Unit 3: Performance and compensation management

Performance appraisal is the systematic evaluation of an employee's performance and potential for development.

Problems: halo effect, leniency or strictness, central tendency, recency effect, personal bias and unclear standards.

Potential appraisal

• Potential appraisal assesses an employee's capacity to handle higher responsibilities in future, unlike performance appraisal which assesses past performance.
• Tools: assessment centres, psychometric tests, simulations, 360-degree feedback, leadership competency models; used for succession planning and high-potential (HiPo) programmes.

Job evaluation determines the relative worth of jobs to establish a fair pay structure — it rates the job, not the person.

• Process: gain acceptance → form committee → identify and analyse jobs → choose method → rate jobs → assign pay grades → review.

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.

Fringe benefits are extra benefits besides wages: provident fund, gratuity, insurance (ESI), medical care, paid leave, canteen, transport, housing and education support.

• Quality of work life (QWL): the degree to which work satisfies employees' personal needs — Walton's criteria: adequate and fair compensation, safe and healthy conditions, opportunity to develop capacities, growth and security, social integration, constitutionalism (rights), work–life balance, social relevance of work.
• Health: medical facilities, occupational health checks, mental health and EAPs (employee assistance programmes).
• Safety: accident prevention, safety committees, training, protective equipment, safety audits; OSH Code, 2020 requirements.
• Welfare: statutory (canteens, crèches, rest rooms, first aid under the Factories Act/OSH Code) and voluntary (housing, transport, education, recreation).

Trade Unions Act, 1926 (now subsumed in the Industrial Relations Code, 2020)

• Registration: any seven or more members may apply; at least 10% or 100 workmen (whichever is less) of the establishment must be members; office bearers — at least half must be actually engaged in the industry.
• Rights of registered unions: body corporate with perpetual succession; immunity from civil and criminal liability for acts in furtherance of a trade dispute (Sections 17–18); separate political fund.
• Obligations: general fund used only for specified purposes; annual returns to the Registrar; books open for inspection.
• Under the IR Code, 2020: recognition of a negotiating union (51% membership) or a negotiating council; central and state-level recognition.

Quality circles

A quality circle is a small group of 6–10 employees from the same work area who meet voluntarily and regularly to identify, analyse and solve work-related problems (Kaoru Ishikawa, Japan, 1962).

• Benefits for IR: participation, communication, team spirit, recognition, improved quality and productivity, reduced conflict.
• In India: BHEL, Maruti Suzuki, Tata Steel; QCFI (Quality Circle Forum of India).