UNIT – IV

SUSTAINING
EMPLOYEE
INTEREST
Contents:
 Compensation plan –
 Reward –
 Motivation –
 Application of theories of motivation –
 Career management –
 Development of mentor –
 Protégé relationships.
COMPENSATION &
BENEFITS
COMPENSATION: AN
OVERVIEW
 Compensation administration is one of

management’s most difficult and challenging

human resource areas because it contains

many elements and has a far – reaching

impact on an organization’s strategic goals.

Cont.,
 Compensation is the total
of all rewards provided to
employees in return for
their services.
 The overall purposes of
providing compensation are
to attract, retain and
motivate employees.
 Components of a Total
Compensation Program
EXTERNAL ENVIRONMENT
INTERNAL ENVIRONMENT
Compensation
Financial Non – Financial
Direct Indirect (Benefits) The Job Job Environment
Wages Legally required benefits Skill Variety Sound Policies
Salaries Social Security Task identity Competent employees
Commissions Unemployment compensation Task significance
Congenial Co-workers
Bonus Workers Compensation Autonomy Appropriate status symbols
Family & Medical Leave Feedback Working Conditions
VOLUNTARY BENEFITS WORKPLACE
FLEXIBILITY
Payment for Time Not Worked Flextime
Health Care Compressed
Workweek
Life Insurance Job Sharing
Retirement Plans Flexible Compensation
Employee Stock Option Plans Telecommunicating
Supplemental Unemployment Benefits Part – Time Work
Employee Services Modified Retirement
Premium Pay
Unique Benefits
Definitions and Concepts
• WAGE
• According to Indian Labour
Organization (ILO) defined the
term wage as “the remuneration
paid by the employer for the
services of hourly, daily, weekly
and fortnightly employees.” It also
means that remuneration paid to
production and maintenance or
blue collar employees.
Cont.,
 Salary
 The term salary is defined as the
remuneration paid to the clerical and
managerial personnel employed on monthly
or annual basis.
Components of Salary
• Earnings: Earnings are the total amount of
remuneration received by an employee during
a given period. These include
• Salary (Pay),
• Dearness Allowance (DA),
• House Rent Allowance (HRA),
• City Compensatory Allowance (CA),
• Other Allowance,
• Overtime Payments, etc.
Cont.,
• Nominal Wage: It is the wage paid or received in
monetary terms. It is also known as money wage.
• Real Wage: Real wage is the amount of wage arrived
after discounting nominal wage by the living cost. It
represents the purchasing power of money wage.
• Take Home Salary: It is the amount of salary left to the
employee after making authorized deductions like
contribution to the provident fund, life insurance premium,
income tax and other charges.
 Objective of Wage &
Salary
Administration
• To acquire qualified competent personnel;
• To retain the present employees;
• To secure internal & external equality;
• To ensure desired behaviour;
• To keep labour and administrative costs;
• To protect in public as progressive employers;
• To pay according to the content and difficulty;
• To facilitate pay roll;
• To simplify collective bargaining;
• To promote organization.
 Need for Sound
Salary
Administration
• Most of the employees satisfaction and work
performance are based on pay;
• Internal inequalities in pay are more serious to
certain employees;
• Employees compare their pay with that of others;
• Employees act only to gross external inequalities;
• Employees compare the pay of different employees
with their skill, knowledge, performance, etc.
 Equity in Financial
Compensation
• External Equity:
• External equity exists when a
firm’s employees receive pay
comparable to workers who
perform similar jobs in other firms.

• Internal Equity:
• Internal equity exists when
employees receive pay according
to the relative value of their jobs
within the same organization.
Cont.,
 Employee Equity:
 A condition that exists when
individuals performing similar jobs
for the same firm are paid according
to factors unique to the employee,
such as performance level or
seniority.
 Team Equity:
 Equity that is achieved when teams
are rewarded based on their group’s
productivity.
COMPENSATION POLICIES
 A Compensation policy provides general

guidelines for making compensation decisions.

 Employees may perceive their firm’s

compensation policies as being fair and unbiased

and others may have different opinions.

PAY LEADERS
 Pay leaders are organizations that pay higher wages
and salary than competing firms.
 Using this strategy, they feel that they will be able to
attract high – quality, productive employees and thus
achieve lower per – unit labour costs.
 Higher – paying firms usually attract more highly
qualified applicants than lower – paying companies
in the same labour market.
WAGE BOARDS
 This is one of the important institutions set up
by the Government of India for fixation and
revision of wages.
 The wage boards fix and revise various
components of wages like basic pay, dearness
allowance, incentive earnings, overtime pay,
house rent allowance and all other allowances
 PAY COMMISSIONS
 This is another institution which fixes and revises the
wages and allowances to the employees working in
government and government department.
 The First Pay Commission (1946)
 The Second Pay Commission (1957)
 The Third Pay Commission (1970 – 73)
 The Fourth Pay Commission (1983)
 The Fifth Pay Commission (1996)
 The Sixth Pay Commission (2006)
 WAGE
INCENTIVES
 The term wage incentives has been used both in
restricted sense of participation and in the widest
sense of financial motivation.
 According to the National Commission on
Labour defined, “wage incentives are extra
financial motivation. They are designed to
stimulate human effort by rewarding the person
over an above the time rated remuneration, for
improvements in the present or targeted results.”
 Objectives of Wage
Incentive Schemes
i. To improve the profit of a firm through a reduction
in the unit costs of labour and material or both;
ii. To avoid or minimize additional capital investment
for the expansion of production capacity;
iii. To increase a worker’s earnings without dragging
the firm into a higher wage rate structure
regardless of productivity and
iv. To use wage incentives as a useful tool for securing
a better utilization of manpower, better production
scheduling and performance control, and a more
effective personnel policy.
Need for Wage Incentives
in India
 The efficiency of the Indian worker is very low,
and needs to be raised. Wage incentives can
play an important part improving his efficiency.
 The average Indian worker is financially very
poor. Financial incentives therefore are likely to
tempt him to work better.
 A proper application of wage incentive
schemes can so affect the prices that the
community would be benefited.
Profit Sharing
 A compensation plan that results in the distribution
of a predetermined percentage of the firm’s profit to
employees.
 Many firms use this type of plan to integrate the
employees interest with those of the company.
 Profit – sharing plan can aid in recruiting,
motivating, and retaining employees, which usually
enhance productivity.
 Gain Sharing
 Plans designed to bind employees to the firm’s

productivity and provide an incentive payment

based on improved company performance.

 It is one of the most popular company – wide

plans.
 Bonus
• ‘Bonus’ is an extra payment to the workers beyond the normal
wage.
Payment of Bonus Act, 1965:
• Employee drawing up to ` .1,600 are eligible for bonus.
• Employees dismissed for fraud, theft etc., are disqualified for bonus.
• Minimum bonus payable is 8.33% of the salary & max 20%.
• The act was amended in the year 1985, according to this
amendment, the employees whose salary is up to `. 2,500 are
eligible for bonus. If the salary of an employee is beyond `.1,600,
it will be taken as `.1,600 for the purpose of calculation bonus.
 EXECUTIVE
COMPENSATION
 Executive skill largely determines whether a

firm will prosper, survive, or fail.

 A company’s program for compensating

executives is a critical factor in attracting

and retaining the best available talent.

 JOB
EVALUATION
 Job evaluation deals with money and work. It
determines he relative worth or money value of jobs.
 The International Labour Organization defined
job evaluation as “as attempt to determine and
compare demands which the normal performance of
a particular job makes on normal workers without
taking into account the individual abilities or
performance of the workers concerned”.
 Objectives of Job
Evaluation
 To compare the duties, responsibilities and
demands of a job with that of other jobs.
 To determine the hierarchy and place of various
jobs in an organization.
 To determine the ranks or grades of various jobs.
 To minimize wage discrimination based on sex,
age, caste, region, religion etc.
 Procedure of Job
Evaluation
 Analyze and Prepare Job Description: (Job
evaluation is the outcome of job analysis)
 Job analysis provides information necessary for
appraising jobs like skills, knowledge, abilities, and
aptitude.
 Job description provides the information relating to
duties and responsibilities.
 Job specification provides information relating to
employees minimum acceptable qualities.
 Procedure of Job
Evaluation
 Select and Prepare a Job Evaluation Plan: (Job

should be divided into detailed tasks and positions)

 It also includes selection of factors, elements needed

for the performance of the jobs, determining the

money value of each factors and element and writing

instructions for evaluations.

 Procedure of Job
Evaluation
 Classify Jobs:
 Classify the jobs in a sequential order based on
their significance and contribution to the
organization. This includes assigning money values
to each class.
 Install the Programme:
 Educate the employees, win their confidence and
then put the programme into operation.
 Procedure of Job
Evaluation
 Maintain the Programme:

 This step involves updating the job evaluation

programme, bring modification based on the

changes in the conditions and situations. Make

sure from time to time that the programme runs

smoothly and perfectly.

 Job Evaluation
Methods/Techniques
• These techniques are grouped into two classes
viz., quantitative and non-quantitative.

Types of Job Evaluation Methods

Quantitative Non-Quantitative

Point Rating Factors Ranking Job Classification

Method Comparison Method
and
Method Grading Method
SOCIAL SECURITY & WELFARE
(EMPLOYEE BENEFITS)
 According to Lord Beveridge define social security, “is
an attack on give giants viz., want, disease, ignorance,
squalor and idleness.”
 Social Security Legislations in India:
 Workmen’s Compensation Act, 1923
 The Employees’ State Insurance Act, 1948
 The Employees’ Provident Fund and Miscellaneous
Provision Act, 1952
 The Maternity Benefit Act, 1961
 The Payment of Gratuity Act, 1952
 FRINGE
BENEFITS Type of Fringe Benefits

Payment for Time Employee Safety and Welfare Recreational Old Age and
Not worked Security Health Facilities
Retirement

Benefits
Hours of Paid Shift Holiday Paid
Work Holiday Premium Pay Vacation

Retrenchment Lay-off
Compensation Compensation

Safety Workmen’s Health

Measures Compensation Benefits

Canteens Credit Housing Educational Transportation Parties and

Societies Picnic

Provident Deposit Gratuity Medical Benefit

Pension
Fund Linked Insurance
MOTIVATION

Performance = f(ability X motivation)

Concept & Definitions
 Motivation is derived from the word ‘Motive’.
 “A motive is an inner state that energizes, activates
or moves and directs or channels behaviour towards
goals.”
 According to the Encyclopedia of Management,
“motivation refers to the degree of readiness of an
organization to pursue some designated goal and
implies the determination of the nature and locus of
the forces, including the degree of readiness”.
 Objective of Motivation
 To exploit the unused potential in
people, they are to be motivated.
 Needless to say that such exploitation
results in greater efficiency, higher
production and better standard of living
of the people.
Types of Motivation
 Positive approach

or pull-mechanism or

carat

 Negative approach

or push-mechanism or

stick
 Positive

Approach
People are said to be motivated positively when
they are shown a reward and the way to achieve
it. Such a reward may be financial or non-financial.

↣ Monetary motivation may include

different incentives, wage plans,
productive bonus schemes etc.

↢ Non-monetary motivation
may include praise for the work,
participation in management,
social recognition etc.
 Negative
Approach
 By installing fear in the minds of
people, one can get the desired
work done.
 In this method of motivation, fear of
consequences of doing something or not
doing something keeps the worker in
the desired direction.
THEORIES OF
MOTIVATION

HOW TO
MOTIVATE THE
EMPLOYEES?
WHAT ARE THE
WAYS TO
MOTIVATE
THEM?
THEORIES OF MOTIVATION
 Maslow’s Hierarchy of
Needs.
 Herzberg’s Two – factor
Theory.
 Vroom’s Expectancy
Theory.
 Alderfer’s ERG Theory.
 Porter and Lawler’s
Expectancy Theory.
 Equity Theory of Work
Motivation.
 Maslow’s Theory of
Hierarchy of Needs

Social /
Acceptance
 Herzberg’s Two – Factor
Theory
 Maslow’s theory has been modified by
Herzberg and he called it two – factor
theory of motivation.
 According to Herzberg’s,
 Dissatisfiers or Maintenance Factors
 Satisfiers or Motivational Factors
 Herzberg’s Classification of
Maintenance & Motivational Factors
Maintenance Factors or Motivational Factors or
Dissatisfiers Satisfiers
Job Context Job Context
Extrinsic Factor Intrinsic Factors
Company Policy & Achievement
Administration
Quality of Supervision Recognition
Relations with Supervisors Advancement
Peer Relations Work Itself
Relations with Subordinates Possibility of Growth
Pay Responsibility
Job Security
Work Conditions
Status
Vroom’s Expectancy
Theory of Motivation
• Victor Vroom felt that content models
were inadequate explanations of the
complex process of work motivation and
he developed the relatively new theory
of motivation.
• According to this theory, motivation
of any individual depends on the desired
goal and the strength of his expectation
Vroom’s Expectancy
Theory of Motivation
 Vroom’s model is built mainly on three concepts
–
 Valance (The Strength of an Individual’s
preference for a particular outcome)
 Instrumentality (First level outcome in obtaining
the desired second level outcome)
 Expectancy (It is a probability or strength of a
belief that a particular action or effort will leave to
a particular first level outcome)
 Motivation = Valance + Instrumentality +
 Alderfer’s ERG
Theory
 Alderfer also feels that needs should be
categorized and that there is basic distinction
between lower order needs and higher order
needs.
 Alderfer identifies three groups of needs, viz.,
 Existence (Survival or Physiological well-being)
 Relatedness (importance of interpersonal & social
relationships)
 Growth (Individual’s intrinsic desire for personal
development)
 The Porter and Lawler
Model Expectancy
Theory
 All the content theories assume that
satisfaction leads to improved
performance.
 However, it was later found that there is
a very low positive relationship between
satisfaction and performance.
 Lyman W. Porter and Edward E.
Lawler exploded the complex
 The Porter and Lawler
Model Expectancy
Theory
 According to them, performance is a

function of three important factors, viz:

i. If an employee want to perform, he must

be motivated.

ii. Motivation alone does not ensure

performance and hence a person must

have the necessary abilities and skills as

 Equity Theory of
Work Motivation
•
 JOB
SATISFACTION
 Job satisfaction refers to a person’s
feeling of satisfaction on the job, which
acts as a motivation to work.
 It is not self – satisfaction, happiness or
self – contentment but satisfaction on
the job.
 Definition
 Job satisfaction is defined as the

“pleasurable emotional state resulting

from the appraisal of one’s job as

achieving or facilitating the

achievement of one’s job values.”

 Factors of Job
Satisfaction
 Job satisfaction refers to a general
attitude which an employee retain
on account of many specific
attitudes in the following areas:
1) Job Satisfaction
2) Individual Characteristics, and
3) Relationships outside the job
 CAREER
MANAGEMENT
 Career:

 A general course that a person chooses to

pursue throughout his or her working life.

Now a days, the career may change

several times due to technological

changes or the individual’s desire to do

 Definition
 Career is progress or general course of
action of a person in some profession or
in an organization. Elaborating further,
career includes the specific jobs that a
person performs, the kinds of
responsibilities and activities that
comprise those jobs, movements and
transitions between jobs, and
 Meaning for Career
Management
 Career management is the process of
enabling employees to better
understand and develop their skills and
interests and use them for the benefit of
the organization and self.
 Specifically, career management
activities include offering career
development initiatives, providing
 Components of
Career Management
• Career management was classified by

two essential components, viz:

i. Career Planning, and

ii. Career Development.

Career Management = Career Planning + Career

Development
 Career
Planning
A career pertains to all the jobs that are
held during one’s working life.
 According to Edwin B. Flippo
defined a career as, “a sequences of
separate but related work activities that
provides continuity, order and meaning
in a person’s life.”
 Need for Career
Planning
 To attract competent persons and to
retain them in the organization.
 To provide suitable promotional
opportunities.
 To increase the utilization of managerial
reserves within an organization.
 To correct employee placement.
 Process of Career
Planning and
Development
 Analysis of individual skills, knowledge,
abilities, aptitudes etc.
 Analysis of career opportunities both
within and outside the organization.
 Relating specific jobs to different career
opportunities.
 Establishing realistic goals both short-
term and long-term.
 Career
Development
 Career development can be defined as

an “ongoing process by which individual

progress through a series of stages,

each of which is characterized by a

relatively unique set of issues, themes

or tasks.”
 Steps involved in
Establishing a Career
Development System
 There are four steps in establishing a
career development system. They are;
 Needs: This step involves in the
conducting of a needs assessment as a
training programme.
 Vision: The needs of the career system
must be linked with the interventions.
 Action Plan: An action plan should be
formulated in order to achieve the vision.
 Results: Career Development
programme should be integrated with the
organization’s on-going employee training
 Career Development
Actions
i. Job Performance
ii. Exposure
iii. Resignations
iv. Change the Job
v. Career Guidance
 Advantages of Career
Planning and
Development
 For Individuals:
i. The process of career planning helps the
individual to have the knowledge of
various career opportunities, his
priorities etc.
ii. It helps the organization identify internal
employees who can be promoted.
iii. It improves employee’s performance on
 Advantages of Career
Planning and
Development
 For Organisations:
 A long – term focus of career planning and
development will increase the effectiveness of
human resource management.
 More specially, the advantages of career planning
and development for an organization include:
i. Efficient career planning and development ensures the
availability of human resource will requires skill,
knowledge and talent.
ii. By attracting and retaining the people from different
cultures, enhances culture diversity.
 Career Stages
John Van Maanen and Edgar H. Schein
have identified five career stages that
every individual comes across during
his/her career. The are:
1. Exploration stage,
2. Establishment stage,
3. Mid – Career (or advancement)
stage,
 CAREER
DEVELOPMENT CYCLE
High
Exploration Establi Mid-career Late-career Decline
Pe
rfo shment
rm
an
ce

Getting Will
first job Performance Preparing
Transition from school & being increase or The elder for
Low to work accepted begin to decline states person retirement

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75

Age
 Exploration Stage
(Adolescence that is, from about 15
to 25 years)
This pre – work career
exploration stage involves people’s
examining their needs and personal goals
and evaluating the alternatives and
educational choices available.
 Establishment
(Early adulthood, that is from about
25 to 35 years)
This stage involves the individual’s
entry into the organization, socialization
on the job, recognition for effective work,
possible promotions and transfer, and
achievement of full acceptance by the
work group.
 Mid – Career (or)
Advancement
(Later adulthood, that is from 35 to
45 years)
The advancement stage is
characterized by upward movement in the
organization.
In this stage, the individual is not so
concerned with fitting into the
organization as with moving up in the
 Late – Career (or)
Maintenance
(Middle age, from about 45 to 65
years)
The maintenance stage begins
when people detect cues that they are
nearing the limit of their advancement;
their careers are beginning to level off,
and/or their need to compete is declining.
In this stage, people seek other
means of personal gratification, such as
 Decline (or)
Disengagement
(Old age, from about 65 years
onwards)
The decline or late stage is the
final stage in one’s career, usually marked
by retirement.
This disengagement stage may
occur at various ages, depending on the
person’s degree of success in previous
 MENTOR –
PROTÉGÉ
RELATIONSHIPS
 Mentoring is most often defined as a
professional relationship in which an
experienced person
(The Mentor) assists another (The
Mentoree / Protégé) in developing
specific skills and knowledge that will
enhance the less-experienced person’s
professional and personal growth.
 What does a mentor
do?
The following are among the mentor’s
functions:
 Teaches the mentoree about a specific
issue
 Coaches the mentoree on a particular skill
 Facilitates the mentoree’s growth by
sharing resources and networks
 Challenges the mentoree to move beyond
 Benefits of
Mentoring
Mentee / Protégé
Programs
Mentor Organization

Development of
Career advancement Personal fulfillment
manager

Increased commitment
Persona support Assistance on project
to the organization

Learning and
Financial Rewards Cost Effectiveness
development

Improved

Increased Confidence Increased Confidence Organizational

Communication
 Drawbacks of
Mentoring
Organization
Programs
Mentee / Protégé Mentor
Lack of Organization
Neglect of core job Lack of time
Support
Creation of a climate Lack of perceived
Negative experiences
of dependency benefits
Lack of skills needed
Difficulties in Unrealistic experiences
for the mentoring role
coordinating
programs with Over dependence on
Pressure to take on
organizational the mentoring
mentoring role
initiatives relationship

Costs and resources

associated with
overseeing Role conflict between Resentment of
and administering boss and mentor mentees
programs