and Merit:

Under this method all those employees who complete the minimum years of service, say five years, are
made eligible for promotion and then merit is taken into consideration for selecting the employees for
promotion from the eligible employees. Most of the commercial banks in India follow this method of
promoting employees from clerk positions to officers.

ii. Measurement of Seniority and Merit through a Common Factor:

a. Due weightage is given to seniority and merit (for example 30% for seniority and 70% for merit).

b. Length of service is measured by points with the help of assigned weightage (for example one point for
every six months of completed service) with a maximum of 40 points.

c. Merit is also measured by points with the help of assigned weightage.

d. Points assigned to a candidate under both the heads of seniority and merits are added up.

e. Merit list is prepared and employees for promotion are selected on the basis of their ranks (for example if
there are four employees for one post i.e. A, B, C and D and if their merit points are 50,60,85, and 65
respectively then the third employee i.e. C is selected for promotion.
iii. Minimum Merit and Seniority:

A minimum score of merit which is necessary for the acceptable performance on the future job is
determined and all those employees who secure minimum score are declared eligible. Employees are
selected for promotion based on their seniority only from the eligible pool.

The National Commission on Labour has suggested that as a general rule, particularly among the operative
and clerical categories i.e. lower levels, seniority should be the basis of promotion. In respect of middle
management, technical, supervisory and administrative personnel, seniority- cum-merit should be the
criterion for promotion. For the top level management, merit should alone be the guiding factor for
promotion.

Types of employee promotion

As you can imagine, not all promotions are created equal. Most people will automatically go to “higher
position, higher salary” when thinking of employee promotions, but this only covers one possibility for
recognition.

Instead, there are three main types of employee promotion:

1. Horizontal promotion
2. Vertical promotion
3. Dry promotion

1. Horizontal promotions involve an increase in title and pay for an employee, but with little to no change
in responsibilities. These promotions, also known as an “up-gradation,” recognize an employee who
has gone above and beyond in their role, offers them fair contribution, but does not ask them to take on
more.
Examples of a horizontal promotion include moving from a Manager to a Senior Manager, or Specialist
to a Senior Specialist, with no clear increase in responsibilities.
2. Vertical promotions are what you typically think of when you think “promotion.” This involves upward
movement, more senior job titles, higher salaries, and more responsibilities. In other words, vertical
promotions ask the employee to contribute more and give them a more senior seat at the table. This
type of promotion may also change the nature of the job by adding leadership responsibilities or more
direct reports.
Examples of vertical promotions include moving from a Manager to Director, or Director to C-level
Executive, with an increase in direct reports and decision-making responsibilities.

3. Dry promotions involve all the responsibility of a new title, but without the benefits that come with it.
In other words, the company will ask more of the employee, but will not provide compensation or
recognition in return.
Unsurprisingly, employees don’t typically look favourably on dry promotions, and they should be
avoided wherever possible.

The benefits of promoting employees

As you can imagine, there are a wide range of benefits associated with promoting employees, ranging from
improved retention to boosts in morale and staff engagement to reduced recruitment costs.

Promotions are seen as one of the most desirable forms of recognition by employees because of the
positive impact that it has on their pay, responsibilities, influence, and career growth. As such, if
promotions are made available, a majority of employees will likely take notice and adjust their behaviours
accordingly.

More specifically, the benefits of promoting employees for companies includes:

1. Motivating other employees. Promotions are typically visible to other employees in the organization,
meaning they serve as a model for the kinds of actions, behaviours, and values that you’d like to
promote as an employer.
2. Showing that you value and reward effort. Consistently showing employees that you recognize, value,
and reward strong effort will encourage employees to go the extra mile in their daily work. This, in
turn, boosts, morale, engagement, and company loyalty.
3. Reducing hiring costs, especially those associated with hiring more senior employees. Instead,
promotions let you develop your own employees into leaders. Hiring a new employee costs roughly
20% more than promoting someone, making this a real cost saver for companies.
4. Reducing employee turnover. It’s a general expectation that hard work and commitment to the
company come with promotion and more money at some point. If employees realize that a promotion
isn’t coming, then they often look to greener pastures.
5. Showing that you value and promote career growth. Promotions, at their core, are a next step in an
employee’s career. Lack of career growth is a major factor in employee attrition, making promotions an
important technique for retaining your best talent.

The employee promotion procedure

Like with most activities in HR, promoting employees is made easier with clear processes and guidelines in
place. In this section, we’ll walk you through the key components of an employee promotion procedure.

These components include:

1. Determining if someone is eligible for a promotion

2. Knowing when to promote an employee
3. Determining what type of promotion to give
4. Identifying who is responsible for giving promotions
5. Announcing the promotion

1. Determining if someone is eligible for a promotion

The first employee promotion guideline that you should create involves specifying the circumstances under
which an employee might be eligible for increased salary, responsibilities, or title. This will make the
decision to promote - or not promote - an employee objective and fair.

Factors that can be included in this employee promotion guideline include:

 Performance. Heightened performance over a long period of time typically requires some form of
recognition, reward, or promotion.
 Seniority. Longer tenure employees may be due for a promotion based on their knowledge of the
company and their commitment.
 Assessment of potential. The employee may show great potential in a more senior role or technical
skillset. In these cases, a phased promotion to get them up to speed might be appropriate.
 Time since the last promotion. How long has it been since a valued employee has been promoted?
If it’s longer than two or three years, then you may be at risk of losing that employee.
 Merit and ability. Highly skilled employees who bring inconsistent results will likely require a
promotion to show recognition for their efforts.
  Training. If you have been spending time and resources training an employee for a specific role,
then determine when it is appropriate to act on a promotion.
 Each of these factors should be weighed by a committee of people who will determine which
employees most deserve a promotion at the specific time.

2. Identifying who is responsible for giving promotions

Make roles and responsibilities clear in your employee promotion policy so that managers feel empowered
to put their reports forward for promotions.

There should be a written process in place for who is responsible for recommending, considering, and
approving a promotion.

Typically, these roles are:

 Managers. Responsible for identifying high performance employees and recommending them to HR
for promotion.
 HR Managers: Responsible for reviewing recommendations, weighing considerations like tenure
and market compensation rates, and making a recommendation for a fair promotion.
 Leadership: Responsible for determining and approving the promotion budget that is made
available for pay increases.
 Each of these roles should be made clear in your employee promotion policy, and communicated to
all parties involved.
 Relevant: Your guide to writing a letter of recommendation

3. Knowing when to promote an employee

Once you’ve outlined the circumstances under which an employee will deserve a promotion, and assigned
roles, the next step is to clearly outline when a pay or title increase should be given.

Some specific - and vague - signs that your employee is due for a promotion include:

 Excelling well beyond expectations

 Going above and beyond their job description
 Showing a great deal of commitment to their work
 Willingly taking on new responsibilities without being asked
 Finding ways to get results by adapting and innovating
 Mastering their current job function
 Taking on informal mentorship or leadership roles on your team
 Requiring little to no close management
 Showing ownership over the success of the business
 If employees consistently show any of these signs, then it’s likely time to consider them for a
promotion. At this stage, it’s the manager’s responsibility to champion the employee and push for
them to be fairly rewarded.

4. Determining what type of promotion to give

The next step in your employee promotion policy should be to outline what type of promotion should be
given. Which one you choose for a given employee should be made on a case-by-case basis.
Vertical promotions should be given when an employee has clearly demonstrated that they have mastered
their current job description, and is capable of taking on more responsibilities, decision making power, and
leadership roles.

Horizontal promotions should be given if an employee has demonstrated a trend toward mastering their
current position, and/or has achieved significant results for your organization. They may not be ready for a
vertical promotion just yet, but they are trending in that direction. In these instances, the employee should
be recognized and compensated for their efforts with a more senior position and more money.

Dry promotions should rarely be given, as they demand more from the employee for no increase in pay or
title. If a dry promotion is absolutely necessary, then you should consider time stamping it so that a
horizontal promotion or merit increase is attainable within a defined period of time.

5. Announcing the promotion

Once a decision has been made to promote an employee, the final step in the process is to announce it to
the company.

Before announcing the promotion company-wide, you might want to consider meeting with the team that
will be most affected by the change first. Make the announcement to that team, get their feedback and
reaction, and then make it public to the rest of the company.

Depending on the size of your company, your employee promotion announcement might involve:

 An announcement at an all-staff meeting

 A company-wide email or memo
 A blog post on the company website
 A press release
 Social media posts

It’s important to make a big deal out of promotions, and to clearly communicate why one was given. This
will help show other employees what they need to do and accomplish to follow in their peer’s footsteps.

You should include:

 The reasons behind the promotion

 A congratulation to the person, and a show of support
 A summary of the employee’s old and new role
 A summary of the employee’s achievements
 An encouragement for everyone to congratulate the employee

Demotion

A demotion refers to a permanent reassignment to a lower position than the employee had worked
previously. The position will generally have a lower level of responsibility or required skill, and a lower
pay grade than the previous position.

Demotions can be either voluntary or involuntary and can occur due to poor employee performance,
position elimination, disciplinary actions or organizational restructuring. A demotion can allow a company
to retain an employee it deems valuable by returning him or her to the previous position. However, it is
also possible that the employee will not respond well to the demotion, and if the demotion is a result of
employee misconduct, it can send the message to other employees that the company is lax about
disciplinary action.
Causes of Demotion:

There are several reasons for demoting a man from his present position.

Some of these reasons are as follows:

1. Inadequacy on the part of the employees in terms of job performance, attitude and capability. It happens
when an employee finds it difficult to meet job requirement standards, following his promotion.

2. Demotion may result from organisational staff reductions. Due to adverse business conditions,
organisations may decide to lay off some and downgrade some jobs.

3. Demotions may be used as disciplinary tools against errant employees.

4. If there is a mistake in staffing i.e., a person is promoted wrongly.

5. When, because of a change in technology, methods and practices, old hands are unable to adjust or when
employees because of ill health or personal reasons, cannot do their job properly.

Demotion Policy:

Demotion is very harmful for the employees’ morale. It is an extremely painful action, impairing
relationships between people permanently. While, effecting demotions, a manager should be extremely
careful not to place himself on the wrong side of the fence. It is, therefore, necessary to formulate a
demotion policy so that there may be no grievance on the part of the trade unions.

Yoder, Heneman, Turnbull and Stone have suggested a five-fold policy in regard to demotion practice:

1. A clear list of rules along with punishable offences be made available to all the employees.

2. Any violation be investigated thoroughly by a competent authority.

3. In case of violations, it is better to state the reasons for taking such a punitive step clearly and
elaborately.

4. Once violations are proved, there should be a consistent and equitable application of the penalty.

5. There should be enough room for review.

Transfer

Transfer means a change in job assignment. It refers to a horizontal or lateral movement of an employee
from one job to another in the same organization without much change in his status or pay package. Trans-
fer causes a shift of individual from one job to another without there being any marked change in his
responsibilities, skills and other benefits.

Transfer is the movement of an employee from one job to another. “A transfer involves a change of job
without any significant increase in responsibility or income, and a promotion involves a change in which a
significant increase in responsibility or income occurs.”

Transfer may be made to achieve the following objectives:

1. To meet or fulfil organizational needs – To fulfil organisational needs arising out of change in
technology, volume of production, production schedule, quality of product etc., an employee may have to
be transferred.
2. To satisfy employee needs – Sometimes employees themselves demand transfer due to their personal
problems like ill health, family problem native attractiveness or non-co-operation from boss or fellow
workers. To satisfy their needs employees may have to be transferred.

3. To adjust the workforce – Employees for excess or surplus in one department may have to be transferred
to other department or section where there is shortage of workforce.

4. To reduce monotony and to make the employees versatile – If the employees have stayed on a job
continuously for a longer duration, to reduce their monotony and to widen their knowledge and skill,
employees are transferred.

5. For effective use of employees – If the management feels that the service of the able employee is to be
used in different branches of the same organisation, then such employees will have to be transferred.

6. To punish Employees – If employees are found indulged in undesirable activities like fraud, bribery,
duping etc., such employees are transferred to remote places as a disciplinary action.

7. To give the relief to the employees – Employees who are overburdened and doing complicated or risky
work for long period are relieved from such work by transferring such employees to a place of their choice.

8. To improve employees background by placing them in different jobs of various departments and units.

Transfers are generally made to acquire some purposes that are as follows:

1. To Increase Productivity of Employees:

Transfer may be made for the proper utilisation of the services of an employee when he is not performing
satisfactorily and ample and when the management feels that he may be more beneficial or suitable
elsewhere, where his capacities would be better utilised.

2. To Fulfil Employee’s Request:

Sometimes transfers are made to meet an employee’s own request, when he feels uncomfortable on the job
because of his dislike of his boss or his fellow workers or because better opportunities for his future
advancement do not exist there or because of family circumstances which may compel him to change the
place of his residence.

3. To Meet Organisational Requirements:

Sometimes transfers are made to satisfy such needs of an organisation as may arise out of a change in the
quantity of production, fluctuations in work requirements and changes in the organisational structure; the
introduction of new lines of production, etc.

4. Maintenance of a Tenure System:

Transfer may be made for the maintenance of a tenure system. In senior administrative services of the
government and also in industries or where there is a system of annual intake of management trainees such
transfers are generally exist.

5. For Adjusting the Work Force:

Transfer may be made to adjust the workforce of one plant with that of another, particularly when one is
closed down for reasons beyond the control of the employer.

6. For Penalising Employees:

Transfer may be made to penalise employee under which either a difficult trade union activist or sea lawyer
may be transferred to a remote branch or office where he cannot continue his further activities.

7. For Adjusting the Employee’s Timing:

Transfer may be made at the requests of the employees to help work according to their convenience so far
as timings are concerned, e.g., an employee is transferred from night shift to morning shift or from the first
to the second shift (as in the case of women workers who may like to look after their children and do the
necessary household work in the morning hours).

8. To Make Employee’s more Versatile:

Transfer may be made to increase the versatility of the employee, by shifting him from one job to another
so that he may have sufficient chances for gaining a varied and broader experience of work.

Types of Job Transfer

Transfers can be categorized into the following types;

 Replacement transfer,
 Production transfer,
 Shift transfer,
 Rotation transfer,
 Penal transfer, and
 Remedial transfer.

1. Production Transfer

Transfers from jobs in which labour requirements are declining to jobs they are increasing (through
resignation or otherwise) are called production transfer.
This type of transfer is made to avoid lay-off efficient employees by providing them with alternative
positions in the same organization.

2. Replacement Transfer

Replacement transfers are transfers in which a long-service employee is transferred to a similar job where
he replaces or “bumps” an employee with shorter service.

This type of transfer is made when all operations are declining, but management wants to retain the long-
service employee as long as possible.

3. Rotation Transfer

Also known as Versatility transfer. Rotation transfer is to provide management with a more versatile group
of employees.

This type of transfer will increase the versatility of the employee by shifting him from one job to another.
The employee gets an opportunity for varied job experience. This helps the employee through job
enlargement.

4. Shift Transfer

More than one shift and shift assignments are not rotating; transfer from one shift to another on the same
type of work is termed shift transfer.

Generally, workers dislike second shift assignment as it conflicts with their social life. To help workers to
participate in social life, shift transfers have been introduced.

5. Remedial Transfer

These transfers are made to remedy the situation. Remedial transfers provide management with a procedure
whereby an unsatisfactory placement can be corrected.

Initial placement might be faulty, or the type of job might not suit his health; in such cases, the worker
would benefit by transfer to a different kind of work.

6. Penal Transfer

Sometimes the transfer is used as a concealed penalty. This is widely practiced in India, Pakistan,
Bangladesh. A trade union activist, a troublemaker, or a sea-lawyer may be transferred to a remote branch
where he cannot continue his activities.

Some transfers may involve a decrease in job duties and pay.

This type of transfer should better be called downgrading or bumping since it protects employment
opportunities for employees displaced from higher-rated jobs. They are downgraded to less desirable jobs,
bumping junior employees, who in turn may be laid off.

Transfer policy

A good transfer policy should have the following features:

1. Specify the types of transfers and the conditions under which these will be made.
 2. Locate the authority in some officers who may initiate and implement transfers.
3. Indicate the basis for transfer-whether it is based on seniority or any other factor.
4. Transfers should be in writing and duly communicated to all employees.
5. Transfers should not be made frequently.

Benefits of Transfer

 Boost employee’s job satisfaction.

 Trims down employee’s boredom, monotony.
 Develops employee’s knowledge, skills, etc.
 Prepare employees to meet up organizational urgent needs.
 Correct interpersonal conflicts and mistaken placements.

Problems of Transfer

 Cause expenditure and trouble to the employees and his family members for housing, education of
children, etc.
 Adjustment troubles to the new job, surroundings, places, colleagues, and superiors.
 Discrepancy transfers affect an employee’s self-esteem, commitment, job satisfaction, and
contribution.
 Give rise to the loss of person-days.

Rightsizing

Definition: Rightsizing is a strategic business tool that escalates the resources to reduce costs and remain
competitive. It is a type of involuntary separation that filters the workforce correctly, especially at the top
level. Optimization gives rise to a skilled, able and knowledgeable workforce to achieve new business
goals.

It reduces the operating cost and escalates the resources with little or no negative impact. It also reduces the
duplication of work at the time of assessment.

Rightsizing does not only mean layoffs. It also involves the recruitment of fresh talent and upgrading roles
and responsibilities of existing ones accordingly.

In this dynamic economy, organizations estimate the over and understaffing of the workforce. They assess
the usage of prevailing resources and rearrange them most efficiently. While rightsizing, one needs to
determine:

What do you have?

What do you need?

Some standard practices to perform rightsizing are:

 Sabbaticals
 Telework
 Part-Time Work
 Pay Cuts
 Reduced Work Weeks
 Stop Hiring
 Early Retirement
Benefits of Rightsizing

The process of Rightsizing benefits organizations and individuals in several ways. Distinct benefits from
their perspective are given below:

To Organization

1. Time Efficient: The process of Rightsizing involves less time in comparison to Downsizing.
2. Increased Productivity: The restructuring of organizational structure results in the overall increment
in productivity.
3. Remain Competitive: Continuous strategic updating according to the changing environment helps
to remain competitive.
4. Attract Proficient Applicants: The profitability and growth achieved through rightsizing attract top
talent to work with the organization.
5. Revitalize Workforce: It is a substantial organizational change that fills new energy among the
employees.
6. Flatter or Thinner Organization: By reducing the excessive workforce, the organizational structure
becomes flatter.

To Employees

1. Recognition: During the process, some employees get credit for their excellent efforts towards the
organization.
2. Self-Awareness: The employees become aware of their capabilities when management assign more
responsibilities to them.
3. Commitment: Retained employees renew their commitment towards work and organization.
4. Creativity: Job rotation within the organization helps to increase the creativity of the individual.
5. Replenished Energy: The retained and new employees refill the organization with new ideas and
energy.

Limitations

1. Employees get insecure about their job.

2. Productive employees may leave voluntarily.
3. Employees may not cooperate during the process.
4. It results in decreased morale of the workforce.
5. Some additional costs like hiring, training, retirement etc., are associated with it.
6. It may hamper the mental and physical health of the employees.
7. New talent may not approach the firm because of the termination.
8. It may degrade the organizations brand image in the industry.

Factors Affecting Rightsizing

Some internal and external factors initiate the need for Rightsizing. These factors are explained in detail
below:

Internal factors include:

1. Business Strategy: The change in business strategy like expansion or contraction results in
rightsizing to maintain its operating efficiency.
2. Trade Unions: Sometimes, unions formed creates unnecessary chaos within the organization.
3. Conflict: The conflict between stakeholder’s hamper productivity and growth. Through rightsizing,
management inspects the reason and take corrective measures.
 4. Declining Profitability: When the firm notices the continuous decline in their productivity, they opt
for Rightsizing.
5. Multiscale: Employees with multiscale are most likely to be retained by the management. It helps in
cutting costs and reducing delicacy.

External factors include:

1. Technology: Organizations need to change their resources to cope with technological

advancements.
2. Economy: Economic factors like interest rate, demand, supply, etc., may lead to rightsized the
organization.
3. Political-Legal: Companies may have rightsized according to the political announcements and
changes in company law, labour law, etc.
4. Cultural: Cultural factors like beliefs, creativity, fashion, etc., also influence organizations. They
may develop strategies based on these factors.