Unit 4: Performance appraisal, compensation & industrial relations
Human Resource Management notes · PTU syllabus (BCOM 303-18)
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Unit summary
Employees expect fair assessment and fair pay. This unit covers performance appraisal — its process, methods and problems — wage and salary administration, methods of wage payment, incentive plans and fringe benefits, and the concept of industrial relations.
After this unit you can
- Explain the performance appraisal process and methods
- Identify problems in appraisal
- Explain wage and salary administration and incentive plans
- Explain fringe benefits and the concept of industrial relations
PTU syllabus topics
- Meaning and process of performance appraisal
- methods and problems
- wage and salary administration
- elements and methods of wages
- incentive plans and fringe benefits
- meaning and concept of industrial relations
- Halo effect
- One good trait colours the whole rating
- Central tendency
- Rating everyone as average
- Leniency or strictness
- Rating everyone too high or too low
- Recency effect
- Only recent events count
- Personal bias
- Favouritism or prejudice
Topic 1
Performance appraisal
Performance appraisal is the systematic evaluation of an employee's performance and potential for development.
- 1
Set performance standards
- 2
Communicate standards
- 3
Measure actual performance
- 4
Compare with standards
- 5
Discuss results with the employee
- 6
Take corrective action and plan development
| Method | Description |
|---|---|
| Ranking / paired comparison | Employees ranked against each other |
| Graphic rating scale | Rating on traits from poor to excellent |
| Critical incidents | Record of notable good and bad behaviour |
| Checklist and forced choice | Statements ticked by the rater |
| MBO | Performance against jointly set goals |
| 360-degree feedback | Feedback from superiors, peers, subordinates and customers |
| BARS | Behaviourally anchored rating scales |
Problems: halo effect, leniency or strictness, central tendency, recency effect, personal bias and unclear standards.
Topic 2
Wage and salary administration
The aim is fair, competitive and motivating pay. Components: basic wage, dearness allowance (DA), incentives and fringe benefits. Pay is set through job evaluation (ranking, grading, factor comparison, point method), wage surveys and negotiations.
- Time rate: pay per hour, day or month — simple and secure.
- Piece rate: pay per unit produced — rewards output.
Topic 3
Incentive plans and fringe benefits
Individual
Piece rate, Halsey, Rowan, commission
Group
Team bonus, gain sharing (Scanlon)
Organisation-wide
Profit sharing, ESOPs, bonus under the Bonus Act
Fringe benefits are extra benefits besides wages: provident fund, gratuity, insurance (ESI), medical care, paid leave, canteen, transport, housing and education support.
Topic 4
Concept of industrial relations
Industrial relations (IR) refers to the relationship between management and employees (and their trade unions), with the government as a third party. Good IR brings industrial peace, higher productivity and fewer strikes and lockouts. The main actors are employers, employees and unions, and the government.
Key terms
- Performance appraisal
- Systematic evaluation of employee performance
- 360-degree feedback
- Appraisal from all around the employee
- Job evaluation
- Determining the relative worth of jobs
- Fringe benefits
- Benefits given in addition to wages
- Industrial relations
- Relationship between management, employees and government
Quick revision
- Appraisal methods: ranking, rating scales, critical incidents, MBO, 360°, BARS.
- Problems: halo, leniency, central tendency, recency, bias.
- Time rate vs piece rate; individual, group and organisation incentives.
- IR actors: employers, employees/unions, government.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Define performance appraisal.
- Q2.What is 360-degree feedback?
- Q3.List three problems in performance appraisal.
- Q4.Differentiate between time rate and piece rate.
- Q5.What are fringe benefits?
Long-answer questions
- Q1.Explain the performance appraisal process and its methods.
- Q2.Explain wage and salary administration and methods of wage payment.
- Q3.Explain incentive plans and fringe benefits.
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