HRM - exam preparation - Essay Example

uman Resources Management http www.geocities.com/wilfratzburg/compensation.html Q: The key to effective remuneration is not how much, but fairness or equity. Discuss (A)A compensation policy has several objectives like (a) the recruitment and retention of suitable staff, (b) the adjustment of pay structures to reflect inflationary changes, (c) the adjustment of salary costs to market rates and organisational changes, (d) the rewarding of performance, responsibility and loyalty, and provision for further progression and increases, (e) the compliance with legal requirements, (f) the keeping of levels of remuneration under review and controlling the salary costs, apart from the very important objective of the development of a structure of reward that is equitable with fair pay relationships between differently valued jobs.

How much of remuneration is to be paid (the absolute level) is important to the extent that it takes care of a person’s minimum needs. Fixing of a minimum wage by an employer or company, or legislating on minimum wages by the Government, therefore focuses on ‘how much’. This ‘how much’ depends on physical variables (what is needed to keep body and soul together) and cultural variables (what is perceived as ‘necessary’) (Here we may refer to the first two levels of Maslow’s Theory of the Hierarchy of Needs — taking care of the physiological and safety needs.

Beyond the level of the minimum wage to be paid, equity and fairness should play an important part in determining wages (the relative levels). Further, equity should be ensured without having to sacrifice the other objectives mentioned. Equity and fairness considerations in pay fixation take care of the social and esteem needs (Maslow) of an employee. Both internal and external equity principles (relative fairness of wages of workers in the same organisation, and outside the organisation) should be kept in mind while fixing pay.

Rewards (compensation) are of two kinds — direct and indirect. The direct reward is the salary; and indirect rewards are the benefits or perquisites (perks) that an employee gets. Benefits include company provided house, car, medical facilities, company paid holidays, company sponsored study courses and training and so on. Equity or fairness between one employee and another can be maintained by adjusting both the direct or indirect benefits. If equity is not maintained, workers would consciously or unconsciously try to restore parity through the following methods:1- Modification of input or output to match pay.

A person who is underpaid would reduce work effort; a person who is overpaid may work more sincerely and for longer hours without further compensation. A worker may attempt to change the input/ output of others, by asking them to work/not work harder.2- Workers may adjust to a different notion of fairness. An underpaid worker may consider himself the recipient of other advantages like doing more interesting work; or an overpaid employee could come to believe that he actually deserves the pay.

Doing more interesting work may also be considered as an intangible perk. Many people are willing to accept less tangible benefits (both direct and indirect) if they get a chance to work at a job that teaches them new skills or is interesting.3- Shift the basis for equity comparisons. A worker who has compared himself with another worker, who is now promoted, may start comparing himself with another. 4- Withdrawal (absenteeism, mental withdrawal — going through the motions, but not really interested in work — or quitting); and pressurising others to withdraw (trade union activity, for instance) 5- 6- Equity ensures not only that the level of work done is considered, but also the quality of work, age of the employee and the length of service.

Clearly, managing a firm’s compensation policy is a complex task, as it involves a balancing of conflicting interests.---------------------------------------------------------------------------------------------------------- Why performance appraisal is not about performance in many organisations. Performance Appraisal is the system set down by an organisation to evaluate the output of workers for a set period of time, generally a year. Rewards like pay increases and promotions are based on the results of performance appraisals.

Decisions to retain or fire workers also depend on annual appraisals of employees.Performance Appraisal Systems may not effectively assess performance, for the following reasons.1- The design of the appraisal system may be faulty to start with. Most companies have standard written formats for assessing performance. If these formats are not designed correctly, they cannot effectively assess performance.2- Several of the variables to be assessed may not be quantitative, but qualitative. Qualitative variables are not easily reduced to numbers, which are capable of comparison.

For instance, output produced can be measured number of bales, kilograms etc. For assessing qualities like intelligence, hard work, creativity or team-working, companies use tested tools (like IQ / EQ — emotional quotient) tests to determine these during recruitment and promotions. For an annual appraisal system it is necessary to isolate variables like teamwork/ leadership and determine how much this has contributed to output; this is a difficult task. Besides, if different departmental heads do this for different lots of employees, and one head has higher standards, while the other is more easy going, the former would rate his workers more strictly, though they may be more productive than the latter’s workers.

To take care of this many large companies have evolved systems to examine patterns of rating of each departmental head, and then rationalise them. The ratings of a person who consistently marks up may be brought down, while those of a person who constantly marks down may be increased.3- Too much of confidentiality or secrecy in appraisals may make bosses rate juniors as they please. Transparency in discussing performance criteria helps in a more honest assessment. The 360 degree System of appraisal (where a person is assessed by all categories of colleagues, by juniors and peers apart from seniors) can take care of biases in appraisal to some extent, although the 360 Degree System is also not perfect.

4- A person who is rated poorly in an organisation, may tend to rate his juniors poorly too. This happens because the senior may try to shift the responsibility for bad performance to his juniors. 5- Personal biases of bosses and companies like gender bias, bias against immigrants or certain groups could affect appraisals. Companies have to make a conscious effort to remove these biases in its operation.6- Unconscious bias (the assessor, however well-intentioned he is, may not be aware that he suffers from such a bias) may affect ratings.

A person may get along better with his junior who loves football because he is a fan too. He may rate that junior higher than another junior who has no interest in sports. There are so many things that could go wrong with a performance appraisal system, that it becomes necessary for an organisation to constantly review its systems to ensure that it remains as unbiased as possible. If an organisation does not do that, eventually market forces will ensure parity — the organisation is likely to lose its productive employees to other organisations.