Teaching Note

Subject : Human Resource Management

Subject code : 21MBA202

Programme : MBA

Semester : 2nd

Name of the Faculty : Dr. Anuradha Mishra

Srusti Academy of Management

1st B-School in Odisha with “A” Grade Accreditation by NAAC
Approved by AICTE, New Delhi Affliated to BPUT, Rourkela

38/1, Chandaka Industrial Estate, Near Infocity,Patia, Bhubaneswar,Odisha-

751024
www.srustiacademy.org
Syllabus
HUMAN RESOURCE MANAGEMENT

Module-2

Performance Appraisal

“It is a systematic evaluation of an individual with respect to performance on the job and
individual’s potential for development.”

Definition 2: Formal System, Reasons and Measures of future performance

“It is formal, structured system of measuring, evaluating job related behaviors and outcomes to
discover reasons of performance and how to perform effectively in future so that employee,
organization and society all benefits.”

Meaning of Performance Appraisals

Performance Appraisals is the assessment of individual’s performance in a systematic way. It is a

developmental tool used for all round development of the employee and the organization. The
performance is measured against such factors as job knowledge, quality and quantity of output,
initiative, leadership abilities, supervision, dependability, co-operation, judgment, versatility and
health. Assessment should be confined to past as well as potential performance also. The second
definition is more focused on behaviors as a part of assessment because behaviors do affect job
results.

Objectives of Performance Appraisals

1. Improve productivity: The level of productivity that a team of employees exhibits directly
affects the success of a business. An employee should be productive in their work to earn
a positive performance evaluation, but managers can also use the appraisal process to
address any opportunities for improvement. If an employee's productivity is lower than
expected and than their goals allow, then the performance evaluation is where a manager
can tell an employee what exactly they need to do to meet expectations.
2. Identify mistakes: Mistakes in the workplace are normal, but with performance
appraisals, a manager and employee can identify these issues and address them quickly.
 They can also work together to come up with a solution and some goals for preventing
common mistakes from reoccurring in the future. This can help employees feel more
secure in the workplace and help improve their performance.
3. Provide Promotion opportunities: Performance appraisals provide documentation on an
employee's performance, making it easier for members of leadership to decide which
employees deserve a promotion based on their performance. Management can look back
at their evaluations and compare two employees to see which is more ready and capable
for a new, more advanced role in the office.
4. Set employee goals: Performance appraisal sessions should also be a time when a
supervisor and employee can discuss the employee's professional goals. The manager can
set goals that the employee must reach during a specific timeframe, and the employee
may also be able to choose goals they want to work on based on past performance or the
needs of the business. For example, managers may want their employees to take the
initiative on one major project in the next quarter. An employee may determine they want
to arrive at work on time each day of the week.
5. Offer a chance for employee development: During performance evaluations, managers
offer feedback to employees, who implement this advice into their daily work. This can
help them improve their performance and plan for development opportunities. The
performance appraisal process sometimes serves to identify ways to develop employees
through training, seminars, conferences and more. The manager and employee may come
up with new responsibilities that can help the employee continue growing in their role
and prime them for a promotion.
6. Boost Confidence: Performance evaluations can often help boost an employee's
confidence. This is because managers can offer actionable feedback and praise for the
employee's work. Including praise in performance, evaluations can help employees
recognize their great work and build their confidence, which increases the likelihood that

their performance can continue to improve.

7. Record employee progress: Companies conduct performance appraisals using various
methods, most of which include a record of the conversations the manager and employees
have. Some managers may create documents detailing the employee's achievements,
productivity levels, and other performance-based statistics to evaluate their work. Having
this record can help monitor which employees may be ready for promotion or a raise. It
 can also help managers recognize if an employee consistently struggles in a particular
area so they can provide support.
8. Provide insight to training needs: Managers and human resources professionals can
review performance appraisal objectives to determine if there are areas with which the
team struggles. Then, they can use this information to identify training needs and plan for
development meetings and training sessions. For example, if a manager notices that the
majority of the employees within a department have become less productive after
introducing new software, they might suggest a training session on the use of that
software.

Goals of Performance Appraisals

General Goals Specific Goals

Developmental Use Individual needs

Performance feedback

Transfers and Placements

Strengths and Development needs

Administrative Decisions / Uses Salary

Promotion

Retention / Termination

Recognition

Lay offs

Poor Performers identification

Organizational Maintenance HR Planning

Training Needs

Organizational Goal achievements

 Goal Identification

HR Systems Evaluation

Reinforcement of organizational needs

Documentation Validation Research

For HR Decisions

Legal Requirements

Performance Appraisal - Process

A performance appraisal, or performance review, is a formal interaction between an employee

and her manager. This is when the performance of the employee is assessed and discussed in
thorough detail, with the manager communicating the weaknesses and strengths observed in the
employee and also identifying opportunities for the employee to develop professionally.

Here is the process involved in performance appraisal

1. Establishing Performance Standards

In this we use as the base to compare the actual performance of the employees. In this step it
requires to set the criteria to judge the performance of the employees as successful or
unsuccessful and the degrees of their contribution to the organizational goals and objectives. The
standards set should be clear, easily understandable and in measurable terms. If employee doesn't
come up to expectance, then it should be taken extra care for it.

2. Communicating the standards

It is the responsibility of the management to communicate the standards to all the employees of
the organization. The employees should be informed and the standards should be clearly
explained. This will help them to understand their roles and to know what exactly is expected
from them.

3. Measuring the actual Performance

The most difficult part of the performance appraisal process is measuring the actual performance
of the employees that is the work done by the employees during the specified period of time. It is
a nonstop process which involves monitors the performance all over the year. This stage requires
the watchful selection of the suitable techniques of measurement, taking care that individual bias
does not affect the outcome of the process and providing assistance rather than interfering in an
employees work.

4. Comparing the Actual with the Desired Performance

In this the actual performance is compared with the desired or the standard performance. The
comparison tells the deviations in the performance of the employees from the standards set. The
result can show the actual performance being more than the desired performance or, the actual
performance being less than the desired performance depicting a negative deviation in the
organizational performance. It includes recalling, evaluating and analysis of data related to the
employees' performance.

5. Discussing Results

The result of the appraisal is communicated and discussed with the employees on one-to-one
basis. The focus of this discussion is on communication and listening. The results, the problems
and the possible solutions are discussed with the aim of problem solving and reaching consensus.
The feedback should be given with a positive attitude as this can have an effect on the
employees' future performance. The purpose of the meeting should be to solve the problems
faced and motivate the employees to perform better.

6. Decision Making

The last step of the process is to take decisions which can be taken either to improve the
performance of the employees, take the required corrective actions, or the related HR decisions
like rewards, promotions, demotions, transfers etc.

Difference between Traditional and Modern (Systems) approach to Appraisals

Categories Traditional Appraisals Modern, Systems Appraisals

Guiding Values Individualistic, Control Systematic, Developmental,

oriented, Documentary Problem solving

Leadership Styles Directional, Evaluative Facilitative, Coaching

Frequency Occasional Frequent

Formalities High Low

Rewards Individualistic Grouped, Organizational

Techniques / methods of performance appraisals

Numerous methods have been devised to measure the quantity and quality of performance
appraisals. Each of the methods is effective for some purposes for some organizations only.
None should be dismissed or accepted as appropriate except as they relate to the particular needs
of the organization or an employee.

Broadly all methods of appraisals can be divided into two different categories.

 Past Oriented Methods

 Future Oriented Methods

Past Oriented Methods

1. Rating Scales: Rating scales consists of several numerical scales representing job related
performance criterions such as dependability, initiative, output, attendance, attitude etc. Each
scales ranges from excellent to poor. The total numerical scores are computed and final
conclusions are derived. Advantages – Adaptability, easy to use, low cost, every type of job can
be evaluated, large number of employees covered, no formal training required. Disadvantages –
Rater’s biases

2. Checklist: Under this method, checklist of statements of traits of employee in the form of
Yes or No based questions is prepared. Here the rater only does the reporting or checking and
HR department does the actual evaluation. Advantages – economy, ease of administration,
limited training required, standardization. Disadvantages – Raters biases, use of improper weighs
by HR, does not allow rater to give relative ratings

3. Forced Choice Method: The series of statements arranged in the blocks of two or more are
given and the rater indicates which statement is true or false. The rater is forced to make a
choice. HR department does actual assessment. Advantages – Absence of personal biases
because of forced choice. Disadvantages – Statements may be wrongly framed.

4. Forced Distribution Method: here employees are clustered around a high point on a rating
scale. Rater is compelled to distribute the employees on all points on the scale. It is assumed that
the performance is conformed to normal distribution. Advantages – Eliminates Disadvantages –
Assumption of normal distribution, unrealistic, errors of central tendency.

5. Critical Incidents Method: The approach is focused on certain critical behaviors of

employee that makes all the difference in the performance. Supervisors as and when they occur
record such incidents. Advantages – Evaluations are based on actual job behaviors, ratings are
supported by descriptions, feedback is easy, reduces recency biases, chances of subordinate
improvement are high. Disadvantages – Negative incidents can be prioritized, forgetting
incidents, overly close supervision; feedback may be too much and may appear to be
punishment.

6. Field Review Method: This is an appraisal done by someone outside employees’ own
department usually from corporate or HR department. Advantages – Useful for managerial level
promotions, when comparable information is needed, Disadvantages – Outsider is generally not
familiar with employees work environment, Observation of actual behaviors not possible.

7. Performance Tests & Observations: This is based on the test of knowledge or skills. The
tests may be written or an actual presentation of skills. Tests must be reliable and validated to be
useful. Advantage – Tests may be apt to measure potential more than actual performance.
Disadvantages – Tests may suffer if costs of test development or administration are high.

8. Confidential Records: Mostly used by government departments, however its application in

industry is not ruled out. Here the report is given in the form of Annual Confidentiality Report
(ACR) and may record ratings with respect to following items; attendance, self expression, team
work, leadership, initiative, technical ability, reasoning ability, originality and resourcefulness
etc. The system is highly secretive and confidential. Feedback to the assessee is given only in
case of an adverse entry. Disadvantage is that it is highly subjective and ratings can be
manipulated because the evaluations are linked to HR actions like promotions etc.
9. Essay Method: In this method the rater writes down the employee description in detail within
a number of broad categories like, overall impression of performance, promoteability of
employee, existing capabilities and qualifications of performing jobs, strengths and weaknesses
and training needs of the employee. Advantage – It is extremely useful in filing information gaps
about the employees that often occur in a better-structured checklist. Disadvantages – It its
highly dependent upon the writing skills of rater and most of them are not good writers. They
may get confused success depends on the memory power of raters.

Future Oriented Methods

10. Comparative Evaluation Method (Ranking & Paired Comparisons): These are
collection of different methods that compare performance with that of other co-workers. The
usual techniques used may be ranking methods and paired comparison method.

 Ranking Methods: Superior ranks his worker based on merit, from best to worst.
However how best and why best are not elaborated in this method. It is easy to administer
and explanation.

 Paired Comparison Methods: In this method each employee is rated with another
employee in the form of pairs. The number of comparisons may be calculated with the
help of a formula as under.

N x (N-1) / 2

Modern appraisal method

1. Management By Objectives: It means management by objectives and the performance is

rated against the achievement of objectives stated by the management. MBO process goes as
under.

 Establish goals and desired outcomes for each subordinate

 Setting performance standards

 Comparison of actual goals with goals attained by the employee

 Establish new goals and new strategies for goals not achieved in previous year.
2. Psychological Appraisals: These appraisals are more directed to assess employees potential
for future performance rather than the past one. It is done in the form of in-depth interviews,
psychological tests, and discussion with supervisors and review of other evaluations. It is more
focused on employees emotional, intellectual, and motivational and other personal characteristics
affecting his performance. This approach is slow and costly and may be useful for bright young
members who may have considerable potential. However quality of these appraisals largely
depend upon the skills of psychologists who perform the evaluation.

3. Assessment Centers: This technique was first developed in USA and UK in 1943. An
assessment center is a central location where managers may come together to have their
participation in job related exercises evaluated by trained observers. It is more focused on
observation of behaviors across a series of select exercises or work samples. Assessees are
requested to participate in in-basket exercises, work groups, computer simulations, role playing
and other similar activities which require same attributes for successful performance in actual
job. The characteristics assessed in assessment center can be assertiveness, persuasive ability,
communicating ability, planning and organizational ability, self confidence, resistance to stress,
energy level, decision making, sensitivity to feelings, administrative ability, creativity and
mental alertness etc. Disadvantages – Costs of employees traveling and lodging, psychologists,
ratings strongly influenced by assessee’s inter-personal skills. Solid performers may feel
suffocated in simulated situations. Those who are not selected for this also may get affected.

4. 360-Degree Feedback: It is a technique which is systematic collection of performance data

on an individual group, derived from a number of stakeholders like immediate supervisors, team
members, customers, peers and self. In fact anyone who has useful information on how an
employee does a job may be one of the appraisers. This technique is highly useful in terms of
broader perspective, greater self-development and multi-source feedback is useful. 360-degree
appraisals are useful to measure inter-personal skills, customer satisfaction and team building
skills. However on the negative side, receiving feedback from multiple sources can be
intimidating, threatening etc. Multiple raters may be less adept at providing balanced and
objective feedback.

5. Behaviorally Anchored Rating Scales: statements of effective and ineffective behaviors

determine the points. They are said to be behaviorally anchored. The rater is supposed to say,
which behavior describes the employee performance. Advantages – helps overcome rating
errors. Disadvantages – Suffers from distortions inherent in most rating techniques

6. Cost Accounting Method: Here performance is evaluated from the monetary returns yields
to his or her organization. Cost to keep employee, and benefit the organization derives is
ascertained. Hence it is more dependent upon cost and benefit analysis.

Potential Appraisal

The potential appraisal refers to the appraisal involving identification of the hidden talents and
skills of a person. The person might or might not be aware of them.

Potential appraisal is a future-oriented appraisal whose main objective is to identify and evaluate
the potential of the employees to assume higher positions and responsibilities in the
organizational hierarchy.

Many organizations consider and use potential appraisal as a part of the performance appraisal

processes. Potential appraising is different from appraising performance. Potential refers to

abilities of an employee which are currently not brought to use by an organization. Potential
means the talent capacity to undertake higher challenges on job in future

Performance Appraisal Biases

Managers commit mistakes while evaluating employees and their performance. Biases and
judgment errors of various kinds may spoil the performance appraisal process. Bias here refers to
inaccurate distortion of a measurement. These are:

1. First Impression (primacy effect): Raters form an overall impression about the ratee on
the basis of some particluar characteristics of the ratee identified by them. The identified
qualities and features may not provide adequate base for appraisal.
2. Halo Effect: The individual’s performance is completely appraised on the basis of a
perceived positive quality, feature or trait. In other words this is the tendency to rate a
man uniformly high or low in other traits if he is extra-ordinarily high or low in one
particular trait. If a worker has few absences, his supervisor might give him a high rating
in all other areas of work.
 3. Horn Effect: The individual’s performance is completely appraised on the basis of a
negative quality or feature perceived. This results in an overall lower rating than may be
warranted. “He is not formally dressed up in the office. He may be casual at work too!”.
4. Excessive Stiffness or Lenience: Depending upon the raters own standards, values and
physical and mental makeup at the time of appraisal, ratees may be rated very strictly or
leniently. Some of the managers are likely to take the line of least resistance and rate
people high, whereas others, by nature, believe in the tyranny of exact assessment,
considering more particularly the drawbacks of the individual and thus making the
assessment excessively severe. The leniency error can render a system ineffective. If
everyone is to be rated high, the system has not done anything to differentiate among the
employees.
5. Central Tendency: Appraisers rate all employees as average performers. That is, it is an
attitude to rate people as neither high nor low and follow the middle path. For example, a
professor, with a view to play it safe, might give a class grade near the equal to B,
regardless of the differences in individual performances.
6. Personal Biases: The way a supervisor feels about each of the individuals working under
him - whether he likes or dislikes them - as a tremendous effect on the rating of their
performances. Personal Bias can stem from various sources as a result of information
obtained from colleagues, considerations of faith and thinking, social and family
background and so on.
7. Spillover Effect: The present performance is evaluated much on the basis of past
performance. “The person who was a good performer in distant past is assured to be okay
at present also”.
8. Recency Effect: Rating is influenced by the most recent behaviour ignoring the
commonly demonstrated behaviours during the entire appraisal period.

Therefore while appraising performances, all the above biases should be avoidd

Job Evaluation

Job evaluation is the process of analyzing and assessing the various jobs
systematically to ascertain their relative worth in an organization. Job is evaluated
on the basis of their content and is placed in the order of their importance.
It should be noted that in a job evaluation programme, the jobs are ranked and not
the jobholders. Jobholders are rated through performance appraisal.

“Job evaluation is a process of finding out the relative worth of a job as compared to
other jobs”

The following objectives are derived from the analysis of the above-mentioned
definitions:
1) To gather data and information relating to job description, job specification
and employee specifications for various jobs in an organization.
2) To compare the duties, responsibilities and demands of a job with that of
other jobs.
3) To determine the hierarchy and place of various jobs in an organization.
4) To determine the ranks or grades of various jobs.
5) To ensure fair and equitable wages on the basis of relative worth or value of
jobs. In other words equal wages are fixed to the jobs of equal worth or
value.
6) To minimize wage discrimination based on sex, age, caste, region, religion etc.
 Job Evaluation Process

Objectives of Job Evaluation

Job Analysis

Job Description

Wage Survey
Job Specification

The job-evaluation process Employee Classification starts defining

Job Evaluation Programme
objectives of evaluation and ends with
establishing wage and salary differentials.

The main objective of job evaluation, as was stated earlier, is to establish

satisfactory wage and salary differentials. Job analysis should precede the actual
program of evaluation. Job analysis, as was discussed earlier, provides job-related
data, which would be useful in drafting job description and job specification.

A job-evaluation program involves answering several questions:

The major ones are:

 Which jobs are to be evaluated?

 Who should evaluate the jobs?
 What training do the evaluation need?
 How much time is involved?
 TWhat should be the criteria for evaluation?
 What methods of evaluation are to be employed?
 Which jobs are to be evaluated in any exercise, where there are more than 30 or 40
jobs to be evaluated, it is necessary to identify and select a sample of benchmark
jobs, which can be used for comparisons inside and outside the organs. The
benchmark jobs should be so selected to achieve representative sample of each of
the main levels of jobs in each of the principal occupations

Methods of Job Evaluation:

Job-evaluation methods are of two categories-Analytical and Non Analytical

Job Evaluation

Analytical Non – Analytical

Point Factor Ranking Job-grading Banding

Comparison
Method Method

Analytical:

1. Point Method
2.Factor Comparison Method

Point Method

The system starts with the selection of job factors, construction of degrees for each
factor, and assignment of points to each degree. Different factors are selected for
different jobs, with accompanying differences in degrees and points.

Let us discuss the different factors with an example:

The National Electrical Manufacturing Association (NEMA), USA has suggested

the factors, degrees and point for hourly rated and salaried jobs. The job factors
taken into consideration by NEMA for hourly rated jobs are:
Skill
 Education
 Experience
 Initiative & ingenuity

Effort
 Physical demand
 Mental and / or visual demand

Responsibility
 Responsibility for equipment or process
 Responsibility for materials or product
 Responsibility for safety of others
 Responsibility

Job Conditions
 Working conditions
>Hazards

Factor-Comparison Method:

The factor-comparison method is yet another approach for job evaluation in the
analytical group. Under this method, one begins with the selection of factors; usually
five of them- is assumed to be constant for all the jobs. Each factor is ranked
individually with other jobs. For example, all the jobs may be compared first by the
factor ‘mental requirements.’ the skills factor, physical requirements, responsibility,
and working conditions are ranked. The total points are then assigned to each factor.
The worth of a job is then obtained by adding together all the point values.
Non-Analytical:

1. Ranking Method
2. Banding Method
3. Job-Grading Method

Non-analytical methods: Ranking and job classification methods come under this
category because they make no use of detailed job factors. Each job is treated as a
whole in determining its relative ranking.

Ranking method: this is the simplest, the most inexpensive and the most expedient
method of evaluation. The evaluation committee assesses the worth of each job on
the basis of its title or on its contents, if the latter is available. But the job is not
broken down into elements or factors. Each job is compared with others and its place
is determined.

The method has several drawbacks. Job evaluation may be subjective, as the jobs are
not broken into factors. It is hard to measure whole jobs.

Ranking is the most straightforward method of work evaluation. Jobs, people, or

even teams can be ranked from the ones adding most value to least value to the
organization. Criteria for the ranking are not made explicit. Jobs rather than people
are easier to rank when there are a large number of people in jobs. Teams can be
ranked in a team-based environment as a substitute for or addition to the ranking of
jobs and people. When a larger number of jobs, people, or teams are to be ranked,
the method of paired comparisons can be used. With this approach each entity is
compared to every other entity in terms of value to the organization.

Overall value of the entity is determined by the number of times that the entity is
evaluated as being of greater value then the entity being compared against. If an
extremely large number of comparisons need to be made, statistical formulas are
available to reduce the number of comparisons required using sampling theory.
 Advantages:

1. Simple to use if there is a small number of jobs, people, or teams to evaluate

2. Requires little time
3. Minimal administration required

Disadvantages:

1. Criteria for ranking not understood

2. Increases possibility of evaluator bias
3. Very difficult to use if there is a large number of jobs, people, or teams to
evaluate
4. Rankings by different evaluators are not comparable
5. Distance between each rank is not necessarily equal
6. May invite perceptions of inequity

Banding

A banding procedure takes place when jobs are grouped together by common
characteristics. Characteristics used to group jobs follow: exempt versus nonexempt,
professional versus non professional, union versus non union, key contributor versus
non- key contributor, line versus staff, technical versus non-technical, value-added
versus non- value-added, and classified versus non-classified. Often these groups are
then rank ordered and each group is then placed in a pay band.

Advantages:

1. Quick and easy procedure

2. Has initial face validity to employees
3. Allows for organizational flexibility
4. Minimal administration required

Disadvantages:
 1. Subtle, but important, differences between groups ignored
2. Subtle, but important, differences within groups ignored
3. May invite inequity
perceptions Classification:
Classification systems define the value of jobs, people, or teams with written
standards for a hierarchy of classification level. Each classification level may be
defined by a number of factors that need to be present for a job, person, or team
to be slotted into a

Particular classification level. These factors are usually blended together resulting in
one standard for each classification level.

Advantages

1. Jobs, people, and teams can be quickly slotted into the structure
2. Classification levels have face validity for employees
3. Standards to establish value are made explicit

Disadvantages

1. Many jobs, people, or teams do not fit neatly into a classification level
2. Extensive judgment is required because standards used to define each factor
are blended together
3. Differences between classification levels may not be equal
4. Creates status hierarchies within organizations
5. Extensive administration required

Job-grading Method:

As in the ranking method, the job-grading method (or job-classification method)

does not call for a detailed or quantitative analysis of job factors. It is based on
the job as a whole. The difference between the two is that in the ranking method,
there is no yardstick for evaluation, while in the classification method, there is
 such a yardstick in the form of job classes or grades. Under the classification
method, the number of grades is first decided upon, and the factors
corresponding to these grades are then determined.

The advantages of the method are; I) job grade descriptions are vague and are
not quantified; ii) difficulty in convincing employees about the inclusion of a job
in a particular grade because of vagueness of grade descriptions; and iii) more
job classification schedules need to be prepared because the same schedule
cannot be used for all types of jobs.

Compensation

Definition

Gary Dessler in his book Human Resource Management defines compensation in these words
“Employee compensation refers to all forms of pay going to employees and arising from their
employment.” The phrase ‘all forms of pay’ in the definition does not include non-financial
benefits, but all the direct and indirect financial compensations.

According to Thomas J. Bergmann(1988) compensation consists of four distinct components:

Compensation = Wage or Salary + Employee benefits +Non-recurring finan- cial rewards+ Non-
pecuniary rewards.

The Concept of Compensation

Compensation refers to a wide range of financial and non financial rewards to employees for
their services rendered to the organization. It is paid in the form of wages, salaries and employee
benefits such as paid vacations, insurance maternity leave, free travel facility, retirement benefits
etc., Monetary payments are a direct form of compensating the employees and have a great
impact in motivating employees.

The system of compensation should be so designed that it achieves the following objectives.

➢ The capable employees are attracted towards the organization

➢ The employees are motivated for better performance

 ➢ The employees do not leave the employer frequently

Components of Compensation

Basic Wages/Salaries

Basic wages / salaries refer to the cash component of the wage structure based on which other
elements of compensation may be structured. It is normally a fixed amount which is subject to
changes based on annual increments or subject to periodical pay hikes.

Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of
the number of hours put in by the employee. Wages and salaries are subject to the annual
increments. They differ from employee to employee, and depend upon the nature of job,
seniority, and merit.

Dearness Allowance

The payment of dearness allowance facilitates employees and workers to face the price increase
or inflation of prices of goods and services consumed by him. The onslaught of price increase
has a major bearing on the living conditions of the labour.

The increasing prices reduce the compensation to nothing and the money’s worth is coming
down based on the level of inflation. The payment of dearness allowance, which may be a fixed
percentage on the basic wage, enables the employees to face the increasing prices.

Incentives

Incentives are paid in addition to wages and salaries and are also called ‘payments by results’.
Incentives depend upon productivity, sales, profit, or cost reduction efforts.

There are:

(a) Individual incentive schemes, and

(b) Group incentive programmes.

Individual incentives are applicable to specific employee performance. Where a given task
demands group efforts for completion, incentives are paid to the group as a whole. The amount is
later divided among group members on an equitable basis.
Bonus

The bonus can be paid in different ways. It can be fixed percentage on the basic wage paid
annually or in proportion to the profitability. The Government also prescribes a minimum
statutory bonus for all employees and workers. There is also a bonus plan which compensates the
managers and employees based on the sales revenue or profit margin achieved. Bonus plans can
also be based on piece wages but depends upon the productivity of labour.

Non-Monetary Benefits

These benefits give psychological satisfaction to employees even when financial benefit is not
available. Such benefits are:

(a) Recognition of merit through certificate, etc.

(b) Offering challenging job responsibilities,

(c) Promoting growth prospects,

(d) Comfortable working conditions,

(e) Competent supervision, and (f) Job sharing and flexi-time.

Commissions

Commission to managers and employees may be based on the sales revenue or profits of the
company. It is always a fixed percentage on the target achieved. For taxation purposes,
commission is again a taxable component of compensation.

The payment of commission as a component of commission is practiced heavily on target based

sales. Depending upon the targets achieved, companies may pay a commission on a monthly or
periodical basis.

Mixed Plans

Companies may also pay employees and others a combination of pay as well as com- missions.
This plan is called combination or mixed plan. Apart from the salaries paid, the employees may
be eligible for a fixed percentage of commission upon achievement of fixed target of sales or
profits or Performance objectives. Nowadays, most of the corporate sector is following this
practice. This is also termed as variable component of compensation.

Piece Rate Wages

Piece rate wages are prevalent in the manufacturing wages. The laborers are paid wages for each
of the Quantity produced by them. The gross earnings of the labour would be equivalent to
number of goods produced by them. Piece rate wages improves productivity and is an absolute
measurement of productivity to wage structure. The fairness of compensation is totally based on
the productivity and not by other qualitative factors.

Fringe Benefits

Fringe benefits may be defined as wide range of benefits and services that employees receive as
an integral part of their total compensation package. They are based on critical job factors and
performance. Fringe benefits constitute indirect compensation as they are usually extended as a
condition of employment and not directly related to performance of concerned employee. Fringe
benefits are supplements to regular wages received by the workers at a cost of employers. They
include benefits such as paid vacation, pension, health and insurance plans, etc. Such benefits are
computable in terms of money and the amount of benefit is generally not predetermined. The
purpose of fringe benefits is to retain efficient and capable people in the organization over a long
period. They foster loyalty and acts as a security base for the employees.

Profit Sharing

Profit-sharing is regarded as a stepping stone to industrial democracy. Profit-sharing is an

agreement by which employees receive a share, fixed in advance of the profits. Profit- sharing
usually involves the determination of an organization’s profit at the end of the fiscal year and the
distribution of a percentage of the profits to the workers qualified to share in the earnings. The
percentage to be shared by the workers is often predetermined at the beginning of the work
period and is often communicated to the workers so that they have some knowledge of their
potential gains.

Types of Compensation / Base and Supplementary Compensation

Total compensation returns are more transactional. They include pay received directly as cash
(like base, merit, incentives, cost of living adjustments) and indirectly as benefits (like pensions,
medical insurance, programs to help balance work and life demands, brightly coloured
uniforms). Programme to pay to people can be designed in a wide variety of ways, and a single
employer typically uses more than one.

Direct /Base Compensation

Direct compensation refers to monetary benefits offered and provided to employees in return of
the services they provide to the organization. The monetary benefits include basic

Salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements,
special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Basic Salary

Salary is the amount received by the employee in lieu of the work done by him/her for a certain
period say a day, a week, a month, etc. It is the money an employee receives from his/her
employer by rendering his/her services

House Rent Allowance

Organizations either provide accommodations to its employees who are from different state or
country or they provide house rent allowances to its employees. This is done to provide them
social security and motivate them to work.

Conveyance

Organizations provide for cab facilities tto their employees. Few organizations also provide
vehicles and petrol allowances to their employees to motivate them

Leave Travel Allowance

These allowances are provided to retain the best talent in the organization. The employees are
given allowances to visit any place they wish with their families. The allowances are scaled as
per the position of employee in the organization.

Medical Reimbursement

Organizations also look after the health conditions of their employees. The employees are
provided with medi-claims for them and their family members. These medi-claims include
health-insurances and treatment bills reimbursements.
Bonus

Bonus is paid to the employees during festive seasons to motivate them and provide them the
social security. The bonus amount usually amounts to one month’s salary of the employee.

Special Allowance

Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses,
reduced interest loans; insurance, club memberships, etc are provided to employees to provide
them social security and motivate them which improve the organizational productivity

Direct Compensation

Indirect /Supplementary Compensation

Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu
of the services provided by them to the organization. They include Leave Policy, Overtime
Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement
Benefits, Holiday Homes.

Leave Policy
It is the right of employee to get adequate number of leave while working with the organization.
The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and
maternity leaves, statutory pay, etc.

Overtime Policy

Employees should be provided with the adequate allowances and facilities during their overtime,
if they happened to do so, such as transport facilities, overtime pay, etc.

Hospitalization

The employees should be provided allowances to get their regular check-ups, say at an interval
of one year. Even their dependents should be eligible for the medi-claims that provide them
emotional and social security.

Indirect Compensation

Insurance

Organizations also provide for accidental insurance and life insurance for employees. This gives
them the emotional security and they feel themselves valued in the organization.
Leave Travel

The employees are provided with leaves and travel allowances to go for holiday with their
families. Some organizations arrange for a tour for the employees of the organization. This is
usually done to make the employees stress free.

Retirement Benefits

Organizations provide for pension plans and other benefits for their employees which benefits
them after they retire from the organization at the prescribed age.

Holiday Homes

Organizations provide for holiday homes and guest house for their employees at different
locations. These holiday homes are usually located in hill station and other most wanted holiday
spots. The organizations make sure that the employees do not face any kind of difficulties during
their stay in the guest house.

Flexible Timings

Organizations provide for flexible timings to the employees who cannot come to work during
normal shifts due to their personal problems and valid reasons.

Types of Wages

Living Wages:

Living wages means the wages that may be sufficient to provide for the bare necessities as well
as certain amenities for the employee. It means the level of wages that may be sufficient to
provide for the bare necessities and such amenities that are considered necessary for the well-
being of the employee and his family members in accordance with his social status.

Minimum Wages:

According to Fair Wages Committee, “Minimum Wages should provide not only for the bare
necessities of a worker. It should also provide for the maintenance of efficiency of the worker.
From this point of view, minimum wages must be sufficient to provide for all requirements of
education, health and other essential amenities”

Fair Wages:
It is very difficult to give a precise definition of Fair Wages because it varies from country to
country and from time to time. Therefore, it is possible that an amount of wages that is fair for
one country at one time may not be fair for another country or for next time. Therefore, fair
wages can be determined only after considering the specific circumstances of the industry for
which the wages are to be determined.

Wage Theories

Labour is an important factor and also a peculiar factor of production. Among all factors labour
alone perishable and inseparable from the labourer. At any time, the landlord may withhold the
supply of land or the capitalist may withhold supply of capital but the labourer is forced to sell
labour at whatever price is available in the market. Because of this peculiarity, there is always a
danger that the labour shall get less than what is actually due to him. It is on account of this
important aspect of wage determination that from the very. early times economists have
formulated theories explaining the determination of wages. There are many theories of wages,
but most of them are either wrong, or insufficient to explain the rate of wages. A consideration of
the earlier theories in spite of their defects and shortcomings will help us in properly
comprehending easily the explanation of wages by modern economists. A theory is a
generalization that expresses relationship between facts. Compensation theories attempt to
explain the magnitude and composition of the reward packages and its impact upon the behavior
of the employees. To be meaningful and practically useful, a theory must address specific and
important questions. Two distinct branches of compensation theories are

i) Economic wage theories and

ii) Motivation theories.

Wage Theories

The Subsistence Theory of Wages

This theory was formulated by the French economists Physicorates later elaborated by David
Ricardo Lassale called this theory as iron law of wages. This theory is based on two assumptions
namely

i) The law of diminishing return applies to industry

ii) There is a rapid increase in population

Analysis of the Theory

The theory stated that the wages of labour always remained at the subsistence level. Just the
normal value of a commodity under free competition is determined by its cost of production, so
value of commodity ‘labour’ is determined by its cost of production. This theory meant that the
minimum subsistence are required for the support of the labourer and that of his family in order
to expense a continuous supply of labour.

Criticism Against the Theory

➢ There is no reason why a labourer should increase the number of children in his family if he
gets a higher wages. It would be more natural for the labourer to think of improving his
standard of living instead of increasing the number. The standard of living when once
improved will powerfully influence the rate of wages in future.

➢ If the subsistence theory was accepted, the wages of all labourers, assuming the each has an
equally big family to support, would be more or less equal. But in practice we find it is not
so. More efficient labourers get higher than less efficient. The theory is too pessimistic and
does not contemplate about the role of efficiency in determining wages.

➢ It is absurd to imagine that the labour population would increase if the wage rate were
increased above subsistence. The former is a long-term phenomenon, while the change in
wage rate is a short-term phenomenon.

➢ The theory considered only the supply side of labour, but not the demand side. Even taking
the analogy of general theory of value, the positive role is played by demand and the supply
 gets adjusted. The former is a long phenomenon, while the change rate is a short-term
phenomenon.

➢ Any way the theory contains an element of truth as it indicates that wages cannot fall below
a certain minimum level.

Wage Fund Theory

Introduced by John Stuart Mill (1891), this theory assumes that there is a fixed wages fund
(Lump Sum) which is distributed equally among all the labourers

J.S. Mill said that wages mainly depend upon the demand and supply of labour or the proportion
between population and capital available. The amount of Wages Fund is fixed. wages cannot be
increased without decreasing the number of workers and vice versa. It is the wages fund which
determines the demand for labour. However, the supply of labour cannot be changed at a given
time. But if the supply of labour increases along with increase in population, the average wages
will go down. Therefore, in order to increase the average wages, firstly, the wages fund should
be enlarged, secondly, the number of workers asking for employment should be reduced.

Analysis of the Theory

➢ It puts more emphasis on demand of labour (wages fund) compared to the supply of labour

➢ It attempts to study wage level in the short-term. It tried to take into account long- run too by
suggesting wage fund might grow or shrink in the long run but that was not the focal point of
the theory.

➢ The theory generalizes about the general level of wages for an entire economic system,
however it can be applied to an employer.

Criticism Against the Theory

➢ The wage fund theory is criticized on the following grounds:

➢ It is not clear from where the wages fund will come

➢ No emphasis has been given to the efficiency of workers and productive capacity of firms
➢ This theory is unscientific as wages fund is created first and wages are determined later on.
But, in practice, the reverse is true.

Marginal Productivity Theory of Wages

According to this theory, wages are based upon an entrepreneur’s estimate of the value that will
probably be produced by the last or marginal workers. In other words, it assumes that wages
depend upon the demand and supply of labour.

Consequently, workers are paid what they are economically worth. The result is that the
employer has a larger share in profit as he has not to pay o the non-marginal workers. As long as
each additional worker contributes more to the total value than the cost or wages, it pays the
employer to continue hiring. Where this becomes uneconomic, the employer may resort to
superior technology. It is said to be the most highly perfected and logically contributed theory of
wages.

It is based on the assumptions of a perfect economy which are as under.

➢ Homogeneous factors of production

➢ Multiplicity of buyers and sellers- so many that no one can control supply and demand

➢ Certain fixed factors of production

➢ Perfect knowledge

➢ Full employment of all the resources

➢ Perfect knowledge

➢ Full employment of all the resources

➢ Perfect mobility f the factors of production

➢ Profit maximization as the guiding force

➢ Law of diminishing returns

Analysis of the Theory

➢ It is totally emphasized demand for labour and supply of labour has not received its due
importance

➢ It was developed making assumptions about a firm operating in short-run. However, it has
been refined and has greater usefulness when applied to long run problems.

➢ The theory can be used for the study of both for the micro as well as macro level. When
factors of production are presumed to be constant, it is applicable at micro level; when all the
factors can be increased or decreased, it becomes operational at macro level.

➢ Just like subsistence theory and wages fund theory, this theory also attempts to answer the
question of “wages level” only.

Criticism Against the Theory

➢ In practice, the employers offer wages less than the marginal productivity of labour. In many
cases, the labour unions are able to bargain for wages higher than the marginal productivity
of labour.

➢ This theory is based on perfect competition in the market which is seldom found in practice

➢ It is wrong to assume that more labour could be used without increasing the supply of
production facilities.\

Investment Theory of Wages

This theory has developed by Gilelman for the replacement of marginal productivity theory.
Whereas marginal productivity theory focuses on the output of labour, investment theory
concentrates on labour inputs, another side of the same coin. The theory proposes that the
productivity of an individual employee is a function of his personal attributes with which his
labour is combined. Workers attributes include values, personality, and physical abilities.

In a sense, however, these attributes are reflected in education, training, and experience. Highly
motivated, emotionally mature and energetic individuals are essentially

Investments in productivity. The larger the investments possessed by workers, the wider the
geographic scope of the labour market in which he has a potential to participate. So he is highly
mobile. Wages are related to mobility potential.
Analysis of the Theory

It focuses both on the supply of and the demand for labour. It emphasizes worker’s investment in
productivity

➢ Its emphasis is on short-run

➢ It emphasizes the micro aspect

➢ It tries to answer wage structure as well as the wage level

➢ If wages are assumed to be a return on investment, logically one would assume that the
larger the investment, the higher the wage. However, in practice, this will not be true always
s employees seek a number of other satisfaction from job, income being only one of them.

What is Wage Differentials – Meaning

Wage may differ in different types of employment, occupation, from industry to industry,
between person to person in the same grade or level, from state to state or from country to
country. These differences are termed as wage differentials.

The wage differentials help in building the wage structures for various levels and types of jobs in
an organization, as they are inevitable. They relate to skill, training and experience, nature and
complexity of the job, responsibilities and accountability of the person doing that job and the
economic and social status of the geographical area. The bargaining power of unions and the
earning strategies of the companies also affect the wage differentials.

As such, compensation differentials explain the presence of various pay structures in the same
industry or market.

Wage differentials reflect on:

i. Physical and mental ability of employee

ii. Productivity and efficiency of employee

iii. Labour mobility

iv. Demand and supply of labourers.

Some Other Importance of Wage Differentials:

Wage differentials have a great economic and social significance.

Its importance arises because:

1. It enables full employment of the resources of the economy to be attained.

2. It provides an important incentive for labour mobility as it brings about a re-allocation of the
labour force under changing circumstances, so as to maximize the national product.

3. It facilitates desirable rate of economic progress. It is found that wage differentials giving the
wide differences in demand and supply of jobs along with wide variations in job requirement like
skill, ability, knowledge and experiences so on, ensures full exploitation of the national resources
and thus is justified.

Factors Influencing Wage and Salary Differentials?

Wage differentials may be present due to any one or more of the following:

i. The personal policy of the employer to maintain differentiations

ii. Imperfection of the labour market to take its advantage

iii. Regulatory systems of employment

iv. Relative bargaining strengths of employees and employers

v. The value of the employee to the employer

vi. The growing importance of fringe benefits

vii. Degree of skill and training to do a job

viii. Nature of the work to be performed

ix. Nature of the role and responsibilities required

x. Differences in deficiency in workers

Salary differentials are due to:

i. Market factors
ii. Strategy related factors

iii. Occupational factors, and

iv. Socio-economic factors.

Components of Salary Structure

Some of the components of the salary structure include:

Basic Salary

Basic salary is the base income of an employee, comprising of 35-50 % of the total salary. It is a
fixed amount that is paid prior to any reductions or increases due to bonus, overtime or
allowances. Basic salary is determined based on the designation of the employee and the industry
in which he or she works in. Most of the other components, like allowances, are based on the
basic salary. This amount is fully taxable.

Allowances

Allowance is an amount payable to employees during the course of their regular job duty. It can
be partially or fully taxable, depending on what type it is. Allowances provided and the limits on
it will differ from company to company, according to their policies.

 Dearness Allowance - Dearness allowance is a certain percentage of the basic salary paid
to employees, aimed at mitigating the impact of inflation. It is paid by the government to
employees of the public sector and pensioners of the same.

 House Rent Allowance – A house rent allowance is that component of the salary which
is paid to employees for meeting the cost of renting a home. It offers tax benefits to the
employees for the sum that they pay towards their accommodation every year. Salaried
individuals residing in rented homes can claim this exemption and reduce their tax
liability.

 Conveyance Allowance - Conveyance allowance, also known as transport allowance, is

a kind of allowance offered by employers to their employees to compensate for their
travel expense to and from their residence and workplace. Note - In Union Budget 2018,
 a standard deduction of Rs. 40,000 has been introduced in lieu of transport (Rs 19,200)
and medical (Rs 15,000) allowances.

 Leave Travel Allowance - Leave travel allowance is eligible for tax exemption. It is
offered by employers to their employees to cover the latter's travel expense when he or
she is on leave from work. The amount paid as leave travel allowance is exempt from tax
under Section 10(5) of Income Tax Act, 1961. Leave travel allowance only covers
domestic travel and the mode of travel needs to be air, railway or public transport.

 Medical Allowance - Medical allowance is a fixed allowance paid to the employees of

an organization to meet their medical expenditure. Note - In Union Budget 2018, a
standard deduction of Rs. 40,000 has been introduced in lieu of transport (Rs 19,200) and
medical (Rs 15,000) allowances.

 Books and Periodicals Allowance - Books and periodicals allowance is a type of

allowance provided to employees for helping them meet the expenses associated with
purchase of books, periodicals and newspapers. It is tax exempt to the extent of actual
expenditure incurred towards purchase of books and periodicals.

Gratuity

Gratuity is a lump sum benefit paid by employers to those employees who are retiring from the
organization. This is only payable to those who have completed 5 or more years with the
company. The gratuity amount is paid in gratitude for the services rendered by the individual
during the period of employment. According to the Payment of Gratuity Act, 1972, gratuity is
calculated as 4.81% of the basic pay. Most firms with a workforce of 10 or more employees
come under the Act.

Employee Provident Fund

Employee Provident Fund is an employee benefit scheme where investments are made by both
the employer and the employee each month. It is a savings platform that aids employees to save a
portion of their salary each month, from which withdrawals can be made following a month from
the date of cessation of service or upon retirement. At least 12% of an employee’s basic salary is
automatically deducted and goes to the Employee Provident Fund every month. The
contributions are maintained by the Employees Provident Fund Organization (EPFO).
Professional Tax

Professional tax is a tax levied on the income earned by salaried employees and professionals,
including chartered accountants, doctors and lawyers, etc. by to the state government. Different
states have varying methods of calculating professional tax. The maximum amount that is
payable in a year is Rs. 2,500. Employers deduct profession tax at prescribed rates, from the
salary paid to employees, and pay it on their behalf to the State Government. The revenue
collected is used towards the Employment Guarantee Scheme and the Employment Guarantee
Fund.

Perquisites

Perquisites, also referred to as fringe benefits, are the benefits that some employees enjoy as a
result of their official position. These are generally non-cash benefits given in addition to the
cash salary. Some examples of perquisites include provision of car for personal use, rent-free
accommodation, payment of premium on personal accident policy, etc. The monetary value of
perquisites gets added to the salary and tax is paid on them by the employee.

ESIC

If a company has 10 or more employees (20 in case of Maharashtra and Chandigarh) whose
gross salary is below Rs. 21,000 per month, then the employer is required to avail ESIC scheme
for such employees. The employer's contribution will be 4.75% of gross salary, whereas the
employee's contribution will be 1.75% of gross salary.

Wage law in India

The Payment of Wages Act 1936 requires that employees receive wages, on time, and without
any unauthorised deductions. Section 6 requires that people are paid in money rather than in
kind. The law also provides the tax withholdings the employer must deduct and pay to the central
or state government before distributing the wages.

The Minimum Wages Act 1948 sets wages for the different economic sectors that it states it
will cover. It leaves a large number of workers unregulated. Central and state governments have
discretion to set wages according to kind of work and location, and they range between as much
as 143 to 1120 per day for work in the so-called central sphere. State governments have their
own minimum wage schedules.
The Payment of Gratuity Act 1972 applies to establishments with 10 or more workers. Gratuity
is payable to the employee if he or she resigns or retires. The Indian government mandates that
this payment be at the rate of 15 days salary of the employee for each completed year of service
subject to a maximum of Rs 2000000

The Payment of Bonus Act 1965, which applies only to enterprises with over 20 people,
requires bonuses are paid out of profits based on productivity. The minimum bonus is currently
8.33 per cent of salary.

Components of Executive Compensation

In crafting the executive compensation program, companies need to determine where they want
to position their compensation relative to the market. Most want to be at the market median,
while a substantial minority seeks to be above market. One major challenge in establishing
market-competitive compensation provisions for executives is identifying an appropriate group
for benchmarking. That benchmark can consist of direct competitors, companies with
comparable revenue or employee populations, companies in the same region and companies that
the organization would like to emulate. The executive compensation portfolio can be made up of
six elements.

1. Base Pay

This comprises a decreasing portion of executives’ total compensation. That is a natural corollary
of the increasing importance of incentive-based rewards. In recent years, base pay annual
increases for executives have averaged only a few tenths of a percentage point more than
increases for the broader employee population.For chief executive officers (CEOs) of companies
in the S&P/TSX Composite Index, base pay averaged about one-third of total compensation.

2. Non-Discretionary Cash Bonuses

These are a significant element of executive compensation. They are the largest incentive
compensation component in organizations that are privately held, and where stock-based
incentive programs are not applicable. Non-discretionary bonuses are tied to the achievement of
measurable targets..

3. Discretionary Cash Bonuses

These bonuses are not linked to specific performance measurements or targets. Discretionary
bonuses may be appropriate where company performance is weak, thresholds for non-
discretionary cash bonuses have not been met and where there is a need to provide additional
compensation to key executives for retention purposes. In some cases they are used for valued
achievements that are not rewarded through other components of the compensation package.
Despite these opportunities, they are decreasing in use.

4. Stock Options

Stock options, or other share-based instruments, are intended to align the interests of executives
with those of shareholders by encouraging executives to increase share prices. A stock option
program provides an executive with the option to buy shares — typically at the Fair Market
Value (FMV) of the stock as of the day the option grant is issued. One emerging trend has
companies making the vesting of options dependent on the achievement of specified
performance objectives, rather than simply on the passage of time. Stock options do not
completely align the interests of executives and shareholders. Unlike direct share ownership,
stock options do not entail the possibility of financial loss, and do not reflect returns to
shareholders via dividends.

5. Stock Appreciation Rights

These are like stock options, except that the recipient does not actually have to buy and then sell
the shares vested. Stock appreciation rights involve notional stock. They have the advantage of
providing cash compensation if the share price increases, but not diluting shareholder equity.
They are often used by multinational corporations for executives in countries where stock option
programs are not allowed by law.

6. Share Unit Plans

Under stock option and stock appreciation rights plans, executives are compensated only on the
increase in the value of the shares over the option price. Under share unit plans, executives
receive the full cash value of each share unit granted rather than just the appreciation of the share
price.

Restricted Share Units

These units vest under a predetermined schedule, typically at the end of a specified period such
as three years.

Performance Share Units

These are increasing rapidly in popularity as an alternative or complement to traditional stock

options. Performance share units vest depending upon the achievement of certain predefined and
time-bound performance objectives.

Deferred Share Units

With these units payment is deferred until the executive’s employment with the company ends.
They direct executives’ attention to the long-term performance of the organization. An
unintended consequence of deferred share units may be to encourage executives to leave if they
anticipate a significant reduction in share price.

Performance appraisal
 Probable Question Set
Very short type Questions (2x12)
1) What is performance appraisal.
2) Define potential appraisal
3) What is wage?
4) What is job evaluation?
5) Define compensation.
6) What is wage differential?
7) Define pay structure.
8) Define executive compensation.
9) What is performance bias?
10) Define halo effect.
11) Define Horn effect
Short type Question (6x8)
1. What is performance appraisal. Discuss its Process
2. Define performance appraisal. Explain it’s traditional methods with examples.
3. What is performance appraisal. Discuss it’s modern methods with suitable
examples.
4. Define potential appraisal. Discuss it’s advantages.
5. Define wage. Discuss it’s theories
6. Define wage differential. Discuss it’s importance.
7. Discuss the importance of executive compensation
8. Discuss the types of wages.
Long type Question (16x3)
1. What is performance appraisal? Discuss it’s different methods.

2. What is potential appraisal? Discuss it’s objectives and advantages.

3. Define wage. Discuss its theories.