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HRM notes (Gary Dessler)
HRm (University of Dhaka)
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CHAPTER 6 (EMPLOYEE SELECTION)
1. Why is employee selection important?
- To achieve person-job fit: that is matching the KSAOs that are required for performing the job
with the applicants KSAOs.
- To achieve person-organization fit: ensuring that the individual’s values and culture matches
with that of the organization.
- Employees with the right skills will perform better and more effectively than those without.
- It is costly to recruit and hire employees thus it is better to select the employee who is correctly
fitted for the organization to avoid these costs.
- Negligent and inept hiring has legal consequences: i.e. selecting employees with criminal
records, low moral compass etc.
2. Describe the two important characteristics of selection.
Selection test must have two important characteristics:
• Reliability:
Reliability is the extent to which a test yields consistent results every time that it is administered.
Reliability is important because it provides evidence that the tests are comparable. It is measured
using a reliability coefficient which shows correlation between two measures. If there is a high
degree of correlation, the test is said to be reliable. There are four types:
(i) Test-retest reliability: In this method, a test is administered to a group on a day and the results
collected. Several days later the test is re-administered on the same group of people and the results
obtained. The test and retest scores are then compared to find out the degree of correlation and
whether the test is reliable. Usually tests are unreliable because of external conditions. This test
is more applicable for skill-based activities.
(ii) Intra-test reliability: The test-takers answers to certain questions on the test are compared
with his or her answers to a separate set of questions on the same test aimed at measuring the same
thing. An example is a personality test where 5 questions are centered around introversion and 5
for extroversion. If there is a correlation among the answers for each category, the test is reliable.
(iii) Inter rater reliability: This is usually done for interviews where the raters rate the individual
based on their answers to find the correlation. In order to reduce subjective bias and variability, it
is advised to use a standard set of questions and to categorize the questions into characteristics
such as subject-knowledge, communication skill etc.
(iv) Alternative- form reliability: A test is administered and then an equivalent test is
administered later. An example is the SAT where similar set of questions are designed year to year,
thus acting as different version of the same test.
Tests are unreliable when there are factors such as physical conditions, differences in the test
taker, differences in test administration and poor sampling of material in the test.
• Validity:
Validity determines whether the test measures what it is actually supposed to measure. There are
three types of validity:
(i) Criterion validity: This shows whether the score on the test (predictors) are related to job
performance (criterion). An example is the IBA admission test (predictor) and the cgpa (criterion).
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If there is a high correlation among the predictor and the criterion, the test has high criterion
validity.
(ii) Content validity: a demonstration that the content of a selection procedure is representative
of the important aspects of performance on the job. At first, the job tasks that are critical to
performance are identified and a sample of those tasks are provided in the test. It shows if the test
represents the content of the job itself.
(iii) Construct validity: this demonstrates whether a selection procedure measures a construct
(i.e. morale, honesty) and whether that is important for successful job performance. Examples
include a psychological test where an ethical dilemma may be provided.
A test should have all 3 types of validity but it necessarily does not need all types of reliability.
3. How is a test validated?
The validation of a test has five processes:
1) Analyze the job:
- Write job descriptions and job specifications
- List out the KSAOs in order to identify the predictors
- Define the success of the job using the criterion standards (performance, absenteeism, quality
etc.)
2) Choose the tests:
- Select the tests that are most appropriate (i.e. interviews, work samples etc.)
- Usually employers select several tests and combined them into a test battery to measure an array
of possible predictors
- Test should be consistent with equal employment laws
3) Administer the test:
The tests can be administered in two ways:
- Concurrent validation: Tests are administered to employees currently on the job. Then
the test scores are compared with their current performance.
Pros: the data on performance is readily available
Cons: current employees may not be representative of the new applicants since they already
have OJT and are screened by the selection techniques.
- Predictive validation: Tests are administered to applicants before they are hired. The
applicants are then hired using only existing selection techniques, not the results of the new
tests. After they have been on the job for a while, their performance is measured and
compared to the earlier test scores.
Pros: potential candidates are the more representative pool
Cons: lead time can be a problem
4) Relate your test scores to the criteria:
The relationship between test score (predictor) and the performance (criterion) is identified by
determining the statistical relationship between:
- Scores on the test
- Job performance
Correlation analysis is used to do so. If there is a correlation between the two factors, an expectancy
chart can be developed which presents the relationship between the two variables graphically.
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5) Cross validate and re-validate:
Before using the test, it should be re-validated, that is re-examined periodically (every 2/3
years) since requirements change from time to time. Cross validation is using different samples
to re-examine the tests.
Usually there are not enough resources to ensure the validity of tests. In this case, validity
generalization can be used. This refers to the degree to which evidence of a measure’s validity
obtained in one situation can be generalized to another situation without further study. Using
standardized tests can cut down costs and time.
4. What are the types of tests used for selection method?
Tests are usually conducted at the initial stage to filter out candidates. Later work samples are used
as the list is lowered down. Tests determine the overall knowledge, physical and motor skills of
candidates. There are four kinds of tests:
(i) Cognitive ability: measures of specific abilities such as deductive reasoning, verbal
comprehension, memory and numerical ability. There are aptitude tests.
(ii) Motor and physical abilities: measure of motor abilities such as finger dexterity, manual
dexterity and reaction time.
(iii) Personality and interests: measure basic aspects of an applicant’s personality, such as
introversion, stability and motivation. The Big Five Model is preferred by many organizations.
There are two types, projective tests and self-reported tests.
(iv) Current achievement: measure what someone has learned i.e. job knowledge.
5. What are the types of work samples used for selection method?
Work samples are actual job tasks used in testing applicant’s performance.
(i) Work sampling technique: in this method, the candidates are required to perform one or more
samples of the job tasks. First, a sample of several tasks that are crucial to performing the job is
selected and the applicants are tested. The observer monitors the performance on each task and
indicated on a checklist how well the applicant performs.
Pros: - it measures actual job tasks, so it’s harder to fake answers
- The content is not as likely to be unfair to minorities
- It doesn’t consider the applicant’s personality so there is no risk of applicants viewing it as
invasion of privacy
- Exhibits better validity than all the other tests designed to predict performance
Cons: - Costly
- Requires time to develop and manage
- Needs more physical space
(ii) Situational judgement tests: personnel tests designed to assess an applicant’s judgement
regarding a situation encountered in the workplace. Example includes providing them with a real
life business scenario or a case study.
(iii) Miniature job evaluation and training: involves training candidates to perform several of
the job’s tasks and then evaluating their performance prior to hire. It addresses the fact that
sometimes immediately presenting someone with a job cannot be fair. This approach assumes that
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a person who demonstrated that he or she can learn and perform the sample of tasks will be able
to learn and perform the job itself. It helps candidates to learn the skills they’ll need to do the job
and the raters to rate them whilst they observe the candidates training.
Pros: - High content relevance and validity
Cons: -Training may be costly
(iv) Management assessment center: a 2-3 days’ simulation in which 10 to 12 candidates perform
realistic management tasks under the observation of experts who appraise each candidate’s
leadership potential. Candidates perform exercises, simulations and classroom learning. The
simulated tasks include: in-basket, leaderless group discussion, management games, individual
oral presentations, testing and interviews.
Cons: - very expensive to design battery of tests so it is typically used for managerial positions
aspired to be used in succession plan.
6. Compare the selection testing methods.
Assessment method
Validity
Adverse impact
Costs(
Develop/Administer)
Cognitive ability test
High
High
Low/low
Job knowledge test
High
High
Low/low
Personality tests
Low-moderate
Low
Low/low
Integrity tests
Moderate-high
Low
Low/low
Structured interviews
High
Low
High/high
Situational judgement tests
Moderate
Moderate
High/low
Work samples
High
Low
High/high
Assessment centers
Moderate-high
Low-moderate
High/high
Physical ability test
Moderate-high
High
High/high
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CHAPTER 8 (TRAINING AND DEVELOPMENT)
1. What is employee orientation? Explain the purpose of employee orientation.
Employee orientation can be defined as a procedure for providing new employees the basic
background information about the firm and helping them become emotionally attached to and
engaged in the firm. The purpose of orientation is as follows:
- To make employees feel welcome and at home
- Ensuring that employees have the basic information to function effectively
- To help employees understand the organization in a broad sense (past, present, culture,
strategies and vision)
- To socialize the employee into the firm’s culture and way of doing things
2. What is training? Why is training needed for both current and new employees?
Training means giving new and current employees the basic skills they need to perform their jobs.
Training is useful because it fosters engagement and lets employees know what to do. Inadequate
training can lead to poor performance and dissatisfaction at work. It is required to train new
employees to ensure that they learn the skills and competencies needed for their job. On the other
hand, existing employees might need training for two reasons- in order to improve performance as a result of skill/competencies gap
- in a situation where the organization has plans for the future where employees are
required to learn new skills
3. List the training processes.
The training process is:
- Analyze the training need
- Design the overall training program
- Develop the course
- Implement the training
- Evaluate the course’s effectiveness
4. Differentiate between strategic needs analysis and current needs analysis.
Strategic needs analysis is a long-term, continuous training need analysis that tries to determine
what skills/competencies the employees will need to fill in future jobs and adjust to the changes
made in the organization.
Current needs analysis aims to improve current performance of both new and current
employees. Analyzing current needs analysis is more complex since it is unclear whether the
cause of performance deficiency is lack of training, as there can be many other factors associated
with it as well.
For new employees training needs, a task analysis is performed, which is the detailed study of
the job to determine what specific skills the job requires. Use of job descriptions and job
specifications are essential for this.
For current employees training needs, a performance analysis is made. Performance analysis is
the process of verifying that there is a performance deficiency and determining whether the
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employer should correct such deficiencies through training or some other means. It involves
comparing the employee’s actual performance with what it should be. Some of the tools to identify
these are performance appraisals, job-related performance data, observations made by supervisors,
interviews with employee/ supervisor, test of job knowledge/skills/attendance, attitude surveys,
individual employee daily diaries, assessment center results, special performance gap analysis
software.
5. Explain the Design process of training.
Design means planning the overall training program including training objectives, delivery
methods and program evaluation. The steps are as follows:
1) Setting learning objectives:
The goals should specify in measurable terms what the trainees will be able to do after successfully
completing the training program. The learning objectives should address the performance
deficiencies that have been identified via the need analysis. The objectives must be practical, taking
into account the time constraint and cost-benefit analysis.
2) Deciding on the delivery method
3) Creating motivational learning environment:
Learning requires both ability and motivation. The use of motivational theories such as expectancy
theory and self-efficacy theory is important. The steps are:
Make leaning meaningful:
- Provide bird’s eye view of the material to be taught at the beginning
- Use familiar examples
- Organize information in logical, meaningful units
- Use familiar terms and concepts
- Use visual aids
- Create a perceived training need in the trainees’ minds
Make skills transfer easy:
- Maximize similarity between training and work situation
- Provide adequate practice
- Direct trainees’ attention to important aspects of job
- Provide heads up information
- Let trainees learn in their own pace
Reinforce the learning:
- Provide immediate feedback
- Partial day training is better than full-day training
- Provide follow up assignments after training
- Incentivize
4) Decide on evaluation methods
6. What can be done to ensure transfer of learning to the job?
Before training, supervisors and trainees should input in the designing program, institute a training
attendance policy and encourage employees to participate.
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During training, trainees should be provided with training experience and conditions similar to that
of the work environment. It should be ensured that they set the goals at the start of the program.
After training, employees should be appraised and rewarded and it should be ensured that they
have the tools and materials they need to use their new skills.
7. What does the developing step in the training process mean?
Developing means assembling the program’s training content and materials, choosing the specific
content and designing/choosing the specific instructional methods.
8. Write a short note on OJT.
On-the-job-training means having a person learn a job by actually doing it. The steps of OJT are:
Prepare the learner: explain why the learner is being taught, clarify the objectives and familiarize
them with the equipment and tools
Demonstrate what the job is like(modelling)
Providing continuous feedback: the feedback diminishes over time
Reinforcing the learner
There are three OJT methods:
Understudy/coaching method: supervisor trains the employee by showing them what to do step
by step
Job rotation: employee moves from job to job at planned intervals
Special assignments: on certain days, employees are taken to special assignments so that they can
learn new skills
9. Compare the different training methods.
Method
Cost
Size
On the job
training
low
low
low
high
Lecture
low
high
high
low
moderate moderate
high
to high
low
high
Low/moderate
Simulations
high
moderate
moderate
high
moderate moderate
Moderatehigh
Behavior
modelling
high
moderate
moderate
high
moderate moderate
Moderatehigh
high
high
moderate
high
high
Moderate
high
high
low
moderate
high
Lowmoderate
Programmed Low/moderate
learning
Computer
based
training
low
Consistency Feedback
Selflearning
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Speed
Motivation
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10. What is evaluation? Explain the purpose of evaluation.
Evaluation is done to ensure whether the training was effective. The purpose of evaluation is:
- To see whether there is a high enough return on payment to justify the cost of training
- To see whether it is a good idea to use the same training module over and over again
- It is useful for comparing the cost of training to other non-training interventions
- To identify the program’s strength and weaknesses
- To identify which trainees benefitted most/ least from the program
11. Describe and compare the training outcomes.
Outcome
How measured
Examples
Acquisition of
knowledge
mental skills
Pencil and paper test online
short quiz
work samples situational
judgement( given resources
available)
Product knowledge,
ethics policy related
issues, knowledge on
behavioral biases
Skill
based
outcomes
Behavior skills,
operating machines
communication and
leadership skills
Observation
Work samples
Rating
Listening skills,
coaching skills
Affective
outcomes
Motivation
Reaction to program
Attitude
Interviews
Focus group discussions
Attitude surveys
Satisfaction with
training,
Results
Company payoff
Organizational
effectiveness
Company metric
Cost and benefits of program Absenteeism
Company data
Before-after comparisons
Cognitive
outcomes
What is measured
12. Describe the training evaluation designs.
The training evaluation techniques include: (Accuracy, time and cost in descending order)
1) Post-test only: In this method only training outcomes are collected. The design can be
strengthened by adding a comparison group. It is used when trainees are expected to have similar
levels of knowledge, behavior and results outcomes prior to training.
2) Pretest post-test: A group of employees are compared before and after they receive training. It
is useful for small groups.
3) Pretest post-test with comparison group: A group of employees who receive training are
compared with a group who do not.
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4) Time series: Training outcomes are collected at periodic intervals before and after training. It
allows analysis of stability of training outcomes over time.
13. What is the difference between training and development?
- Training focuses on current need whereas development is for long-term
- The scope of training is well defined whereas that for development is broad
- Both training and development is typically sponsored by company but development is more about
self-reflection
-Development is more customized and training is standardized.
Training
Development
Focuses on current need
Based on long-term needs
It has well defined, narrow scope
Broad
Typically sponsored by company
More about self-reflection
Standardized
Customized
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CHAPTER 9 (PERFORMANCE APPRAISAL)
1. Explain performance appraisal and its process. What is the purpose of performance appraisal?
Evaluating an employees’ current and/or past performance relative to his/her performance
standards is known as performance appraisal. It involves three steps:
- Setting work/performance standards
- Evaluate: assessing the employee’s actual performance relative to those standards
- Providing feedback with the aim to eliminate performance deficiencies or improve
performance
The purpose of performance appraisals is:
- Communication: giving feedback to employees about the extent to which they are
performing up to their expectations, and reconciling the gap between standards and
expectations
- Decision making: decisions are made regarding promotions, dismissals etc. which are fair,
objective and equitable
- Motivation: is essential in order to ensure that employees link performance to outcome
and their goals are aligned with that of organizations goals
- Development: is an indication of strengths and weakness. It helps address deficiency and
helps employees to perform better.
- Compliance: There is an issue of legality. Dismissing employees need logical reasoning.
Performance appraisal thus acts as an evidence or justification.
- Central to performance management
2. What is performance management?
The continuous process of identifying, measuring and developing performance of individuals
and teams and aligning these with organizational goals. Performance appraisal is one component
of performance management. Without it we cannot have performance management.
3. What should be measured for performance appraisals? Describe the pros and cons.
1) Results/ Goals: It evaluates whether employees attain quantitatively set goals.
Pros: - Since it is objective, it’s fair
- It is valid, it measures what it actually wants to measure
- It is relevant to the job and the organizational goals
Cons: -Deviations might be difficult to control
- They might become risk averse (innovation and creativity is restricted)
- They might pursue unfair means (quality is compromised in obsession with quantity)
2) Job dimensions: describes the nature or requirements of a job
Pros: - It can be clearly linked to organizations goals
- External factors and lackings can be distinguished
Cons: - More subjective (Attach descriptions to the dimensions to increase objectivity)
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-
Difficult to implement in organizations which include job rotation, cross team functions
etc.
3) Competencies: combination of knowledge, skills abilities and personal attributes that
contribute to enhanced employee performance and ultimately result in organization success
Pros: - Are observable
- Are inclusive
- Very suitable for assessing broad range of skills
- Can pinpoint the lacking in competency
Cons: - Lack of objectivity
- Since it is based on observation, there is room for bias
4. Who should carry out performance appraisals?
Usually, appraisals are made by the immediate supervisor since he or she is in the best position to
observe and evaluate the subordinate’s performance. Supervisors must be familiar with the basic
appraisal techniques and must understand and avoid problems that can cripple appraisals. However
only relying on the supervisors is not wise since it can create room for bias for or against the
employees.
1) Peer appraisals: This technique uses appraisals done by peers. An employee due for peer
appraisal chooses an appraisal chairperson who then selects a supervisor and several peers to
evaluate the employees work. Peer appraisals are performance mostly in self-managed work teams.
Pros: - Peers opinions can be useful developmentally
- Help improve social loafing
- Help improve group viability, cohesion and satisfaction
- Encourages open communication and task motivation
2) Rating committees: It usually consists of the employee’s immediate supervisor and three or
four other supervisors.
Pros: - Cancels out bias
- Different people observe differently, so provides a better view
Cons: - Ratings can be very different and can rarely match: so use supervisor, boss and manager’s
ratings
3) Self- ratings: Individual rates themselves and it is usually used along with supervisor’s ratings
This should be avoided for evaluation but used for development.
Cons: - Employees tend to rate themselves higher than do their supervisors or peers
So average of employee, peers, supervisors and subordinate ratings should be used.
4) Appraisal by subordinates: Subordinates rate their managers.
Pros: - Good for development purposes
- Feedback increases performance
Cons: - Subordinates who identify themselves tend to give inflated ratings
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5) 360-degree feedback: Employer collects performance information all around an employeesupervisors, subordinates, peers, internal and external customers, generally used for development
than pay.
Pros: - Can pinpoint weaknesses and deficiency
- Bias goes down
- It provides a holistic view
Cons: - More expensive
- Takes time
5. Describe the rating based appraisal techniques.
(i) Graphic Rating scales:
A scale that lists a number of traits and a range of performance for each that is used to identify the
score that best describes an employee’s level if performance for each trait.
It has a number of performance dimensions. These dimensions need to be scored and descriptions
are associated with the scale.
Pros: - Easier to use
- Quantitative in nature so can be used for compensation
- Time commitment is far less
Cons: - Tendency of recency effect which can make the rating more skewed
- Not as useful for development purposes as critical incident method
(ii) Critical Incident method:
Appraisals are typically done once a year. Since they are done from memory, it can cause recency
bias. Hence to cut down this bias, critical incident method is used.
At first the H-R develops the form and computes the score. Supervisors keep a diary/ log of all the
critical incidents (very positive/ very negative), or exceptional events of performance to find
deviations in performance standard.
Pros: - Helps to overcome the recency effect since no need to rely on memory
- Helps to explain performance deficiency
- Helpful for development purposes
- It is a transparent method
Cons: - It does not prove numerical results so it cannot be used for compensation
- Difficult to use
- Supervisor needs to give more effort to record the incidents
(iii) Behaviorally anchored rating scale:
A method that uses quantified scale with specific narrative examples of good and poor
performance. The scale consists of certain scores attached with descriptions of critical incidents.
The most negative critical incident is anchored at the bottom and most positive at the top of the
scale.
Pros: - Clearer standards
- Clearer dimensions
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- Provides feedback
- Maintains consistency
- Benefit of both rating and critical incidents
Cons: - Cost of development is high
- Not every job can use such a complex scale
6. Describe the Ranking based appraisal techniques.
(i) Alternation Ranking Method:
This involves ranking employees from best to worst on a particular trait, choosing highest then
lowest until all are ranked.
Ranking is done on the basis of individual parameters (i.e. traits such as teamwork, achievement
orientation, job dimension, goals etc.)
Pros: - Risk of central tendency is reduced
Cons: - Can have demotivation impact due to nominal differences
- Recency effect can be a problem
- Difference between ranks is quite ambiguous- gap between rank 1 and 2 is not the same
between 2 and 3
- Not essentially good for development purposes
(ii) Forced distribution method:
A method where predetermined percentages of rates are placed in various performance categories.
This involves categorizing and creating clusters- i.e. 10% best performers, 20% worst performers
and 70% average performers.
Pros: - No scope of central tendency
- Best, average and worst performers can be distinguished
- It has a motivational impact for top performers
- Can be used for large number of people
Cons: - Demotivation effect for hard workers at the bottom since they are forced in that rank
- If employees leave, need to move employees to different groups although they might not
have much change in their performance
- Typically, middle group tends to be very large but how will we distinguish their level of
performance?
(iii) Paired comparison method:
A method where one employee is compared to every employee trait by trait. For each dimension
to be evaluated, employee is rated as +/-. Highest numbers of pluses mean that that employee is
the best in that particular trait.
Pros: - it is more objective
- It provides more clarity
Cons: - it cannot be used with a very large group of people
7. What is management by objectives?
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In management by objectives, the managers set SMART goals with each employee and then
periodically reviews his or her performance and provides feedback.
The advantages are:
- Participatory goals
- Lower perception of unfairness
- Outcome focused
- SMART goals
Cons: - Not possible to define SMART goals for all positions
- Lack of process focused appraisal
8. What is the difference between using rating and ranking as appraisal methods?
Rating Based Appraisal
Ranking based appraisal
Does not have to be mutually exclusive
Has to be mutually exclusive
Evaluation can be done solely based on the
individual themselves
Evaluation is always in relation to another
individual
Cannot avoid central tendency
Central tendency is avoided
Can be used for compensation and
development purposes
Not good for development purposes
9. Discuss the potential problems that can arise in appraisals.
(i) Unclear standards:
It is essential to clarify exactly what is being evaluated and define the scores or ratings. If there is
lack of clarity, the perceptions of dimensions can differ from person to person, thus making
evaluation subjective.
(ii) Central tendency:
This is the tendency of rating everyone an average score. To overcome this, ranking based methods
should be used. The appraiser should be educated and provided the basic guidelines such as
following a difference of +/- 25% when rating individuals.
(iii) Leniency/ strictness:
This tends to occur when appraisers score the appraises too high or too low. A ranking based
method should be used to avoid this. Appraiser awareness should be built and clear performance
standards should be used.
(iv) Recency effects:
This is the tendency of appraiser to put more weightage on recent events because it is much easier
to recall them. A log/ diary of events can be used. Critical incident method is encouraged along
with other appraising methods.
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(v) Halo effect:
This happens when one characteristic of an individual clouds the judgement of the supervisor as a
whole. To avoid this, questions of one kind of skill should be clustered and rating scales could be
non-uniform i.e. flipped scales.
10. Compare and contrast the different appraisal techniques.
11. How can appraisals be made effective?
(i) Be fair and transparent:
Fairness: -Supervisor should be trained to do the appraisal fairly
- Multiple appraisers can be involved to do the appraisal
- Appraisers supervisor should be included in appraising to provide a bird’s eye view of the
performance
Transparency: -Ensure employees know about performance standards with full clarity
- The procedures used should be transparent and there should be no communication gap
- There should be a mechanism to provide feedback on the appraisals
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(ii) Be aware of bias:
Biases can hamper appraisals. To avoid central tendency, ranking should be used, to avoid recency
effect, critical incidents should be used. To avoid the halo effect, the appraisal should be
compartmentalized.
(iii) Balancing development and evaluation:
Provide feedback to employees to use the appraisal as development and help them to better.
(iv) Treat appraisal as the basis for two-way communication:
Focus on both the before and after and come up with a progressive future plan.
(v) Accounting for psychological effects:
Ensure that the appraisals are not putting any negative psychological impacts on the employees.
(vi) Accounting for context:
-Look at a history of performance rather than one performance
-Look at consensus and compare people with similar appraisals
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CHAPTER 11 (COMPENSATION)
1. What is compensation? What are the types of compensation?
All forms of financial payments that employees receive as rewards arising from being engaged
with the organization is known as compensation. Compensation can be in the form of:
- Direct financial payments: wages, salaries, incentives, commissions and bonuses
- Indirect financial payments: employer paid insurance, vacations, sponsorship of medical
payment, child’s education
Compensation can be time-bound, where money is provided at timely intervals irrespective of the
performance (i.e. monthly salaries) and performance related, that is money provided after
attainment of goals. (i.e. bonuses and commissions).
2. What factors should be considered when designing compensation?
(i) Alignment with strategy:
The compensation structure has to evolve with the strategy. It also needs to be aligned with H-R
practices.
(ii) Legality:
This sets the minimum amount that is required to pay the employees.
(iii) Policy issues:
Different organizations follow different policies when it comes to paying their employees. For
some, pay increases with seniority whereas for others pay increases with their level of
performance.
(iv) Geography:
Different geographical locations have different costs of living so salaries should be adjusted
accordingly.
(v) Equity:
Employees’ perception of fairness is directly linked to whether employees are being paid fairly or
not. There are four types of equity:
- External equity: refers to how a job’s pay rate in one company compares to the job’s pay
rate in other companies
- Internal equity: refers to how fait the job’s pay rate is when compared to other jobs within
the same company
- Individual equity: refers to the fairness of an individual’s pay as compared to what his or
her coworkers are earning for the same or very similar jobs within the company, based on
each person’s performance
- Procedural equity: refers to the perceived fairness of the processes and procedures used to
make decisions regarding the allocation of pay
3. What is Job evaluation? What are the steps?
Job evaluation is a formal and systematic comparison of jobs to determine the worth of one job
relative to others. It results in wage or salary structure or hierarchy, which shows pay rates for
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various groups of jobs. It is typically done by combining internal evaluation (obtained through a
thorough investigation of the jobs in the organization) and external evaluation (obtained through
market surveys). The steps in job evaluations are:
(i) Identifying a need for job evaluation and enlist support:
A lot of the organizations develop salary structure simply based on intuition. This results in flaws
and lack of internal equity. Employee dissatisfaction, inability to attract good employees, high
turnover, work stoppages or arguments are stimulus for paying employees different rates for
similar jobs. Managers may express uneasiness with an informal way of assigning pay rates.
Employees shouldn’t be unduly affected by evaluation process. Support from employees who are
insecure should be enlisted.
(ii) Choosing an evaluation committee:
The committee usually consists of about five members, most of whom are employees.
Management has the right to serve on such committees, but employees may view this with
suspicion. However, a human resource specialist can usually be justified to provide expert
assistance. Once appointed, each committee member should receive a manual explaining both the
job evaluation process and how to conduct the job evaluation. The committee then performs three
main tasks:
- Identify benchmark jobs: These are anchors to the employees pay scale around which
other jobs are arranged in order of relative worth. Usually 10-15 benchmark jobs are
identified.
- Select compensable factors: These are fundamental, compensable elements of a job such
as skills, effort, responsibility and working conditions. (TDRs and KSAOs)
- Actually determine the worth of each job: This can be done through ranking, job
classification or point method.
4. Describe the job evaluation methods.
There are three job evaluation methods.
1) Ranking method:
The simplest method of job evaluation that involves ranking each job relative to all other jobs,
usually based on overall difficulty. This is done on the basis of a single compensation factor.
- Obtain job information: Job analysis is the first step. Job descriptions for each job are
prepared and the information they contain about the job’s duties is usually the basis of
ranking jobs. Job specification can also be used but ranking method ranks jobs based on
the whole job, not only several compensable factors.
- Select and group jobs: It is easier to rank jobs by department or clustered into reasonable
group.
- Select compensable factors: It is common to use one factor and to rank jobs based on the
whole job. It is required to explain the definition of the factor to the evaluators carefully so
that they all evaluate jobs consistently.
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Rank jobs: Each rater gets a set of index cards, each of which contains a brief description
of a job, without mentioning the job title. They then arrange these cards from lowest to
highest to rank the jobs. Some of them use alternation ranking method to make the
procedure more accurate. The ranked listing of job enables us to compare each job’s rank
with its current pay and decide if what we are currently paying is internally equitable.
- Combine ratings: Usually, several raters rank the jobs independently. Then rating
committee can simply average the raters rating.
Pros: - Easy to develop and use since job descriptions are readily available
- Not time consuming
Cons: - Since only one compensable factor is used, there is a tendency to rely on guesstimates,
making it less accurate and lowering the objectivity
- It is difficult to quantify
- Differences in ranks do not necessarily reflect difference in worth of job
- Compare current pay with what others are paying based on salary survey: This helps
to ensure that pay is externally equitable
- Assign a new pay scale: Compare what the company and the market is paying and then
adjust the pay scale.
The advantages of ranking method are that it is the simplest and easiest to explain and it also
requires less time than other methods. However, it is more appropriate for small employers that
can afford the time or money needed for more elaborate methods since there can be flaws in the
ranking.
2) Job Classification:
This is a method for categorizing jobs into groups that are of roughly same value for pay purposes.
These groups are called classes if they consist of similar jobs and grades if the jobs are similar in
difficulty but otherwise different. The process is as follows:
- Choose compensable factors
- Decide how many grades or classes are needed for variety or justice in the
organization
- Define each compensable factor for each grade
- Review job description of each job and decide which grade fits by matching it with
grade definition of the compensable factors
The advantages: - Job have to be classified into groups and classes regardless of the method being
used
- It is more user friendly compared to rating
The disadvantages: - It is time consuming
- It is quite difficult to write grade descriptions quite accurately
- It is a not very quantifiable method
3) Point Method:
The method in which a number of compensable factors are identified and then the degree to which
each of these factors is present on the job is determined. The method is:
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- Identify several compensable factors for the jobs
- Identify the degree to which the factors are present in the job
- Calculate total value of the job by adding up degree points
It is the most used method since it is quantifiable and more accurate.
5. What are the steps to create a market- competitive pay plan?
A market competitive pay plan is one that is both internally and externally equitable. The steps
are:
1) Choose benchmark jobs:
It is impractical and unnecessary to evaluate each job individually. Hence benchmarks jobs with
representative job titles are selected and the evaluation is carried out more thoroughly. The number
of benchmark jobs depends on the organization.
2) Select compensable factors:
It depends on the organization how many compensable factors they will be choosing. It is wise to
choose factors such that they are more or less applicable to all the jobs in the organization.
3) Assign weights to the compensable factors:
This is done to determine the relative importance of each factor since for each cluster of jobs some
factors are bound to be more important than others.
4) Convert percentage to points for each factor:
Convert the percentage weights assigned to each compensable factor into point values for each
factor. It is usually assumed that the total point is 1000. To get the maximum number of points for
each compensable factor, multiply the percentage weight for each compensable factor by 1000.
5) Define each factor’s degrees:
Split each factor into degrees and define each degree for the raters to judge. It depends on the
organization how many degrees are required. Too many degrees can cause overlapping and too
few will not provide justice to the range of compensable factors.
6) Determine for each factor its factor degrees’ points:
The committee has to examine each job and determine what degree of each compensable factor
that job has by assigning points to each degree of each compensable factors.
7) Review job descriptions and job specifications:
This is done for the benchmark jobs to determine what level of compensable factors each one
possess.
8) Evaluate the jobs:
- The committee determines the degree to which each compensable factor is present in each job
from the review of job description and job specification
- They add up the degree points for each job to determine each job’s total number of points. This
enables them to list a hierarchy of jobs based on their job’s points.
9) Draw the current internal wage curve:
A graph with the job’s current internal wage rate on the y axis and job’s point values in the x axis
is plotted. A wage line is drawn by estimating a line of best fit.
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When it comes to equity, the dispersion of the scatter plot is more important to look at. If the points
are widely dispersed it means that there is a disparity between the salary of the job and the points
assigned. The more dispersion means less internal equity.
The gradient of the best fit line represents a policy. If points are close to the best fit line, salary of
the current job is in line with the points. If dispersed, the salary isn’t equitable.
10) Conduct a market analysis: salary surveys:
This is done to compile information needed to draw an external wage curve. Salary surveys can be
used to price benchmark jobs, price employees position in the marketplace and collect data on
benefits like insurance, sick leave etc. Salary surveys can be:
- Informal: phone or internet surveys, calling up a friend
- Formal: full scale thorough research
11) Draw the market external wage curve:
The internal wage cure does not reveal whether the pay rates are too high or too low relative to
what other firms are paying. A market external wage curve is drawn with the job’s market wage
rates on the y axis and job’s point values on the x axis. The market wage curve can lie:
- Consistently above the internal wage curve:
Paying lower than the market and the gap between the market salary and company salary
widens as the points increase
- Consistently below the internal wage curve:
Paying more than the market but the gap between lower salaries is narrower and the gap
between higher salaries is wider
- Intersecting with the internal wage curve:
Either paying low or paying high relative to the market pay rate
12) Compare and adjust current and market wage rates for jobs:
Combing both internal and external wage curves in one graph and based on that graph, decide
whether to adjust the current pay rates and how if so, how. This calls for a policy decision by
management. This depends on resources as well as strategy. Despite paying a lower salary, if the
company is able to attract candidates it wants and if its turnover is low, it does not need to equalize
with the market but I can make adjustments.
For higher paying jobs, it can just adjust to the market average if it becomes difficult to attract and
retain employees. Reducing it will cause dissatisfaction so they reduce the salaries increment’s
rate. This will gradually adjust the company’s salary to that of the market. Also increase the
proportion of performance pay to solve this issue.
13) Develop pay grades:
Typically, the higher the range of job points, the more the pay grades are needed. If point method
is used, the pay grade consists of jobs falling within the range of points. If ranking is used, the
grade consists of specific number of ranks.
14) Establish rate ranges:
The pay or rate ranges often appear as vertical boxes within each grade, showing minimum,
maximum, and midpoint pay rates for that grade. Tenure and performance are important factors.
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15) Address remaining jobs:
Either evaluate the remaining jobs using the same process or simply slot the remaining jobs into
wage structure without formally evaluating and assigning points to the jobs.
16) Correct out of line rates:
For underpaid jobs, raise the wages of underpaid employees to the minimum of the rate range for
their pay grade.
For red circles, flagged or overrates, the following can be done:
- Freeze the rate paid to the employees until general salary increases bring the other jobs to
line.
- Transfer or promote the employees involved to jobs for which they can be legitimately paid
their current pay rates.
- Freeze the rate for 6 months, during which time they are transferred or promoted.
- Finally, if the methods above cannot be undertaken, cut the pay rate to the maximum pay
range for the employees pay grade.
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CHAPTER 12 (FINANCIAL INCENTIVES)
1. What are the individual employee incentive plans?
(i) Piecework: People are paid for each unit of output that they produce. To set this:
- Come up with a production standard
- Be able to evaluate the work of the job through any standard evaluation technique
Most piecework falls under straight piecework where the rate of payment remains constant no
matter the level of output produced. The results are proportional to the rewards irrespective of
level of output.
Pros: - Since production and compensation is equal, it is quite equitable. Basis for compensation
is not subjective
- It provides a motivational impact due to the close linkage between performance and pay
Cons: - Employees show a tendency to alter the production standard when all employees start
producing at the target level
- Rigidity: Employees are accustomed to a fixed rate and not very receptive to change
(ii) Merit pay: Any salary increase awarded to an employee based on his or her individual
performance. It comes in two types:
- Increment on base salary: where the basis for increment is performance
Pros: Provides a motivational impact
Cons: Increases cost of employees as this is rigid
- Traditional bonus: not based on salary but a lump sum of performance
Pros: Employees can choose not to pay in times of crisis, it is more flexible
Can be made more dramatic
(iii) Non-financial recognition based rewards:
Formal programs such as employee of the month programs. Social recognition program refers to
informal manager- employee exchanges such as praise, approval, or expressions of appreciation
for a job well done. Performance feedback means providing quantitative or qualitative
information on task performance.
- Explicit: Performer of the year award
- Implicit: kind of projects
(iv) Job design:
This can significantly impact employee motivation and retention. It is the primary driver of
employee engagement. It also increases autonomy and feedback.
(v) Incentives for managers and executives:
For lower or mid-level managers, salaries are the biggest incentives. However, for senior
managers, salary is just a small part but incentive and other compensation prerequisites constitute
a large part of their motivation.
The best reflection of a senior executive is how well he or she can form a strategy and execute it.
Therefore, the primary thing to ensure is that the incentives and compensation of senior managers
are aligned to the organization strategies. It is also very essential to ensure external equity. Three
things should be considered:
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Salary: determined using external and internal wage curve
Short term incentive: For executives, this is annual bonuses. It is determined by the
executives’ performance as well as the overall organizations performance. A multiplier
approach can be used to determine the annual bonuses. In this method, the person’s target
bonus is multiplied by the appropriate factor (excellent, good, fair, poor) in the matrix.
- Long- term incentives: Short term incentives may make the executive myopic. They set
the strategic plans for 3 to 5 years, so there has to be reward mechanism for their long-term
success. This can be done by:
a) providing ownership of company stock
If the executive has partial ownership, he or she will ensure stock prices remain high and
this will lead to long term improved, sustainable streams of cash flows. There are two ways
for this: -To give direct ownership of stocks for free
-To provide stock options, which gives them the right to buy stock at a specific
price after the expiration of a certain period of time. Even if the price of the stock increases, they
will be able to buy it at a lower price. This advantage will give them an incentive to ensure
sustainable cash flow.
2. What are the team-based and organization based incentive plans?
The team-based incentive plans include:
(i) Providing bonuses and rewards based on the team’s overall performance:
Pros: - Improves team cohesion as it encourages team members to work collectively towards a
shared goal
- Increases team synergy- team members push each other to do better
- Team members motivate each other since their performance is linked to reward
Cons: - There may be free riders in the team. To solve this multiplier approach can be used, where
individual performance is replaced with team performance.
(ii) Use of peer appraisals:
Cons: - for large groups there can be teams: in-groups and out-groups, hence independent evaluator
should be used
The organization based incentive plans include:
(i) Profit sharing:
The organization distributes a certain percentage of its profits to its employees. It is typically done
on a pro-rata basis, where the amount given is dependent on their base salary. Hence, higher the
base salary, more bonus the person will receive. There are two types:
- Current profit sharing: Done on a pro-rata basis at irregular intervals i.e. quarterly or
annually
- Deferred profit sharing: The company accumulates the amount in order to avail the bonus.
The employee then needs to serve a particular tenure. The advantage is that it builds loyalty
and continuance commitment. The disadvantage is that motivational impact is less since it
takes time to get the rewards.
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(ii) Gain-sharing:
The organization sets targets and forms cross-functional teams to achieve those objectives. The
best suggestion is chosen and if its implementation results in a gain, it is shared with the members
of the team.
Pros: - It includes high degree of employee involvement
- Provides clear linkage between performance and rewards
Cons: - How lucrative is the percentage of gain given to employees?
(iii) At risk pay plans:
Employees voluntarily in coalition with the managers put a certain portion of their base salary at
risk. They won’t collect the base salary unless the organization reaches its goals. If the organization
does reach its goals, they will receive a bigger bonus.
Pros: -Helps the company to save money when targets aren’t met
- More dramatic impact since it is sort of like gambling, so more motivation is involved
Cons: -It works only in companies where employees are self-motivated
- Can’t be implemented in all organizations
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CHAPTER 14 (ETHICS)
1. What is ethics? Why is ethics policy essential in an organization?
Ethics is defined as the standards that determine the difference between what is right and wrong.
These are the principles of conduct governing and individual or a group. Ethical behavior depends
on the person’s frame of reference. Since it depends from person to person, it can create room for
misinterpretation and confusion in an organization. Hence, H-R needs to set codes for ethics
policy in the organization. This can help to reduce ethical dilemmas, foster good employee
relations and maintain a healthy organization culture.
2. What shapes ethical behavior at work?
There are three factors that determine the ethical behavior at work. These are:
(i) Bad apples: An individual who does not have a very high moral compass and who engages in
unethical behavior. This individual can set a bad example for others at the organization. It is very
essential to ensure that there are no bad apples in the organization because if present, it can have a
contagion effect.
(ii) Bad cases: A situation which raises ethical dilemmas and creates opportunities for unethical
behavior. According to research, smaller ethical dilemmas prompt more bad choices. It is seen that
people tend to do the wrong things in less serious situations.
(iii) Bad barrels: Organizations that promote unethical behavior. Bad barrels have a toxic culture
as there is lack of mutual respect and dignity.
3. What are the ways that H-R can promote organization ethics?
1) Recruitment and selection:
(i) Promoting the ethical stance of the organization in the recruitment stage: In these
processes, a profile of the company is created in the candidates’ mind. Hence the organization’s
ethical standpoint should be highlighted in the very beginning. Irrespective of whether the
candidates join the organization or not, they will enter or leave the organization with a clear picture
of it in their minds, so the organization should practice promoting ethics in every point of contact.
(ii) Practicing non-discrimination: Both recruitment and selection has to non-discriminatory in
nature. Selection tools should be completely unbiased.
(iii) Trying to hire more ethical individuals: Ethical people should be hired and bad apples
should be avoided. Honesty tests can be administered to hire ethical individuals. However, since
individuals can fake honesty tests, they should be presented with ethical dilemmas designed in
such manner that it isn’t obvious and it throws them off-guard.
(iv) Using transparent and objective selection tools: The organization should be clear and
transparent with their recruitment and selection procedure. Selection tools should be completely
unbiased.
2) Training:
Bad cases will always be present in the organization. Hence training should be provided to better
equip employees to recognize ethical dilemmas, apply codes of conduct to resolve problems
and use personnel activities in ethical ways. Training should not happen later on but as soon as
the employees join the organization. Also, ethics training is legally mandatory in some places
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around the world. If by chance an employee does something unethical, the organization will
receive less penalty since it took the legal steps to provide ethical training to that individual.
3) Appraisal:
Appraisal is the basis of compensation. It has to be ethical in order to be perceived as fair and
transparent. Appraisals also need to objective and unbiased. If not, it can indulge employees to
act in unethical ways. But if appraisals are objective, fair, transparent and unbiased it will allow
employees to trust the organization.
4) Others:
i) Ethics policies and codes: Since the perspective of ethics differ from person to person, instead
of leaving room for interpretation and arising confusion, the organization should follow certain
ethics policies and codes. This has two advantages:
- It sends a strong message about the importance the organization holds about ethical conduct.
- it creates a uniform guideline for everyone to follow within the organization since the do’s and
don’ts are clearly pointed out.
ii) Enforcement: The enforcement of policy should be done through rewarding exemplary
behavior and disciplining unethical conduct.
iii) Whistleblower: Some organizations are aware that they are not ethical but afraid to speak up
because the organization will have a negative image and employees might feel that there will be
repercussions if reported internally. A whistleblower is someone who reports the organizations’
wrongdoings to outside party. It is required to ensure internal whistleblowing in the form of
anonymous hotline or grievance procedure. Even if outside whistleblowing occurs, the
organization cannot punish the whistleblower since it can risk other to question its moral fabric.
Mechanisms should be made to protect the whistleblower.
iv) Culture: The organizational culture is the characteristic values, traditions and behaviors a
company’s employees share. Some of the ways that employees should be known about the culture
of the organization are:
Clarifying the expectations: The ethical standpoint of the organization should be highlighted at
every point of contact. Both ends and means should be done ethically. The organization should
clarify what it wants its subordinates to follow.
Using signs and symbols: Ethical standpoint of an organization is symbolized in the behavior of
an organization’s top management. The top managers should take the ethical standpoint and act in
an ethical manner through their behavior, actions and attitude themselves so that the employees
can follow. Anecdotes about how ethical individuals succeed are good signs and symbols.
Providing physical support: The physical signs of employer’s values- its incentive plan,
appraisal system, and disciplinary procedures- send strong signals regarding what the
employees should and should not do. It is required to reinforce culture through manifestations.
4. How do organizations create more positive employee relations?
Employee relations are all actions taken by an organization to create a more symbiotic and
positive relationships with employees so that it has a positive effect on their morale. It also helps
to foster productivity. This can be done through:
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i) Two-way communication: it is essential to communicate the reasons or purpose of all decisions.
Active effort should be taken to ensure that all employees are heard. It should be ensured that
employees know the rationale behind the decisions so that trust can be build.
- Open door policy: employees walk in and talk about their issues. This provides frequent
feedback and reduces power gap.
- Management by walking around: this involves managers wandering around the workplace and
interacting with the employees
- Focused group discussions provide feedback to employees
- Climate surveys are used to collect information regarding employee’s perceptions and concerns
ii) Employee recognition/ reward program:
A word of praise does not always suffice. Formal programs to reward employees will motivate
them to work harder.
iii) Employee involvement: Rather than relying on top-down approach when faced with an issue,
employees can also be consulted and involved in the decision process. This will help them to have
valuable insights, will create a sense of ownership and make them feel more valued in the
organization.
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