Mu0012 SLM Unit 15 Text

Employee Relations Management
Unit 1
Unit 1
Introduction to Employee Relations

Management (ERM)
Structure:
1.1 Introduction
Objectives
1.2 Overview of Employee Relations Management
1.3 Importance of Employee Relations Management
1.4 Employee Relations Management Tools
1.5 Core Issues of Employee Relations Management
Conflict Management
Internal Communication
Employee Engagement
Career Management
Commitment
Talent Management and Retention
Training
Benefits Administration
Employee Self-service
1.6 Summary
1.7 Glossary
1.8 Terminal Questions
1.9 Answers
1.10 Case Study
1.1 Introduction
Employee Relations Management (ERM) is a vital business process that
manages employer-employee and employee-employee relations. It goes by
the maxim that a satisfied employee is a productive employee.
Organisations following good employee relations realise that employees are
important stakeholders in the organisation. Employees who are content with
their employers contribute more effectively towards the goals of the
organisation.
This unit explains the importance of ERM in organisations and the
organisational aspects that govern employee relations in an organisation.
ERM is influenced by organisational strategies, culture and other factors like
Sikkim Manipal University
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employee
commitment
and
employee
engagement.
Managing
organisational conflicts is also an important part of ERM. ERM familiarises
you with behavioural aspects like motivation, leadership, decision making
and communication that play an important role in employee relations
management. ERM is facilitated by tools like Human Resource Information
Systems (HRIS).
The objectives of ERM are as follows:
improve the effectiveness of the workforce
ensure employee satisfaction
gain and retain employee commitment
prevent conflicts amongst employees
promote retention of employees
improve employee-management and employee-employee
communication.
In this unit, you will study the concepts of employee relations, ERM, and the
importance of ERM in an organisation. This unit introduces ERM tools and
core issues like career management and employee retention addressed by
ERM.
Objectives:
This unit familiarises you with the concepts of ERM. After studying this unit,
you will be able to:
Define ERM.
Explain the importance of ERM in an organisation
Describe the features of an ERM tool
Describe in detail the core issues addressed by ERM.
1.2 Overview of Employee Relations Management

Employees are the most important resource for any company. How they are
treated and how much they value the company they work for will have an
impact on how the company performs.
As the term suggests, ERM is all about management of relationship with
employees in an organisation. It involves providing required training to
employees, maintaining clear communication, ensuring timely redressal of
grievances and providing them with a career growth path. Managing
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employees efficiently is very important for any business organisation,

irrespective of its size.
ERM is a process that develops and maintains employee relations, ensures
employee satisfaction, increases productivity and improves employee
morale. ERM enables employees to do their job in an efficient manner and
achieve both corporate and personal goals.
Let us look at one more concept related to employee relations but which is
much older, i.e., Industrial Relations (IR). IR can be traced back to the times
of the industrial revolution when many large-scale organisations employed
thousands of labourers. But the inhuman treatment meted out to the
labourers resulted in strikes and huge labour turnover. This necessitated the
birth of Industrial Relations (IR), which deals with the relationship between
the management and the employees (particularly management trade
union relations). Industrial Relations (IR) laid emphasis upon labour
legislations and fair treatment to employees.
But today, not many companies have labour unions and hence the focus
has shifted from IR to Employee Relations (ER). Now, Industrial Relations
deals with the study and practice of collective bargaining, trade unionism,
and labour-management relations, while Employee Relations Management
is a distinct field that deals with non-union employment relationships like
ensuring employee satisfaction, personnel practices and policies of
employers, and improving employee commitment, motivation and retention.
The important features of ERM are:
Communication: Communication channels among the employees, and

between employees and the management must be open. If the opinions
of the employees are not considered, they become frustrated and this
would lead to low morale. Demoralised employees are less productive
and may even become hostile. Team briefings, performance appraisals
and employee surveys are different means of improving communication.
Management of the employment contract: The employment contract

specifies the pay, working conditions, safety procedures, rules to be
followed, etc.
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Conflict management: Conflicts usually arise among employees or

between the employer and the employee. Traditional methods of
resolving conflicts like formal disciplining and grievance redressal
procedures are now seldom used. Mediation and counselling are
increasingly being used to resolve conflicts. Managers are being trained
to resolve disputes and avoid conflicts in a professional manner.
Employees are advised about the rules, regulations and procedures of
the organisation. They are also briefed about their grievance redressal
procedures and appeal rights.
Employee growth: Employees are encouraged to pursue career growth

opportunities within the company. Career planning is becoming an
important part of every organisation.
Commitment: An organisation will be able to succeed only if its

employees are committed to achieving the objectives of the
organisation. The factors which affect the commitment of the employee
are job satisfaction, nature of the job, rewards, benefit programmes,
communication within the organisation, promotion policies and
organisational culture.
Compliance with Employment Laws: Employment laws deal with

issues like unfair dismissals, discrimination, minimum wage, working
hours and so on.
1.3 Importance of Employee Relations Management

A good relationship among the employees, and between the employer and
employee is one in which there is equal contribution from the parties
involved towards making the relationship work.
The relationship between a company and its employee is complex and
efficient management of this relationship is vital to every organisation. By
managing employees efficiently, the organisation can capitalise on their
strengths and improve productivity.
Employee Relations Management is critical due to the following reasons:
It improves overall productivity by improving employee morale,

productivity, adaptability and communication.
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It improves job satisfaction and helps in retaining employees. Retaining

existing employees is an easier and more cost-effective task when
compared to recruiting new employees and training them.
It improves the communication system within the organisation.
It enhances employee involvement and commitment, which are very

important to the success of an organisation. Team working and change
management can maintain motivation and commitment.
It assures customer satisfaction.
It increases the synergy between the culture of the organisation and the
expectations of the employees.
It positions the company as an employer of choice and thus attracts

new employees.
It increases employee loyalty. Confidential information can be kept

secure.
Exhibit 1.1 New challenges for ERM in the modern workplace

When considering workplace diversity, people tend to think in terms of
gender, race, ethnicity, cultural or religious background. However, one of the
most striking ways in which today's workforce has become more diverse is
in age.
Experts say that for the first time in history, the workplace includes four often
distinct generations, each with unique strengths, expectations, motivations,
and work styles. They range from the oldest, the so-called Silent Generation
of workers or the veterans, to the Baby Boomers, the Gen-Xers and the
most recent group, Generation Y, whose members are just beginning to
launch their careers.
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It is well established that differences in skill-sets, work values, attitudes and

overall approach to life exist across generations (see Table 1.1).
Personal and Workplace Characteristics of Four Generation
Veterans
Baby Boomers
Gen X
Gen Y
Core
values
Respect for
authority,
conformers,
discipline
Optimism,
involvement
Scepticism,
fun,
informality
Realism,
confidence,
extreme fun,
social
Work ethic
and values
Hard work,
respect for
authority,
sacrifice, duty
before fun,
adherence to
rules
Workaholics,
work efficiently,
crusading
causes, personal
fulfillment, desire
quality, question
authority
Self-reliance,
want
structure and
direction,
sceptical
Multi-tasking,
tenacity,
entrepreneuri
al, tolerant,
goal-oriented
Rewards
Satisfaction
of a job well
done
Money, titles,
recognition
Freedom to
do what they
want is the
best reward
Meaningful
work
Each individual brings deeply rooted cultural experiences based on his/ her
state or location, caste, religion, beliefs, norms, ethics, behaviour and
attitudes to the workplace. These factors also need to be analysed to
understand the differences in work values among generations.
Organisations of the future cannot continue to consider situations arising out
of differences in values as temporary aberrations or adjustment problems that
will go away with time. In most workplaces, handling Gen Y is considered an
HR managers worst nightmare. Veterans often find themselves to be misfits
in the organisation culture. In order to leverage the strengths of multiple
generations within their workforce in a way that leads to collaboration,
organisations have to indulge in increased knowledge sharing. This would in
turn result in creative solutions and building networks that foster knowledge
sharing and value creation for both the employees and the organisation.
Effective leaders need to take stock of and improve their own styles and
generational preferences, and they must coach others to do the same. To get
the most out of the staff, they need to learn to motivate them according to
their needs.
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The psychological contract model, reinforced by the findings of different

surveys, suggests that ERM practices affect the attitude of the employees
towards the organisation. The psychological contract includes the
expectations of both the employers and the employees. If employees get fair
treatment, their trust in the organisation increases, which in turn increases
their commitment and involvement.
Self Assessment Questions
1. _______________ is a process that develops and maintains employee
relations.
2. Team briefings, performance appraisals and employee surveys are
different means of improving ______________.
3. ____________ and __________ are increasingly being used to resolve
conflicts.
4. The ________________ model reinforced by the findings of different
surveys suggests that ERM practices affect the attitudes of the
employees towards the organisation.
1.4 Employee Relations Management Tools

Technology can be used to help manage employee relationships in the most
efficient manner. Automated employee relationship management tools help
employees do their tasks in a better way. The following are the different
applications existing in organisations which use tools based on different
technologies:
HR Information Systems: Human Resource Information System

(HRIS) is used to manage employee information, leave details and to
administer benefits. HRIS handles payroll and other company financial
software and accounting systems. These are used by companies for the
following reasons:
Employees receive timely and correct wages
Employees apply for leave on their own
Training programmes for employees can be automated and
streamlined.
Performance Management Systems (PMS): PMS helps to monitor the

performance of employees and link it with their salary increments and
bonus payments. With PMS, managers keep track of training activities
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and deadlines, maintain employee activity logs, which are used for
evaluation and planning. There are software tools which aid
performance appraisals like those from HRdirect, Halogen Software,
Cornerstone Performance and so on.
Work Flow Systems (WFM): These tools help in scheduling, organising

and co-ordinating the work of employees. Teleopti CCC and SAP HR
are some examples of WFM software that are used in the workplace to
manage, involve and improve the workforce.
Knowledge Management Systems: These help employees identify,

create and share their knowledge. Search and retrieval tools enable
easy access of content. According to their role in the organisation,
employees view content that is relevant to their work. A single software
solution cannot be used for these systems. Knowledge management
systems use document management tools, e-learning software,
knowledge repositories (databases), collaborative technologies
(groupware) and social software (wikis).
Project Management Systems: These help in managing and

monitoring project activities and in scheduling resources. Project
management systems facilitate creation and approval of project
estimates. They define resources and tasks. They also create project
milestones and enable easy execution of projects. Project reports are
generated easily. Gantt charts help in scheduling projects. Critical path
analysis (CPA) and Programme Evaluation and Review Technique
(PERT) charts help in project planning. Log frames can be used for
project monitoring. Software tools like Microsoft Project and
SourceForge help in project management.
Employee Feedback Systems: Surveys enable employees to voice

their opinion about routine tasks, management attitude, current
procedures and ethics. Many software tools are available to help in
employee surveys like those from HR-Survey, and Benchpoint.
Employee Self-service Systems: These systems enable employees to

update their personal details. This system enables the employees to file
their expenses, billing and time reports, raise purchase requests and
keep track of their project-related activities, retrieve human resourcerelated documents, update their tax-related information and view their
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salary details. They can also update their bank information to enable
direct salary deposits and reimbursements. The system enables leave
application and view leave balances. An open forum is provided for
employees to present their views, exchange ideas through e-mails and
bulletin boards, create and share calendars for better functioning. Tools
are provided to employees to perform routine tasks easily and thus
focus on other important tasks. Oracles PeopleSoft Enterprise
Employee Self-Service is an example of an employee self-service tool.
These technologies are beneficial only if they address the needs of the
employees. Clear guidelines need to be provided to use these technologies.
The benefits of implementing these tools are as follows:
It strengthens corporate culture.
It enhances communication through the use of e-mails, blogs, bulletin
boards, shared folders and e-calendars.
It educates employees about the products, customers and services of
the company through enterprise portals.
It facilitates project management.
It reduces training costs as employees can be provided online and
needs-based training.
It makes HR management work easier.
It facilitates work-flow management and increases productivity.
It enhances performance management.
It manages resources efficiently.
It helps retain and provide career growth to talented employees.
It enables easy retrieval of information
It obtains feedback from employees and enables organisations to make
appropriate corrections
It assures job satisfaction and helps in retaining employees
It ensures compliance with government requirements.
Wipro is one of Indias leading software service companies. It has
developed some models to deal with the processes of employee
management. Wipro offers flexible Employee Performance Management
(EPM) solutions, which are delivered either in Business Process
Outsourcing (BPO) or Software as Service (SaaS) Model. They make
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employee assessments easier and more accurate. The EPM model offers
the following benefits:
Goal management
Performance appraisals
Workflow and succession planning
Employee development planning
Employee training.
5. _____________ systems help employees share their knowledge.
6. ________ systems facilitate creation and approval of project estimates.
7. __________ charts help in scheduling projects.
Activity 1:
Assume that you are the manager of a medium-sized (300 employees)
organisation. The organisation wants you to recommend some ERM tools
that will help in the efficient functioning of the organisation. List the tools
that you will recommend along with the justification.
1.5 Core issues of Employee Relations Management

The previous section dealt with the features and benefits of ERM tools. Now
let us consider some of the core issues of ERM.
1.5.1 Conflict Management
Conflict management refers to the manner in which managers handle
grievances and disputes. According to John Gennard and Graham Judge,
employee relations aims to resolve differences among various interest
groups regardless of whether these groups comprise different categories of
managers or employees.1 Workplace conflicts arise due to differences in
perceptions, culture, employee biases, gaps in communication, and so on. A
win-win approach is used to resolve conflicts. Mediation and counselling are
adopted for resolving conflicts rather than using formal discipline measures.
Managers are trained both to avoid and to resolve disputes. External
mediators can also be called in if necessary. Large organisations like public
sector companies prefer to use internal mediators to resolve conflicts.
1
Employee Relations by John Gennard, Graham Judge, p18, Chartered Institute of Personnel
Development, 2005.
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Unresolved work place conflicts can have a negative impact on the

organisation. For example, if the production manager and the quality control
manager have differences about implementation of quality procedures, then
the work of both the divisions is affected. Figure 1.1 depicts some causes of
workplace conflicts.
Figure 1.1: Causes of Workplace Conflicts
Conflict management skills help employees get along with other employees,
their managers and the customers. These skills help managers identify
conflicts, respond to them, get better co-operation from the employees, and
avoid conflicts from spreading to other parts of the organisation.
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The following skill set help managers deal with conflicts:

Conceptual skills: Managers need to first understand the cause of
conflict and the different strategies and tactics they can use to resolve
the conflict.
Communication skills: Managers require good listening skills and the
ability to ask the right questions to ascertain the cause of the conflict.
They must avoid harmful statements and remain rational.
Negotiation skills: Managers need to know the policy of give and take
required to resolve conflicts.
Conflicts are resolved by adopting the following strategies:
Counselling: Only a few organisations have professional counsellors on
their staff. Many organisations train their managers to counsel their
subordinates. Often, just by employing non-directive counselling
(listening and understanding), managers can help frustrated employees.
Discussions and debates: Task conflicts are resolved by discussing or
debating the options. Consensual decision is made after considering
every option.
Compromise: This method tries to resolve conflicts by arriving at a
solution which satisfies at least part of the requirement of each party
involved.
Using third parties: As serious conflicts have a negative impact on
organisations, third parties with specialised skills are used as arbitrators,
mediators or ombudsmen to resolve them.
1.5.2 Internal communication
Employee engagement can only be obtained if the senior management
communicate frequently on a wide range of business and organisational
issues. Organisations with good employee relations give high priority to
internal communication. Such organisations ensure that the employees
completely understand the communication made to them.
For example, The South-West Trains Company has a very good relationship
with its unions. But when the management realised that not all employees
were being informed about the different issues, they decided to use a more
direct means of communication. At present, ad-hoc forums are held to get
feedback from employees. Time with the manager sessions keep the line
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managers in touch with the operations staff. In addition to team briefings,

the intranet and e-mail are used to communicate with all the employees.
1.5.3 Employee engagement
Mike Johnson describes employee engagement as a combination of
commitment and organisational citizenship2. Organisations can be
successful only if the employees have a feeling of job security, respect,
recognition and purpose. Organisations that have good employee relations
value teamwork and employee feedback. Engaged employees are more
committed, helpful, productive and less inclined to take leave. Figure 1.2
depicts the indicators of employee engagement.
Figure 1.2: Employee Engagement Indicators
People management and development activities like training and job design
contribute to employee engagement. A positive psychological contract with
the employees enhances performance. HR professionals are employee
champions and focus on the needs and aspirations of the employees.
Employee involvement can be achieved by the following practices:
Having formally-designated teams
Having regular team briefings
Undertaking performance appraisals
Using problem-solving groups
Involving employees in decision making.
2
The New Rules of Engagement,2004, CIPD publication
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Dell is a computer manufacturing company and has been ranked among the
top ten companies by Fortune magazine. It aspires to be a great company
and a great place to work. It focuses on the team and individual
contributions to the team. Line managers interact with individual team
members. All employees are judged on the basis of how they interact with
people and their technical proficiency. Quarterly results meetings are held
across the business and senior managers answer questions posed to them.
Managers share results with the team and develop team action plans. Tell
Dell surveys are held every six months. These surveys help in finding if the
managers give regular feedbacks, manage people properly, set a good
example of ethical behaviour and so on. Thus Dell engages its employees
by constant employee involvement.
1.5.4 Career Management
Career development of employees is organisationally supported, manager
facilitated and employee driven. The career management process is based
on the establishment of specific goals and objectives.
The career management process commences with the formulation of
specific goals and objectives. The goals can be of the following kinds:
Short-term goals: These are goals to be achieved within the next 1 to 2

years. These are more specific and easy to formulate.
Intermediate goals: These are goals to be achieved in the next 3 to 5

years. These are more difficult to formulate as compared to short-term
goals.
Long-term goals: These are goals to be achieved after 5 years. They are
more fluid and very difficult to formulate.
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Figure 1.3: Employee Career Development
As the nature of the work changes employees may have to modify and
update their goals. Figure 1.3 shows the employee career development
cycle where managers guide, motivate and provide opportunities to
employees in every step towards developing career. Organisations
exercising good employee relations have an environment in which
employees take control of their own development and maintain their
employability. Such organisations ensure that employees are given fair
career advancement opportunities. Discriminations are not made on the
basis of race, gender or ethnic group. The framework of such organisations
enhances employee potential.
1.5.5 Commitment
Employee commitment can be defined as the psychological bond of the
employee with the organisation and the degree to which the employee
identifies with the organisational goals. Employee commitment is an
important factor that determines the success of an organisation. Employee
commitment is influenced by the following factors:
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Organisational values: Organisational values influence employee

behaviour. If the organisation values employee participation, the
employee feels more committed to contribute to the success of the
organisation.
Relationship with supervisor: If the employee has a good relation with

the supervisor, it improves commitment. A supervisor has to share
information, provide timely feedback and reward good performance.
Job nature: When the job satisfies the employee, commitment

increases. But their levels of commitment decrease when employees are
given routine or repetitive tasks with no challenges to stimulate them, .
Entrusting employees with responsibility and giving them more
autonomy increases commitment.
Organisational justice: When employees work in a fair and just

environment, their commitment increases. Promotions and wage
increments need to be awarded in a fair and transparent manner.
Employee grievances also need to be addressed and conflicts resolved
immediately.
Increasing commitment is a business necessity. The benefits of gaining

employee commitment are as follows:
Organisational performance is improved.
Employee motivation increases and this increases productivity.
Profits increase as sales increases.
Employee retention is increased.
Cost savings is enabled. Training costs of new employees get reduced.
Conflicts in the organisation reduce.
1.5.6 Talent management and retention
Successful organisations have an effective employee retention strategy in
order to maintain their growth and leadership. Organisations which do not
give priority to retaining employees lose them to their competitors.
It is much easier to retain satisfied employees than recruit newcomers.
Training newcomers to become productive is very costly and requires more
effort and resources. Talent can be retained only by enhancing employee
motivation and job satisfaction. Figure 1.4 shows a diagrammatic
representation of the factors affecting employee retention.
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Figure 1.4: Factors Affecting Employee Retention
The following are some of the strategies that organisations adopt to retain
their employees:
Employee motivation with learning: Employers encourage learning in the
organisation. They sponsor employees when they undertake any
enhancement courses after agreeing with the employees that they would
continue to work for the organisation for a specific time period. These
employees can return to the workforce with better qualifications and
hence perform better.
Use money as a motivational tool: Money is a complex factor and its
influence on employee retention cannot be defined easily. But it is a fact
that money represents purchasing power and employees who earn more
are more satisfied than other employees.
Brand building: This is a long-term approach and aims at attracting the
best of talents. It requires consistency in operations and good
organisation culture to enhance the image of the organisation.
1.5.7 Training
Many organisations have a policy of personal development of employees.
Training programmes are undertaken by organisations when the results of a
performance appraisal indicate that training is essential. Training
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programmes are also undertaken to enable employees to undertake new

roles, which require more skills.
The training programmes undertaken by an organisation deal with the
following:
Communication: People with different languages and customs are
employed and they need to be trained in interpersonal communication.
Computer literacy: These skills have become very essential even for
routine administrative tasks.
Quality initiatives: Implementation of programmes like Total Quality
Management, Quality Circles, Benchmarking require training of
employees in quality procedures, concepts and standards.
Customer service: Employees need to understand and meet the needs
of the customers to stay competitive.
Human relations: Employees are trained to avoid misunderstanding and
conflicts and build interpersonal relations.
Safety: Employees are trained in safety measures especially if they
handle heavy equipment, work in hazardous conditions or deal with
hazardous chemicals.
Ethics: Organisations today are more socially responsible. Hence
employees are made familiar with the corporate values and morals.
Sexual harassment: Employees are made aware of what constitutes
sexual harassment in order to avoid such behaviour.
Training and development activities contribute to the personal development
of the employee and augment employee engagement. The benefits of
having training programmes in an organisation are as follows:
They enhance job satisfaction and improve employee morale.
They make processes more efficient thus increase productivity and
profits.
They increase employee motivation.
They improve the corporate image of the company.
The organisation becomes more capable of adapting to new ideas and
technology.
The organisation has more innovative strategies and ideas.
They increase employee retention and reduce turnover.
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You can now understand the importance of having training programmes in

organisations. Training programmes are indicators to the employees that the
organisation is truly interested in their personal development and skill
enhancement. The employees in turn become committed to the organisation
and help the organisation to achieve its goals.
1.5.8 Benefits Administration
Employees are the most important asset of an organisation. Organisations
that practice good employee relations management have many benefits
programmes in order to attract and retain employees.
The problems in implementing an efficient benefits programme arise due to
the following reasons:
The employer is unable to collect key information and verify them.
The employee is unable to access information about the different
benefits programme. This increases job dissatisfaction and turnover.
The benefits administration process has to be streamlined and automated.
The features of an effective benefits administration process are as follows:
It is easier to create and manage multiple benefits programmes.
It creates employee benefit plan profiles.
It creates eligibility criteria.
It maintains beneficiaries and dependents information.
It facilitates performance reviews, tracks past review details and
schedules future reviews.
It interfaces directly with insurance providers and payroll systems.
It merges and audits monthly insurance or benefits.
It complies with government requirements.
There is an annual review of the benefits programme.
You now know the advantages of implementing a good benefits programme
in an organisation. Automated benefit systems help both the employers and
the employees. Good benefit programmes enhance employee retention.
1.5.9 Employee Self-Service
Employees feel empowered when organisations have employee self-service
modules to manage personal data. The accuracy of employee information is
improved with the introduction of such modules. The administrative
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workload of the HR staff is also significantly reduced. The following list

enumerates the features of an employee self-service module:
It facilitates creating and updating personal details like name, address,
telephone numbers, etc.
It maintains passwords for security of information.
It maintains information about emergency contacts, beneficiaries, and
dependents.
It facilitates enrolment in benefits programmes.
It allows updating of tax-related information like exemptions and savings
details.
It allows viewing of salary details like gross pay, deductions made, and
net pay.
It maintains bank related information for direct deposits of salary and
reimbursements.
It allows employees to apply for leave and check for leave balance.
Employers can review the leave details of the employees.
It allows employees to submit details about expenses.
It allows internal and external job applications. It also permits checking
of job application status.
It facilitates viewing of training programme details and enrolment.
It maintains health and safety records.
The employee self-service module enables employees to manage their
personal data. The accuracy of the data improves and the work of the
Human Resource staff is also made easier.
8. _________________ refers to the manner in which managers handle
grievances and disputes.
9. Employee engagement can only be obtained if the senior management
______________ frequently on a wide range of business and
organisational issues.
10. Mike Johnson describes employee engagement as a combination of
_____________and ___________________.
11. Successful organisations have an effective __________________
strategy in order to maintain their growth and leadership.
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12. __________________ module empowers the employees to manage

their own personal data.
Activity 2:
Visit a company in your town and find the employee benefits given by the
company and the method in which these benefits are administered.
1.6 Summary
Employee Relations Management (ERM) is a process that develops and
maintains employee relations. ERM ensures employee satisfaction,
increases productivity and improves employee morale. Employee relations
management is important as it enhances overall productivity, employee
involvement and commitment. It improves job satisfaction and helps in
retaining employees. It improves the communication system within the
organisation. It also ensures customer satisfaction.
Employee relationship management tools facilitate employee management.
ERM tools can be used for HR management, performance management,
knowledge management, work-flow management and project management.
They also enable employees to manage their personal data.
The core issues of ERM are conflict management, internal communication,
employee talent management and retention, employee commitment,
employee training, employee self-service, and benefits administration.
1.10 Glossary
Term
Description
Ad-hoc
Made or happening only for a particular purpose or need;

not planned before it happens
Arbitrators
A person who is officially appointed to make a decision

between two individuals or groups who do not agree
Audit
An official examination
Beneficiaries
A person or a group who receives money or other

advantages
Blogs
Records of thoughts, opinions or experiences that is put on

the Internet for others to read
Brand building
Enhancing a brands power through advertising campaigns,

sponsorships and promotions
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Bulletin boards
A place on a computer system where users can read

messages and add their own
Company portals
A company intranet, which can serve as a gateway to other

networks
Compliance
Obeying an order, rule or a request
Conceptual
Based on ideas or principles
Confidential
Secret, often in business or military situation.
Consensual
With the agreement of all people involved
Counselling
The process of listening to someone and giving them advice
Database
connectivity
Access to a database
Discrimination
Treating a person or a group differently because of their skin

colour, religion, sex, etc.
Employee
retention
Keeping employees in the company
Ethnic group
The people of a race or nationality who share a distinctive

culture
Forum
Public medium or place used for debates
Grievance
redressal
Measures to correct a wrong that is done
Harassment
Behaviour that annoys or upsets someone
Intranet
A system of connected computers, which allow people within

the organisation to communicate and share information
Mediation
The process of talking to people or groups involved in a

disagreement and helping them to find a solution to their
problems
Ombudsman
Someone who works for the government or a large

organisation and deals with the complaints against it
Organisational
citizenship
Extent to which the voluntary support and behaviour of an

individual contributes to the success of an organisation
Perception
Belief or opinion held by people based on how things appear

to them
Performance
appraisals
Process by which a manager examines and evaluates the

work of an individual by comparing it with preset standards
Project milestone
A project checkpoint to evaluate how the project is

progressing or a scheduled event signifying the completion
of a major deliverable.
Reimbursement
Payment of money to compensate someone who has spent

money for you
Page No.: 22
Unit 1
Repository
A place which contains a lot of detailed information or

knowledge
Workflow tracking
Monitoring tasks, procedural steps, inputs, outputs or people

involved for each step in a business process

1. Explain the concepts of Employee Relations Management.
2. Why is ERM important?
3. What are the different systems in an organisation which use ERM
technologies?
4. What is conflict management? Why is it important?
5. Why is employee retention important?
6. What are the different kinds of training programmes implemented by
organisations?
7. Explain the employee self-service module of ERM.
1.9 Answers
Answers to Self Assessment Questions
1. Employee Relations Management
2. Communication
3. Mediation, counselling
4. Psychological contract
5. Knowledge management
6. Project management
7. Gantt
8. Conflict management
9. Communicate
10. Commitment and organisational citizenship
11. Employee retention
12. Employee self-service
Answers to Terminal Questions
1. Refer Section 1.2
4. Refer Section 1.5.1
Page No.: 23
Unit 1

1.10 Case Study

A healthcare support service company has contact centres and employs
more than 600 agents. Some of these agents work from home. These
agents help people deal with health, work-life and well-being issues. The
company provides a 24-hour nurse line and financial, emotional, legal,
and management consultancy.
In order to manage its diverse group of employees, the company decided
to use an employee management tool, IEX TotalView.
The features of this tool which were beneficial to the organisation are as
follows:
Schedule bidding: The registered nurses bid for schedules that suit them
best. This improves the efficiency of the nurses to about 92%.
Agent availability and preferences: Customer care co-ordinators generate
flexible schedules which suit them. This increases their job satisfaction.
Meeting scheduler and optimiser: This enables scheduling of breaks,
lunches and offline activities while taking the needs of the company into
consideration.
Schedule audit: This helps in administrative scheduling issues.
Vacation planner: This helps managers verify and approve paid leaves.
WebstationPlus: This feature enables agents working from home
schedule their roster or vacation bidding.
An administrator is appointed by the company to deal with all employee
issues.
By using this system, the staffing plans of the company have become
very accurate. The company has also been able to maintain a consistent
service level. As employees choose their own schedules, the job
satisfaction level has also increased.
Page No.: 24
Unit 1
Questions:
1. What are the different features of the IEX TotalView management
tool?
2. How has the use of IEX TotalView management tool benefitted the
company?
References:
Gennard, J.; Judge, G; (2005). Employee Relations, Chartered Institute
of Personnel Development
(2004). The New Rules of Engagement, Chartered Institute of Personnel
Development.
E- references:
http://www.managementhelp.org/trng_dev/basics/reasons.htm (retrieved
on 6/06/12)
http://it.toolbox.com/blogs/enterprise-design/why-employee-relationshipmanagement-21687(retrieved on 6/06/12)
Page No.: 25
Unit 2
Unit 2
Strategic Employee Relations

Management
Structure:
2.1
Introduction
Objectives
2.2
Different Strategy Levels in an Organisation
Corporate Level Strategy
Business-unit Level Strategy
Functional Level Strategy
People Strategy
2.3
Strategy and Employment Policies
2.4
Future Challenges
2.5
Performance Management Services
2.6
Quality, Involvement and Commitment as Competitive Advantages
2.7
The Psychological Contract: Interest and Expectations
2.8
HR Infrastructure
2.9
Employee Surveys
2.10 Summary
2.11 Glossary
2.13 Answers
2.14 Case Study
2.1 Introduction
The previous unit explained the concepts of Employee Relations
Management (ERM). This unit familiarises you with the concepts of strategic
relations management. You will learn about the strategies and employment
policies adopted for effective employee relations. You will be introduced to
performance management, quality management, and employee
commitment, expectations and interests.
Johnson and Scholes define strategy as The direction and scope of an
organisation over the long-term; which achieves advantages for the
organisation through its configuration of resources within a changing
Page No.: 26
Unit 2
environment, to meet the needs of markets and to fulfil stakeholders

expectations.1
The main levels of strategy of an organisation are:
Corporate level strategy: It frames the overall business direction and
goals.
Business-unit level strategy: It specifies the methods the organisation
uses to compete in particular markets.
Functional level strategy: It outlines the strategy of individual
departments and divisions like finance, marketing, etc.
People strategy: It matches an organisations activities with its
resources.
Objectives:
This unit familiarises you with the concepts of strategic relations
management. After studying this unit, you will be able to:
list the different levels of strategy in an organisation.
explain why strategic people management is essential for the success of
an organisation.
explain how the strategy of an organisation influences its employee
policies.
recognise the role of quality, involvement and commitment as
competitive advantages.
assess the role of HR infrastructure and employee surveys in strategic
relations.
2.2 Different Strategy Levels in an Organisation

Organisations have different levels of strategic decision making. Although
these levels are inter-related, each one of them has its own scope and
reach. The different levels of strategy in an organisation are at the corporate
level, business-unit level, functional level and people level. Let us now
examine each level of strategy that exists in an organisation in detail.
2.2.1 Corporate level strategy
Corporate level strategy is usually devised at the board level. It defines the
following for an organisation:
1
http://www.oppapers.com/essays/Johnson-And-Scholes/269474
Page No.: 27
Unit 2
The overall mission

The game plan
The management of the business portfolio
The priorities of each business unit regarding resource allocation
The structuring of the business
The methods of financing the business
The alliances to be made
The acquisitions/mergers to be performed.
Figure 2.1 depicts the factors which influence corporate strategy.
Figure 2.1: Factors Influencing Corporate Strategy
From Figure 2.1 you can see that corporate strategy is influenced by the
external environment, the people and systems within the organisation, the
organisation structure, and resources within the organisation, the current
values of the organisation and the expectations and objectives of the
organisation.
Corporate strategy examines internal (within the company) and external
factors (competitors, clients, customers), frames a new vision for the
organisation and aligns policies, practices and resources to achieve that
vision. It provides an overall direction to the organisation. The corporate
visions of some organisations are listed below:
GE (General Electric): We bring good things to life.
Microsoft: To enable people and businesses throughout the world to
realise their full potential.
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Unit 2
The corporate vision influences the business mission. A good business

mission should be:
Clear: It should be stated in a language that is easily understood by
most of the employees.
Achievable: The employees must feel that the organisation can achieve
the specified objectives.
Challenging: Each employee should exert as much effort as possible to
contribute to the overall success of the mission.
According to Johnson and Scholes, corporate strategy can be evaluated by
the following criteria:
Suitability: Is the strategy economically viable? Is it suitable to the
current corporate capabilities and environment?
Feasibility: Are the resources (finance, people, time, knowledge, etc.)
available to implement the strategy?
Acceptability: Will the stakeholders (shareholders, employees,
customers) react favourably to the strategy?
For example, Dell Computers is a leading PC supplier. The corporate
strategy adopted by it is to deliver innovative and cost-effective solutions,
which address customer needs. Dell Computers tries to deliver this through
its in-house research and development (R&D) division and by forming
strategic partnerships with top industry suppliers and original development
manufacturers.
We have so far discussed corporate strategy. Let us now discuss the
business-unit level strategy of an organisation.
2.2.2 Business-unit level strategy
Business-unit level strategy is mainly concerned with how the organisation
gains advantage over its competitors. It deals with the following:
The methods the organisation uses to compete in particular markets
The new opportunities that the organisation identifies or creates
The products or services to develop
The customers that the organisation targets.
For example, the business-unit strategy of a furniture manufacturer is
decided by the following factors:
Page No.: 29
Unit 2
The type of furniture the furniture manufacturer wants to market (home

furniture, office furniture, etc.)
The competitors who market similar furniture
The quality of furniture the furniture manufacturer wants to market (solid
wood, plywood)
The customers the furniture manufacturer targets (individual customer,
corporate, educational institutions).
According to Porter (1985), the three basic factors that influence the
decision-making process are:
Cost leadership: It aims to offer lower costs than the competitors without
lowering quality.
Product differentiation: It tries to achieve industry-wide recognition that
the different products and services of the company are superior in
quality when compared to that of the competitors.
Specialisation by focus: It tries to establish a niche market.
Having understood the business-unit level strategy, let us now discuss the
functional level strategy of an organisation.
2.2.3 Functional level strategy
Functional level strategy is concerned with how different units of the
business (marketing, finance, manufacturing, personnel) transform
corporate and business level strategies into operational goals. According to
Johnson and Scholes, functional strategy describes how the component
parts of an organisation in terms of resources, processes, people and their
skills are pulled together to form a strategic architecture, which will
effectively define the avenue. 2
Functional units help in framing the business and corporate strategies by
providing input on resources and capabilities. Once the higher level
strategies are framed, action plans are framed for each department, in order
to accomplish the higher level strategies.
For example, when the corporate strategy of a business is to become the
lead player in a specific market, the functional strategies of each division
would be as follows:
2
People and Organisations - Employee Relations, Third edition by John Gennard and Graham Judge
Page No.: 30
Unit 2
Manufacturing division: To produce good quality goods.

Human resource division: To train staff in order to have a highly skilled
workforce.
Marketing division: To increase sales by increasing advertising.
The different kinds of functional strategies are

Marketing strategy: It deals with pricing, selling and distributing a
product.
Production strategy: It deals with what products to produce (issues like
new products for existing markets or products for new markets), the
production chain, etc.
Finance strategy: It aims to align the financial management of an
organisation with its mission and goals. The decisions to be made are
regarding budgets, liquidity issues, credits, cash flows, loans, capital
investments, etc.
Human Resource Management (HRM) strategy: It deals with managing
an important asset of the organisation its work force.
R & D strategy: It deals with issues like innovation and development of
new products, and the addition of new features in existing products.
It is essential that various functional units organise themselves with care in
order to achieve their aims and synergise with the rest of the business. Let
us now analyse the concepts of people strategy.
2.2.4 People strategy
People strategy aims to match the activities of an organisation with its
human resources. An effective strategy for people management is vital to
the success of an organisation. Research carried out by the Institute of
Work Psychology and the Centre for Economic Performance shows a clear
link between the adoption of good human resource business practices and
improved performance. The research proves that focussing on key people
management issues will improve productivity and profitability. People
strategy aims to:
Ensure that the employees are satisfied with their jobs, working
environment, rewards and career prospects.
Develop employee commitment by motivating them to move beyond
contractual obligations to emotional commitment. This develops a strong
sense of loyalty to the organisation and its customers.
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Unit 2
Manage organisation culture by concentrating on the important cultural

aspects of the organisation.
The culture of an organisation is defined by:

The artefacts and symbols of the organisation
The stories and myths within the organisation about its various
successes or failures
The rites and rituals that define employee behaviour
The rules and procedures that set parameters for employee behaviour
and action
The role models within the organisation
The beliefs, values and attitude reflected in the daily activities
The ethical standards which set the boundaries of acceptable behaviour.
The five main features of people management are:
Developing a strategic view of managing employees
Involving employees in the business
Investing in communication
Managing employee performance
Viewing employees as individuals.
Developing a strategic view of managing people
An organisation must ensure that its people are at the centre of any
strategic business planning. The key issues that an organisation must
address while planning its business strategy are:
Are the right knowledge, skills and competencies available within the
organisation?
Should people be recruited from outside?
Can the knowledge, skills and competencies of the people be developed
to explore new business opportunities?
Involving people in the business
Emphasis on team work will involve employees in the business. Teams
need:
More autonomy and freedom for self-management.
Clear objectives and targets.
The freedom to plan and undertake work, acquire resources and
improve the processes, products and services.
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Unit 2
Investing in communication
To be successful, an organisation must invest heavily in communications.
Businesses that show a high growth have implemented the following in
enhancing communication within the organisation:
Communicate their business strategy to all employees
Give feedback on performance to all employees regularly
Use a wide range of communication methods.
Managing employee performance
Employees perform well if they:
Know what they have to do
Get feedback on their performance
Know the areas in which they have to improve
Know how they can improve themselves.
If employee expectations are not well defined, it can lead to low morale,
dissatisfaction, absenteeism and high turnover.
Viewing employees as individuals
High performing organisations view people as individuals and use
techniques of involvement which encourage satisfaction and commitment.
This section explained the various levels of strategy in an organisation. We
will next discuss how organisational strategy influences employee policies.
1. The main levels of strategy of an organisation are __________,
__________, __________, and _________.
2. __________ strategy is usually devised at the board level.
3. __________ strategy is concerned with the methods the organisation
uses to compete in specific markets.
4. According to Porter, the three basic factors that influence the businessunit level strategies are ________________, ______________, and
_____________.
5. People strategy is concerned with matching the activities of an
organisation with its _____________.
6. Improvement in productivity and profitability can be achieved by
focussing on key _______________ issues.
Page No.: 33
Unit 2
7. Employees can be involved in the business by emphasising on

_______________.
8. To be successful, an organisation must invest heavily in
_______________.
Activity 1:
An organisation wants to introduce a new product, for example a new
shampoo. Note the factors that determine the business strategy of the
organisation. List the people strategy which will help in realising this goal.
2.3 Strategy and Employment Policies

Figure 2.2 shows how employee relations are formulated.
Figure 2.2: Strategy and Employee Relations
The business strategy defines the Human Resource Management (HRM)

strategy, which in turn defines the employee relations strategy. The
employee relations strategy defines the employment policies and practices.
Having understood how to differentiate between the different levels of
strategy in an organisation, let us now see how the strategy of the
organisation links with the different aspects of employee relationship
namely, employee resourcing, employee development and employee
reward.
It is very important that the strategy of an organisation maximises its
competitive advantage. An organisation must constantly evaluate and
Page No.: 34
Unit 2
re-evaluate itself and make necessary improvements. Organisations should

design and manage employment policies, which will improve their business.
The process of change and its impact on the formulation of strategy poses
many challenges. For example, if there are trade unions in an organisation
and there is a trend towards individualism, then the organisation must
decide whether the trade unions have to be encouraged or marginalised.
The workforce of Southwest Airlines (a U.S. airline company) is organised
into nine unions for pilots, technicians, transportation workers, customer
service personnel, mechanics, cleaners, reservation agents and flight
attendants. The company has welcomed these unions and maintains cordial
relations with them. The company has also ensured that these unions have
the same objectives as the company.
The strategies and policies on employee relations must be in synergy with
the business strategy and also be innovative, clear and action oriented. The
employee relations strategy must respond to the needs of the organisation.
It must assist the employee in understanding their goals and the methods
used to achieve their goals. The employee relations specialist formulates
the employee relations strategy based on the philosophy of the organisation.
The needs of an organisation in terms of its employee relations policy are
defined by the following areas:
The change management procedure: It deals with issues ranging from
increasing productivity, improving employee involvement, or introducing
team work.
Attitude towards trade unions: It decides whether to encourage trade
unions or not.
Practical employee relations strategies include:
Regulation of workplace agreements
Protection of employee issues
Human Resource (HR) infrastructure support
Growth performance management.
Now you know how employee policies are influenced by organisational
strategies. Let us next analyse the future challenges of an organisation.
Page No.: 35
Unit 2

9. The strategies and policies on employee relations must be in synergy
with the __________ strategy.
10. The ________________ formulates the employee relations strategy
based on the organisations philosophy.
11. The _____________ procedure deals with issues as diverse as
increasing productivity, improving employee involvement, or introducing
team work.
2.4 Future Challenges

Future challenges in the area of employee resourcing are developing
appropriate recruitment and selection policies.
Regarding employee rewards, the HR personnel face constant challenges
in:
Stimulating employee commitment
Motivating employees
Enhancing performance
Balancing monetary and non-monetary rewards.
As far as employee development is concerned, the challenges facing the
HR personnel are in deciding whether:
New staff has to be recruited or if in-house staff has to be trained
People with special skills or general skills have to be recruited
Staff have to be trained only to execute their current project or for
enhancing their knowledge or skills.
The directors of the organisation have to consider challenges the
organisation might face in the future and their impact on the employees. The
external political, economical (rate of inflation, interest rates, etc) and
societal influences (demographic trends) also have to be considered before
strategies of the organisations are decided. Changes in technology also
impact the strategy of the organisation.
You now know the future challenges which an organisation has to consider
while planning employee relations. Let us next analyse performance
management in an organisation.
Page No.: 36
Unit 2
2.5 Performance Management Services

Armstrong and Baron (1998) define performance management as, a
strategic and integrated approach to increase the effectiveness of an
organisation by improving the performance of the people who work in them
and by developing the capabilities of teams and individual contributors.3
The features of a good performance management programme are:
Key performance indicators: These are critical measures that identify
that the employee is doing what needs to be done and at the level that it
should be done. These then provide the basis for reward and
recognition.
Organisational competencies: These identify the organisational traits
that are very important for its success, the framework for employee
recruitment, employee duties and employee contributions.
Performance reviews: These provide feedback to the employees on how
they are performing. They can be paper based or web based.
Training programmes and explanatory materials: These include
handbooks that are provided to both appraisers and appraisees. The
appraisal process is explained along with examples of completed
appraisal forms.
Having understood the performance management of an organisation, let us
next discuss how an organisation can achieve excellence by adopting the
concepts of quality, involvement and commitment.
Activity 2:
Imagine you are the HR manager of an organisation. How will you assess
the performances of new employees who have completed their training
and have not been assigned to a project?
12. Future challenges in the area of employee resourcing are developing
appropriate ___________and ______ policies.
13. _________________ can provide feedback to the employees on how
they are performing.
14. A good employment contract clearly states the basic ______ and
___________ of both the employer and the employee.
3
http://en.wikipedia.org/wiki/Performance_management
Page No.: 37
Unit 2
2.6 Quality, Involvement and Commitment as Competitive

Advantages
The three critical factors that help achieve organisational excellence are:
Commitment to quality customer service
Commitment to high quality work life
Employee involvement.
Employee involvement implies that employees at all levels are involved in
the successful operation of the business. Employee involvement is present
only when employees have the following facilities:
Authority to make decisions
Good understanding of business operations
Training and personal development opportunities
Good and open channels for communication
Good performance management programmes
A good reward programme.
Quality customer service should be the core priority of any business. The
top management should be totally committed to quality and this commitment
should be communicated to employees at all levels. Customer feedback
should be constantly used to improve business practices.
Organisations display a commitment to a high-quality work life if they follow
the practices listed:
Help employees balance their personal and work life.
Give its employees challenging jobs without overworking them.
Do not discriminate amongst employees.
Equip its employees with the correct tools, materials and equipment.
Ensure job security.
Organisations can gain competitive advantage if they incorporate employee
involvement, quality assurance and a high commitment to good quality work
life in their culture. Employees, too, become committed to the organisation.
The morale of the employees improves and productivity increases.
The next section explains the concept of the psychological contract.
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Unit 2
2.7 The Psychological Contract: Interest and Expectations

Psychological contracts are the foundation of employer-employee
relationships. According to Rousseau (1989), psychological contracts are
defined as the beliefs individuals hold regarding the terms and conditions of
the exchange agreement between themselves and their organisations.
The written contract of the employees cannot include every aspect of the
employment relationship. Psychological contract bridges the gap by defining
the mutual beliefs, views and duties of the employer and the employee. It
reduces employee insecurity and helps shape employee behaviour.
Psychological contracts are based on promises made by both the employers
and the employees. Every employee expects a fair deal and clear
communication. Every employer expects employees to perform well and
protect confidential information. The general promises made by the
employers are of the following types:
Career development: A good career growth and timely promotions.
Job nature: A challenging and interesting job.
Social environment: A pleasant working environment.
Financial compensation: A fair compensation.
Work-life balance: A good understanding of the personal situation of the
employee.
The promises made by the employees are of the following types:
Good performance: Willingness to work hard and do the job well.
Loyalty: Willingness to work in the best interests of the company.
Flexibility: Willingness to work flexible hours (like overtime) in order to
complete the work allotted.
Ethical conduct: Assurance of good ethical behaviour like protecting
confidential information and dealing honestly with the resources of the
organisation.
Employees form their expectations on the basis of their interactions with the
people in the organisation and the culture of the organisation. Newcomers
have great expectations from the organisation. When newcomers gain
experience, their expectations weaken. The psychological contracts of
newcomers develop as their socialisation within the organisation increases.
Page No.: 39
Unit 2
Violations of the psychological contract occur when either the employer or

the employee fails to fulfil one or more obligations of the contract.
Employees respond to the breaches of the psychological contract by:
Quitting the organisation.
Asking their superiors for better work conditions
Having less loyalty to the organisation
Neglecting their work
Being absent or late more often.
This section discussed the importance of the psychological contract. Let us
next analyse the HR Infrastructure needed for organisational success.
15. _______________ implies that employees at all levels are involved in
the successful operation of the business.
16. ____________ are the foundation of employer-employee relationships.
17. ______________ of the psychological contract occur when either the
employer or the employee fails to fulfil one or more obligations of the
contract.
2.8 HR Infrastructure
Figure 2.3 illustrates how managers and employees interact in a good HR
infrastructure. A good HR infrastructure should:
Support the mission, vision and values of the company
Be simple, flexible and reliable
Support and enable the flow of work
Connect the employees to the overall system.
The five strategies to strengthen the HR infrastructure of an organisation
are:
Attaining HR expertise
Implementing performance management
Implementing HR policies and procedures
Understanding and complying with labour laws
Developing training programmes.
Page No.: 40
Unit 2
Figure 2.3: HR Infrastructure
The essential HR building blocks that build a productive workplace are:
Employment contracts: A good employment contract clearly states the

basic rights and obligations of both the employer and the employee.
Staff handbooks: These provide information about what is expected of

the employees and what the employees can expect from the
organisation.
Policies and procedures: These specify the working of the organisation.
Good job descriptions: These describe the manner in which each job fits
into the overall organisation.
Proper performance evaluation systems: These improve employee

productivity.
Compensation system: It rewards and reinforces right behaviour.
Now that you know the HR Infrastructure essential for a productive

organisation, let us next discuss the importance of employee surveys.
Page No.: 41
Unit 2
2.9 Employee Surveys

Employee satisfaction is very essential for the success of an organisation.
Employee surveys help in finding out the opinions of the employee
regarding the organisation and the co-workers. These surveys also indicate
to the employees that their opinion is very important. The feedback from the
employee helps the organisation in understanding what it is doing well, and
in what areas it should improve. Employee survey results provide guidelines
for the business. Employee surveys also act as an effective communication
tool. Employee surveys can be conducted online or on paper.
The different kinds of employee surveys are:
Employee satisfaction survey: Sometimes employees find it difficult to
communicate their feelings and expectations. These surveys help to
bridge the gap between the employer and the employee. They give an
opportunity for employees to voice their opinions.
Culture survey: This enables in identifying the current corporate culture.
We can determine if the culture of the organisation is in sync with the
corporate vision. Certain negative cultural elements like disrespectful
treatment of employees, poor planning and lack of team work will affect
the success of the organisation. These have to be identified and
corrected.
Ethics survey: Corporate ethics are essential for an organisation. Ethics
survey enables the employee to understand the ethics and values of the
company. The company can also determine the feelings of the
employee regarding the ethical standards of the company.
Productivity surveys: Employee productivity is in direct proportion to
employee satisfaction. Productivity can be improved if the organisation
understands employee expectations and attitude. As organisations
grow, they have to reassess and correct their policies and procedures.
They have to use better employee recognition programmes.
Organisations have to ensure the career development of the employees.
Favouritism and bias have to be removed.
Health and safety surveys: These surveys help to identify health and
safety lapses. They provide statistics on time lost from work due to
accidents. They also determine if the safety policies are being adhered
to.
Page No.: 42
Unit 2
Exhibit 2.1: A sample survey

A large insurance company in the UK uses administration of surveys to
determine the specifics of the work climate. This is done to ascertain the
positives and the negatives regarding the work climate. Areas that need
work are identified. Suitable measures to be taken are suggested by the
respective managers or HR personnel. Sometimes external consultants are
appointed for finding solutions to very tricky problems. Work-life balance and
amount of stress that the employees undergo is judged by using these
surveys. A sample is provided below:
Survey No. 22
Target: All the personnel in executive/supervisor levels in Zonal Office,
Reading. (125 members)
Note: Read the following questions carefully and answer only Yes or No.
Yes
No
1. The environment in this organisation supports a

balance between work and personal life.
2. My manager/supervisor understands the importance
of maintaining a balance between work and personal
life.
3. I am able to satisfy both my job and family
responsibilities.
4. I am not forced to choose between job and family
obligations.
5. The pace of the work in this organisation enables me
to do a good job.
6. The amount of work I am asked to do is reasonable.
7. The organisation has reasonable expectations of its
employees.
8. My job does not cause unreasonable amounts of
stress in my life.
Page No.: 43
Unit 2
Activity 3:
ABC is a manufacturing organisation. Since the past eight months, it is
being observed that there is a decline in the employee productivity and
an increase in absenteeism and attrition.
The management wants to conduct an employee survey to look into the
problem. Suggest a survey and also suggest 5 to 10 questions for the
survey.
18. A good __________________ clearly states the basic rights and
obligations of both the employer and the employee.
19. _____________ help in finding out what the employee thinks about the
organisation and the co-workers.
20. _____________ is in direct proportion to employee satisfaction.
2.10 Summary
You have now learned that strategy defines the long-term plans and scope
of an organisation. The different levels of strategy in an organisation are at
the corporate level, business-unit level, functional level and people level.
Corporate strategy defines the mission, vision, long-term objectives, policies
and plans of the organisation. Business-unit strategy is concerned with how
a business competes in a specific market. Functional strategy is concerned
with how the different units of the business translate corporate and business
level strategies into operational goals. People strategy matches the activities
of an organisation with its human resources.
The strategy of an organisation strongly influences its employee policies.
Performance management is a strategic and integrated approach to improve
the performance of the employees of an organisation.
Organisations can gain competitive advantage if they incorporate employee
involvement, quality assurance and a high commitment to good quality of
work-life in their culture.
The psychological contract defines the mutual beliefs, views and duties of
the employer and the employee. It fills the gaps of the formal contract. It
helps in shaping employee behaviour. Breaches in psychological contract
lead to dissatisfaction.
Page No.: 44
Unit 2
Organisations should strengthen their HR infrastructure to be successful.

Employee surveys provide guidelines for the business and influence the
direction the business takes.
Organisations have to identify future challenges and frame appropriate
strategies for them.
2.11 Glossary
Term
Description
Acquisitions
Taking control of a firm by purchasing more than half of its voting

shares.
Appraisals
Impartial analysis and evaluation done according to certain set

criteria to determine merit or acceptability
Artefacts
A hand-made object such as a tool or a work of art; an object

reflecting contemporary society or popular culture.
Autonomy
Independence or freedom as of the will or ones action; selfgoverning.
Competencies
Sufficiency of qualification; cluster of knowledge, abilities and

skills that enable a person (or an organisation) to act effectively
in a job or a situation.
Configuration
Layout and interconnections of different units; arrangement of

different units
Demography
The number and characteristics of the people who live in an

area, in relation to their age, sex, marital status, ethnic group,
etc.
Differentiation
To make a product or a brand stand out as a provider of unique

value to its customers in comparison with its competitors.
Ethics
A system of moral principles; the rules of conduct with respect to

a particular group.
Innovative
Using new and creative methods or ideas
Individualism
The concept that freedom of thought and action for each person
is the most important quality of a society, rather than shared
effort and responsibility
Liquidity
Measure of the extent to which a person or a firm has the ability

to acquire cash to meet immediate and short-term obligations.
Myths
Ancient story; false idea
Niche market
A focused targetable part of a market; a small area of trade

within the economy, often involving specialised or unusual
products
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Portfolios
Specialised collection of company shares and other investments

that are owned by a particular person or organisation
Stakeholders
Person, group, or organisation that has direct or indirect stake (a

share or financial involvement) in an organisation. They can
affect or be affected by the organisation's actions, objectives,
and policies. Key stakeholders in a business organisation
include creditors, customers, directors, employees, government
(and its agencies), owners (shareholders), suppliers, unions, and
the community from which the business draws its resources.
Synergy
A state in which two or more agents, systems or processes work

together in a fruitful way that produces an effect greater than the
sum of their individual effects.
Viable
Practical; an alternative that is beneficial at a reasonable cost

1. Explain briefly the different levels of strategy in an organisation.
2. How are employment policies influenced by the strategies of the
organisation?
3. What are the future challenges that an organisation may face?
4. Describe Performance Management Services.
5. How can organisations gain a competitive advantage?
6. Explain psychological contracts.
7. How are employee surveys helpful to an organisation?
2.13 Answers
1. Corporate level, business unit level, functional level, people level
2. Corporate level
3. Business-unit level
4. Cost leadership, product differentiation, specialisation by focus
5. Human resources
6. People management
7. Team-work
8. Communications
9. Business
10. Employee relations specialist
11. Change management
Page No.: 46
12.
13.
14.
15.
16.
17.
18.
19.
20.
Unit 2
Recruitment, selection
Performance appraisals
Rights, obligations
Employee involvement
Psychological contract
Violations
Employment contract
Employee surveys
Employee productivity

1. Refer section 2.2
2.14 Case Study

RWE Power is one of the main energy companies in the UK. It has both
private and business customers. Its corporate strategy is to deliver
cleaner, affordable and secure energy while improving profitability.
RWE Power has a culture of trust in its employees and it delegates
decision making to all levels in the organisation. Employees are
encouraged to use their talents and capabilities to deliver the desired
performance with focus on the customer. An example of this is found in
their Strategic Spare Parts project. This project was set up with the
strategy of minimising the risk of supply failure. The main objective of the
project was to improve the availability of important spare parts and
reduce plant availability costs.
The directors made the corporate decision to undertake the Strategic
Spare Parts project in order to realise the companys objective of reliable
power supply. The leaders of this project then formulated a strategy to
manage spares by categorising them to critical parts and non critical
parts. The actual implementation was delegated to a junior engineer,
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Unit 2
who gathered data from different levels of employees (managers,

operators, etc) using different channels of communication (group
discussions, one to one meetings).
The junior engineer had to
Look at the range of spare parts kept in stock
Assess the costs of maintaining and re-ordering the stock
Compare these costs to the costs of breakdown in supply.
The junior engineer found that
For 75% of the spare parts, time could be permitted for normal
ordering, purchase and installation. These items could be sourced as
and when needed.
25% of the spare parts were vital for efficient energy supply.
The findings of the junior engineer were communicated to the directors
who had to make the final decision on whether the project investment
was worth the cost.
Thus we see that due to the culture of trust in RWE Power, functional
decisions like changes in the method the job is done are proposed by the
staff. But there is a constraint that these functional decisions must be in
line with the companys aims and objectives.
Questions:
1. What are the differences in the strategic decisions and other
decisions taken in RWE Power?
2. What are the advantages and disadvantages of delegating decision
making to all levels in the organisation?
References:
Gennard J. and Judge, G. People and Organisations Employee
Relations, (3rd ed)
E- references:
http://www.oppapers.com/essays/Johnson-And-Scholes/269474
http://en.wikipedia.org/wiki/Performance_management (retrieved on
7/06/12)
http://www.engaging.com.au (retrieved on 7/06/12)
http://www.erstrategies.com.au/services (retrieved on 7/06/12)
http://www.employeesurveys.com/default.htm (retrieved on 7/06/12)
Page No.: 48
Unit 3
Unit 3
Organisational Aspects in Employee

Relations Management
Structure:
3.1
Introduction
Objectives
3.2
Organisational Commitment and Engagement
Organisational Commitment
Employee Engagement
3.3
How Organisations Work
The Strategy Variable
The Business Process Variable
The Goals and Measurement Variable
The Human Capabilities Variable
The Information and Knowledge Management Variable
The Organisation Structure and Roles Variable
The Culture Variable
The Leadership Variable
The Issue Resolution Variable
3.4
Organisational Culture
Elements of Organisational Culture
Dimensions of Organisational Culture
Types of Organisational Culture
Edgar Scheins Levels of Organisational Culture
3.5
Conflicts in Organisations
Different Aspects of Organisational Conflicts
Types of Organisational Conflicts
Conflict Resolution
3.6
Summary
3.7
Glossary
3.8
Terminal Questions
3.9
Answers
3.10 Case Study
Page No.: 49
Unit 3
3.1 Introduction
Having developed familiarity with the concepts and strategies of Employee
Relations Management (ERM), we will now learn about the organisational
aspects involved in ERM.
There are different aspects in an organisation like organisational
commitment and engagement, culture, and diversity which affect the
effective and efficient management of employee relations. In this unit, we
will examine these aspects and develop an understanding of the influence of
these aspects on employee relations. Thereafter, we will also get familiar
with the presence of organisational conflicts and the different types of
organisational conflicts.
The next section, will introduce the role organisational commitment and
engagement play for effective ERM.
Objectives:
After studying this unit, you will be able to:
explain the various organisational aspects in practising effective
employee relations.
describe the role of organisational commitment and engagement for
effective employee relations.
explain how organisational culture affects employee relations.
discuss the concept of resolving conflicts in organisations.
3.2 Organisational Commitment and Engagement

Organisational commitment is the psychological attachment of an employee
to the organisation. Employee engagement involves commitment, loyalty
and pride in the organisation. Let us first discuss organisational commitment
before moving on to learning about employee engagement.
3.2.1 Organisational commitment
Bateman and Strasser (1984) define organisational commitment as
multidimensional in nature, involving an employees loyalty to the
organisation, willingness to exert on behalf of the organisation, degree of
goal and value congruency with the organisation and the desire to maintain
membership1.
1
A Longitudinal Analysis of the Antecedents of Organizational Commitment, Academy of Management

Journal, 1984
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Unit 3
Model of organisational commitment

Meyer and Allen(1997) define a committed employee as one who stays
with an organisation, attends work regularly, puts in a full day and more,
protects corporate assets, and believes in the organisational goals.2
According to Meyer and Allen there are three attitudes which characterise
the commitment of an employee to the organisation. They are as follows:
Affective commitment: The employee commits to the organisation
because the employee wants to. The employee aligns his goals with
that of the organisation. The employee wants to continue working for the
organisation.
Continuance commitment: The employee commits to the organisation
because the employee has to. Employees fear that they will suffer
economic losses (like pension accruals) and social losses (friendships
within the organisation) on losing organisational membership. Factors
such as the years of employment and the unique benefits the
organisation offers also affect continuance commitment.
Normative commitment: The employee commits to the organisation
owing to feelings of obligation. For example, the organisation sponsors
the training or education of the employee, and hence the employee feels
a moral obligation to continue working in the organisation.
Thus it can be said that employee commitment is a psychological state,
which defines the relationship of the employee with the organisation and
affects the decision to continue or discontinue organisational membership.
Research has proved that those employees with strong affective
commitment continue to remain with the organisation compared to those
with continuance commitment and normative commitment.
Guidelines to enhance organisational commitment
Enhancing organisational commitment is imperative and the following
guidelines will help in enhancing the same:
Commit to people-first values: Employ managers who are employee

champions and who act as role models for the employees.
Clarify and communicate the mission of the organisation: Clearly state

the mission and ideology of the organisation. Practise value-based
hiring. Emphasise upon value-based orientation and training.
Commitment in the Workplace: Theory, Research and Applications. 1997
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Be clear about requirements: Employees need to clearly understand

what is required of them so that they commit their time and resources
and successfully complete their tasks. If the employees do not receive
clear communication, they become frustrated.
Adopt a problem-solving approach: Identify problems and involve

employees in problem resolution planning. Allocate responsibilities.
Document the decisions made and circulate them among those
involved.
Measure progress: Measure employee progress and achievements.
Guarantee organisational justice: Communication channels need to be

extensive and open. Organisations need to have proper grievance
redressal procedures.
Emphasise teamwork: Emphasise sharing and cross utilisation of

resources. Encourage interdependence of employees. This helps to
build trust and commitment.
Support employee development: Provide challenging jobs. Enrich and

empower individuals. Ensure employment security. Provide
developmental programmes and ensure timely and merit-based
promotions.
Recognise achievements: When employees achieve set goals, reward

and recognise them.
Basic approaches to study organisational commitment

The two basic approaches to study organisational commitment are as
follows:
Commitment-related attitude approach: This defines organisational
commitment as an affective commitment to the goals and values of the
organisation. The employee is willing to exert a lot of effort on behalf of
the organisation. The employee identifies with the goals of the
organisation and wishes to continue employment to facilitate these
goals.
Commitment-related behaviour approach: This focuses on behaviours
which are influenced by internal normative pressures and act to achieve
organisational goals and interests. The behaviour resulting from
commitment has the following characteristics:
It reflects sacrifices made for the organisation.
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It indicates preoccupation with organisational activities and thoughts.
Characteristics of commitment using the above mentioned approach are

as follows:
The employee does not leave the organisation for selfish interest or
gains.
The employee is willing to work selflessly for the organisation and
contribute to the success of the organisation.
The employee is willing to continue employment with the
organisation even when the organisation faces difficulties.
The employee completely accepts the goals and values of the
organisation.
Having got an insight into organisational commitment of an employee
involving loyalty and engagement of the employee to the organisation, let us
now understand what employee engagement is.
3.2.2 Employee engagement
Shuck and Wollard (2009) define employee engagement as an emergent
and working condition as a positive cognitive, emotional, and behavioural
state directed toward organisational outcomes.3 Figure 3.1 illustrates the
various aspects of employee engagement that affect any organisation.
Figure 3.1: Employee Engagement

3
A Historical Perspective of Employee Engagement: An Emerging Definition, 2009
Page No.: 53
Unit 3
The characteristics of engaged employees are as follows:

Belief in the goals and values of the organisation
Deep involvement and enthusiasm about work
Commitment of time and resources for the success of the organisation
Higher productivity and higher retention rate. They recommend their
organisation to others
Focus more on the customer
Belief that they can positively impact the following features of the
organisation:
o Quality of the products of the organisation
o Customer service of the organisation
o Costs in their job or department
Research and studies show that engaged employees are more productive
than non-engaged employees. In manufacturing industries, we find that
plants having engaged employees perform better. The beverage company,
Molson Coors, found that engaged employees were five times less likely
than non-engaged employees to have a safety incident and seven times
less likely to have a lost-time safety incident. In sales, too, low-engaged
teams lag behind more engaged teams. Companies with highly-engaged
employees show better operating incomes. The U.S. mortgage banking
company, New Century Financial Corporation, found that non-engaged
accounts executives produced 28% less revenue than their engaged
colleagues. Engaged employees are more innovative and are better at
problem-solving than their non-engaged counterparts.
Factors influencing employee engagement
Now that you are familiar with the characteristics of employee engagement,
we will discuss the factors that affect employee engagement. The factors
that influence the degree of employee engagement are the following:
Employer engagement: Employers remain engaged with their
employees if the employers are able to understand employee
expectations and preferences.
Employee perceptions of job importance: The attitude of an employee
towards the job and the organisation has a great impact on the loyalty of
the employee.
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Unit 3
Employee clarity of job expectations: The job expectations should be

clearly stated so that the employee stays more focussed.
Career advancement and improvement opportunities: Employees
remain engaged if their suggestions are valued and incorporated.
Employees are provided growth opportunities in the organisation by
means of timely promotions.
Regular feedback and dialogue with the superiors: Employees value
feedback. Proper feedback directs employees in the right direction.
Quality of relations with peers, superiors and subordinates: Employee
engagement is influenced by the quality of the relationship with their
colleagues, especially their managers.
Perceptions of the ethos and values of the organisation: Organisational
values are one of the important drivers of employee engagement.
Absence of inspirational leadership disengages employees.
Effective internal employee communication: Employees perform poorly
when there is poor internal communication and they in turn become
disengaged.
Reward to engage: Rewarding good work boosts employee morale,
works as a motivator in enhancing employee engagement.
Exhibit 3.1 If you want to succeed, first learn to fail- Lesson from an
inspirational leader
Dr. Kiran Mazumdar Shaw's pioneering efforts in biotechnology have drawn
global recognition both for Indian Industry and Biocon. She is the
chairperson and managing director of Biocon Limited, a company which she
started in 1978 in the garage of her rented house in Bangalore, with a seed
capital of Rs. 10,000.
Initially, she faced credibility challenges because of her youth, gender and
her untested business model. Not only was funding a problem as no bank
wanted to lend to her, but she also found it difficult to recruit people for her
start-up. With single-minded determination she overcame all these
challenges. She dealt with the technological difficulties associated with
building a biotech business in a country facing infrastructural woes.
Her unique vision has steered Biocons transition from an industrial
enzymes company to an integrated bio-pharmaceutical company with
strategic research initiatives. Biocon is today recognised as India's
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pioneering biotech enterprise. She presently serves on the Advisory Council

of the government's Department of Biotechnology, where she has been
instrumental in bringing government, industry and academia together, to
chart a clear and progressive growth path for biotechnology in India. Most
recently, she has been invited to join the Prime Minister's Council on Trade
& Industry in India and the US-India CEO Forum.
Ms. Shaw is the recipient of several prestigious awards including the ET
Businesswoman of the Year, Best Woman Entrepreneur, Model Employer,
Ernst & Young's Entrepreneur of the Year Award for Life Sciences &
Healthcare, Leading Exporter, Outstanding Citizen, Technology Pioneer,
etc. Her most cherished awards are, however, the national awards Padma
Shri (1989) and Padma Bhushan (2005) -- presented to her by the President
of India, for her pioneering efforts in Industrial Biotechnology.
A successful technocrat of global standing, Ms. Shaw is highly respected in
the corporate world. She is a much sought after biotech pioneer who has
been referred to as India's Biotech Queen by The Economist and Indias
mother of invention by The New York Times. Nature Biotechnology has
recently voted her the most influential bio-business personality outside
Europe and USA.
We have now discussed the various aspects about organisational
commitment and employee commitment. The dynamics of any organisation
affect the people working in it. Hence it is necessary that we get familiar with
the various factors that affect the functioning of an organisation.
1. The three attitudes which characterise the commitment of an employee
to the organisation are _______, ________________, ____________.
2. When there is _____________ the employee commits to the
organisation owing to feelings of obligation.
3. Absence of ___________ leadership will disengage the employees.
Activity 1:
You are the HR Manager of an organisation. Your organisation wants to
implement advanced information and communication technologies in
order to improve the organisational processes. You are asked to find
whether this can influence organisational commitment. Write down your
recommendations.
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Unit 3
3.3 How Organisations Work

For one to comprehend the organisational aspects that influence employee
relations, one has to understand how an organisation works. Let us first
revisit what an organisation is. An organisation is defined as a social
arrangement, which pursues collective goals, controls its performance and
has a clear boundary separating it from its environment.
Organisations, irrespective of their size, usually follow certain procedures to
function effectively. There are many variables that affect the efficient
functioning of an organisation. We will now discuss each one of them.
3.3.1 The strategy variable
The strategy variable determines the nature and the direction of the
business. Organisations align their strategies with their goals and define a
set of expectations. The issues organisations consider while doing this are:
Whether the strategy considers future external environment.
Has the executive team determined where the organisation will be in the
future?
Does the strategy incorporate specific and measurable set of values?
Does the strategy decide which markets it will serve?
Does the strategy decide where and how to deploy the organisational
resources?
Organisations then decide how to implement the strategies. The
considerations made are as follows:
Is the strategy understood by employees at all levels?
What are the plans for implementation?
How can performances be measured?
Are the strategies being effectively and efficiently implemented?
How can changes in the environment be incorporated?
3.3.2 The business process variable
The business process variable identifies the processes that are important for
implementing the organisational strategies. The processes are executed in
an efficient manner. The questions deliberated regarding this are as follows:
Are the processes well documented?
Can the people understand and implement them?
Are the procedures sufficient for accomplishing the tasks?
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Are the flaws in the processes identified and corrected?

Are processes managed with focus on work flow?
Are the processes enhancing employee capabilities?
3.3.3 The goals and measurement variable

The goals and measurement variable defines the financial and non-financial
goals essential for the success of an organisation. Organisations translate
strategic goals to business process goals, then to functional goals and then
finally to individual goals. The considerations to be made while setting
organisational goals are as follows:
Are there a manageable number of goals?
Does the performance-evaluation system correctly evaluate
achievement of the goals?
3.3.4 The human capability variable
The Human Capability variable defines the combination of capabilities, skill,
knowledge and values that are essential for strategic success. The issues to
be considered while appointing staff are:
Does the capability of the individual match the required capability?
How can future capabilities be developed?
What kind of people need to be recruited to meet the shortfalls?
3.3.5 The information and knowledge management variable
The information and knowledge management variable identifies the
information and knowledge required for the success of the organisation.
Organisations have to consider the following factors while obtaining and
managing information:
Is the right knowledge required for the implementation of the strategy
and core processes captured?
Are people who need information given access to it?
Are people effectively using the knowledge?
Are automated information systems effectively used?
3.3.6 The organisation structure and roles variable
The organisation structure and roles variable identifies the structure that
supports the strategy of the organisation and the business processes.
Organisational structure is reorganised only when it impedes the success of
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the organisation. The considerations made while defining the structure of

the organisation and the roles of the employees are as follows:
Does the structure facilitate the processes?
Are roles within the department clearly understood?
3.3.7 The culture variable
The culture variable defines the rules, rituals, practices, values and norms of
conducting the business. The issues to be addressed regarding the
organisational culture are as follows:
Is the culture supporting the organisational strategy and the business
processes?
Does the culture enable maximum employee contribution?
Does the culture attract and retain talent?
Exhibit 3.2 Just call me Mike! Transformation of Organisational
Culture
JC Penney Corporation, Inc. (JCP), the US-based retail chain store giant
had crossed the US$1 billion revenue mark in 1951 and the US$2 billion
mark by 1964. However, by the 1990s, JC Penney had to face the twin
challenges of increased competition and inventory and operational
problems. When Myron E Ullman III (Ullman) joined the company as the
chairman and CEO in December 2004, he found that the organisational
culture at JCP was very formal and rigid. A highly formal dress code and
formal mode of address was expected from the employees. The general
mood of the employees was not forward thinking and everyone was
constantly looking over the shoulder, suspicious of each other. Also, there
were hardly any promising and bright new-comers in the organisation.
As Ullman felt that the rigid culture at JCP was responsible for the state of
things, he started an initiative to redefine the culture at JCP. This included a
campaign called Just call me Mike! in which the company encouraged the
employees to call their superiors and co-workers by their first names. Other
changes included a relaxation in dress codes, cubicle dcor and disbanding
of the office police.
JCP followed up these symbolic changes with setting up a more democratic
and inclusive climate and taking some training and development initiatives.
By the end of 2006, the results of the culture change initiatives were clearly
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visible. JCP was able to attract graduates from premier design and retail
schools, who showed an interest in working with the company.
The impact on the bottom line was also visible as JCP posted its 15th
consecutive quarter of sales gains at the end of fiscal year 2006. Its share
prices too showed significant growth.
3.3.8 The leadership variable
The leadership variable has many dimensions: visioning, inspiring,
mobilising, developing, aligning, risk-taking, role-modelling, and cheering.
The factors affecting leadership are as follows:
Are managers functioning as effective leaders?
Are there sufficient leaders in the organisation?
Is there a system for developing leadership?
3.3.9 The issue resolution variable
The issue resolution variable defines how issues are handled within the
organisation. The various considerations made are as follows:
Are causes of conflict identified?
Are issues resolved effectively and efficiently?
Do employees have problem-solving and decision-making skills?
Are potential problems prevented?
Do teams that work at different locations or times resolve issues?
Having knowledge on how different variables affect the functioning of an
organisation helps you get a better understanding of the aspects that impact
employee relations. In this section, you learned how culture variable impacts
of an organisation. We will next learn about the different organisational
cultures.
4. An ___________ can be defined as a social arrangement which
pursues collective goals, controls its performance and has a clear
boundary separating it from its environment.
5. The ________ variable determines the nature and the direction of the
business.
6. The __________ variable sets the direction of the organisation and
motivates employees to go in that direction.
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Unit 3
3.4 Organisational Culture

Organisational culture describes the psychology, attitude, experiences,
beliefs and values of an organisation. According to Hill and Gareth (2001),
organisational culture is defined as the specific collection of values and
norms that are shared by people and groups in an organisation and that
control the way they interact with each other and with stakeholders outside
the organisation.4
An organisation is said to have a strong culture if its employees are aligned
with the organisational values. Organisations that have a strong culture
function efficiently. On the other hand, in organisations that have a weak
culture, the employees are not aligned with the organisational values and
control has to be exercised through extensive procedures and rules.
In organisations with a strong culture, Groupthink can develop. Groupthink
is a state wherein people do not challenge organisational thinking even if
they have different ideas. Innovative thinking gets discouraged in such
situations. Innovative organisations need people who are willing to change
the status quo, and to implement new ideas and procedures.
3.4.1 Elements of organisational culture
Now that we have defined organisational culture, let us look into the
elements that define organisational culture. They are as follows:
The paradigm: It defines the mission and values of the organisation. It

outlines the functions of the organisation.
Control systems: It defines the processes and the rules which monitor
the organisational activities.
Organisational structures: It outlines the reporting lines, hierarchies and

the direction of work flows.
Power structures: It specifies the decision makers and their power reach.
Symbols: It includes organisational logos, designs and symbols of power

like allocation of parking space.
Rituals and routines: It outlines procedures like meetings and reporting.
Stories and myths: It conveys the organisational values.
Strategic Management by Charles W. L. Hill, and Gareth R. Jones, 2001.
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3.4.2 Dimensions of organisational culture

National, religious and cultural groupings affect the organisational cultures.
The different dimensions of organisational culture are as follows:
Power distance: This is the degree to which there are differences in

levels of power. A high degree indicates that some individuals have
more power than others. A low score shows that people have more or
less equal rights.
Risk avoidance: It reflects how the much organisation is willing to take

risks.
Individualism versus collectivism: Individualism refers to the extent to

which people stand up for themselves. Collectivism refers to the
interdependence of individuals in a group.
Gender differences: It concerns the traditionally accepted male and

female values. For example, male values include competitiveness,
assertiveness and ambition.
Long- versus short-term orientation: Perseverance is emphasised in

long-term orientation while immediate profits are emphasised in shortterm orientation.
3.4.3 Types of organisational culture

We will now discuss the different types of organisational culture.
Deal and Kennedys classification: Deal and Kennedy (1982) classify
organisational culture on the basis of feedback and risk factors as follows:
The Tough-Guy Macho Culture: This is a very stressful culture in which

feedback is quick and rewards are high. Such culture can be found in
brokerage firms or police forces.
The Work Hard-Play Hard Culture: This is present in large organisations,

which try to assure good customer service. Here few risks are taken, but
feedback is prompt. Team meetings, jargons and slogans characterise
such organisations.
The Bet Your Company Culture: This culture is present in organisations

which undertake development and exploration projects like the oil
prospecting industry. Here high risk decisions, whose results will be
known only after some years, are taken.
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The Process Culture: This culture is often associated with public

services where people are very cautious and there is little or no
feedback. Such cultures produce consistent results even though a lot of
red tape is present.
Charles Handys classification: Charles Handy (1972) classified

organisational culture as follows:
Power culture: Power lies in the hands of a few people. Few rules and a
little bureaucracy are present, but decisions are quickly taken.
Role culture: A highly defined hierarchical structure is present. The
position decides the power wielded.
Task culture: Teams are formed to solve problems. Expertise of a
person decides the power of the individual. Such organisations have a
matrix structure.
Person culture: Every individual believes that they are superior to the
organisation. Such organisations cannot succeed.
Arthur F Carmazzis Classification:
organisational culture as follows:
Carmazzi
(2009)
classifies
Blame culture: Employees blame others to avoid being reprimanded.

Fear and distrust are present. Innovation and people initiatives are
absent.
Multi-directional culture: There is very less cross-department

communication and interaction. Loyalty is restricted to specific
departments. As there is no co-operation organisations become
inefficient.
Live and let live culture: There is average co-operation and

communication, but people have low creativity and lack future vision.
Brand congruent culture: Employees believe in the product or service of

the organisation. People co-operate to achieve organisational goals.
People use their personal resources to solve problems.
Leadership enriched culture: Employees view the organisation as

extensions of themselves. There is excellent co-operation. Individual
goals are aligned with organisational goals. People overcome their egos
and bring out the best in each other. Leaders develop other leaders.
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Robert A Cookes Classification: Cooke (1997)classifies organisational

culture into the following three groups:
Constructive culture: Employees are encouraged to interact with each

other and work to their full potential. There is high level of satisfaction,
motivation, and teamwork. Quality, co-operation and creativity are highly
emphasised upon. The concepts of empowerment, total quality
management, continuous improvement, transformational leadership and
reengineering are supported.
Passive-defensive culture: Employees interact with each other in ways

that do not threaten their own security. Employees are expected to obey
their superiors and avoid interpersonal conflict. Rules and procedures
are emphasised upon. Unresolved conflicts increase turnover. There is
lower level of motivation and satisfaction.
Aggressive-defensive culture: Employees approach tasks in ways that

do not threaten their own security or status. They are encouraged to
appear competent, superior and in control. Those who admit to
shortcomings are considered weak. Employees compete with one
another. Short-term gains outweigh long-term growth.
Entrepreneurial Culture: Stephen McGuire (2003) defines entrepreneurial

organisational culture as a system of shared values, beliefs and norms of
members of an organisation, including valuing creativity and tolerance of
creative people, believing that innovating and seizing market opportunities
are appropriate behaviours to deal with problems of survival and prosperity,
environmental uncertainty, and competitors threats, and expecting
organisational members to behave accordingly.5
The characteristics of an entrepreneurial organisational culture are as
follows:
Empowerment of people
Value creation by means of innovation and change
Hands-on management
Freedom of growth
Tolerance of failure
Emphasis on the objectives for the future
5
Entrepreneurial Organizational Culture: Construct Definition and Instrument Development and

Validation by Stephen Mc Guire, 2003
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Attention to detail
Employee commitment and responsibility.
3.4.4 Edgar Scheins levels of organisational culture

According to Edgar Scheins organisational model, the three cognitive levels
of organisational culture are as follows:
At the first level, the artefacts of the organisation are present. They include
the office facilities, the furnishing, the rewards, the way employees dress
and interact, the slogans, mission statements, etc.
At the second level, the values of the organisation are recognised. The
attitudes of the members of the organisation determine organisational
behaviour.
At the third level, the tacit assumptions of the organisation are found. These
include the unspoken rules, which exist within the organisation.
Edgar Scheins organisational model offers insights into the reasons for
newcomers being unable to assimilate organisational culture quickly. It also
helps us to understand that instituting cultural changes is made difficult by
the underlying tacit rules and dynamics of interpersonal relationships.
7. ________________ describes the psychology, attitudes, experiences,
beliefs and values of an organisation.
8. _____________ define the processes and the rules which monitor the
organisational activities.
9. Organisations with ___________ culture have very less crossdepartment communication and interaction.
10. Robert. A. Cooke classifies organisational culture into __________,
_____________, and _______________ cultures
Activity 2:
Interview the employees of two organisations in your town and try to
determine their organisational culture. Compare your observations on the
behaviours and interactions of employees in the two organisations.
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3.5 Conflicts in Organisations

Earlier we discussed the different variables of organisational functioning,
specifically conflict resolution factor that affect employee relations. Now we
will see what conflicts are and causes for conflict. Organisational conflict is
due to the actual or perceived differences in needs, interests, objectives and
values of people working together. Conflicts in organisations occur between
the following members:
Individuals within the organisation.
Individual and group(s) in the organisation.
The staff and the organisation.
Conflicts in organisations arise due to the following factors:
Ideology: The perceptions and beliefs of individuals in the conflict are

different.
Objectives: The objectives of those involved in the conflict can be very

different. Even if the people involved in the conflict have the same
objectives, they may want to use different methods to achieve the
objectives.
Territorial perceptions: People involved in the conflict may feel that the
other party has violated agreed or implied operating territorial
boundaries.
Personality differences: Rivalries, jealousies, personality clashes and

power struggles can cause conflicts between individuals.
We have to keep the following factors in mind while assessing the potential
for conflicts in workplaces:
Nature of work
Structure and division of work
Personality and objectives of individuals
Organisational ethics, beliefs, values and expectations
Organisational culture
Past attitude and approaches towards management or staff
Present attitude and approaches to employee relations
Future plans for employee relations.
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3.5.1 Different aspects of organisational conflict

Having understood some of the causes of conflicts in an organisation, let us
look into the different aspects of organisational conflict. There are four
aspects of organisational conflict and they are as follows:
The Parties: The conflict may involve two or more parties. The parties to
the conflict and the reasons for the conflict are clearly identified. This
becomes a difficult task if there are many sub-groups involved each of
which has its own agenda.
The Issues: The issues of the conflict are any of the following:
Disputed topics or subjects
Different perceptions of the topics
The interests of the parties involved
The acceptability of the proposed resolutions
The hierarchy and priority of contentious issues
The Dynamics: The following factors are considered to understand the

dynamics of the conflict:
The factors that reveal the conflict
The factors that fuel the conflict
The changes in the situation of the conflict
The length of time of the conflict
The attitude and changes in the attitude of the people involved
The position and influence of vested interests
The possibility of resolution of the conflicting interests
The power and influence of key players
The accuracy of the predictability of outcomes and developments
The range of outcomes
The hurdles which block progress.
Management of the conflict: Conflicts are dealt with in the following
ways:
Institutionalise the conflict: Have set rules, precedents, and
procedures to resolve conflicts.
Contain and control the conflict: Isolate and tackle severe conflicts.
Remove the causes of conflict: This can be done by improving
channels of communication and using conciliation and arbitration
techniques.
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Early warnings of conflict

It is of utmost importance to identify conflict in its early stages. Every
manager and employee needs to be able to identify the signs of conflicts
and respond to them as soon as they occur. All staff members have to raise
issues of concern immediately. This contributes to the well-being of the
organisation. Certain of the early signs of the presence of conflict are as
follows:
Declining performance: Declining performance trends of a department

indicate the presence of conflict.
Declining morale: Conflicts lower morale and increase turnover, absence

and rate of accidents.
To identify a conflict, you have to know the different types of conflicts that
can arise in an organisation. We will discuss it in the following topic.
3.5.2 Types of organisational conflict
The different forms of conflict in an organisation are as follows:
Personal conflict: This conflict arises due to differences in the

perceptions and personality of individuals. Professional counsellors may
be required to resolve such conflicts, but managers try to understand
and resolve them.
Role conflict: People have formally defined roles in an organisation.

Apart from this they have roles outside the organisation as a parent,
child, spouse all of which affect their organisational role. Conflicts arise
when these different roles interfere with each other. Role conflicts also
arise when an individual gets inconsistent demands. For example, an
employer demands an employee to produce superior quality work while
the team makes demands to increase the production. Such role conflicts
sometimes motivate the employee to perform better, and sometimes it
causes frustration and reduces efficiency.
Inter-group conflicts: Conflicts arise in groups when there is a scarcity of

resources or a struggle for power and status within the group. Intergroup conflicts also arise when rewards and recognitions are not
properly awarded. The two kinds of intergroup conflict are the following:
Horizontal strain: This occurs when different functions like sales and
production compete with each other.
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Vertical strain: This occurs when there is competition between

different hierarchical levels like foremen and shop workers.
3.5.3 Conflict resolution

While identification and recognition of the existence of conflict is important,
one has to understand the steps that can be taken to resolve the dispute.
Conflicts are resolved by adopting the following methods:
Counselling: If the organisations cannot have professional counsellors

on their staff, then managers can be trained to counsel employees. Just
by employing non-directive counselling (listening and understanding),
managers can help their frustrated subordinates.
Avoidance: One strategy that is employed is not paying attention to the

parties involved in the conflict. Another strategy used is isolating partially
or fully the parties involved in the conflict in order to limit interaction.
Smoothing: This technique tries to achieve harmony between the parties

involved in the conflict.
Dominance or power intervention: A higher authority tries to impose a

solution to resolve the conflicts of the subordinates.
Compromise: Conflicts can be resolved by meeting at least part of the

demands of the parties involved in the conflict.
Confrontation: The parties involved in the conflict are brought face to

face and a solution is arrived by having frank discussions.
Exhibit 3.3- Conflict Resolution in a Software Firm

Two employees of a top software company filed a harassment complaint
against their team leader. This was because their team leader decided to
split them up at work, which they believed was based on unfounded gossip
by their peers.
The chief complaint of the two employees was that they were treated
differently from other employees and that they were not permitted to work
with each other. Further, they alleged that no explanation was given to them
for this decision. In addition, these employees were concerned that this
decision caused a great deal of talk in the workplace, which caused
irreparable damage to their reputation. They further alleged that they were
not given an opportunity to defend themselves.
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The HR manager of the firm, who was the recipient of this complaint,
consulted with the senior manager, who swung into action to resolve the
conflict.
The senior manager began the mediation by meeting all the three people
separately. The mediation began with separate meetings with the supervisor
alone, and then the two employees together. It was found that the issue was
basically lack of communication between the team leader and the two
members. The team leader was led to believe that the two members were
causing a lot of disturbance with their touch-me-not attitude and were
alienating the other employees. To avoid such disturbance, he decided to
split them up, which caused this conflict.
Finally a meeting was set up between the two conflicting parties. The
outcome convinced the team leader that he should first speak about these
disturbances to the concerned team members, with required proof. The
team leader agreed to voice his concerns and take the two into confidence
and chalk out suitable plan to deliver work effectively. The two team
members also understood that the team leader had nothing personally
against them and was only concerned about delivery and quality of work.
The issue was thus resolved amicably.
11. ________________ conflict arises due to differences in the perceptions
and personality of individuals.
12. _________________ type of inter-group conflict occurs when there is
competition between different hierarchical levels.
13. In _____________ method of conflict resolution, the parties involved in
the conflict are brought face to face and a solution is arrived by having
frank discussions.
Activity 3
Contact the human resource manager of a manufacturing industry and
find out how they manage inter-group conflicts in their organisation. List
your observations.
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3.6 Summary
The different aspects of an organisation like organisational commitment,
engagement, culture and diversity affect the effective management of
employee relations.
Organisational commitment defines the loyalty of an employee to the
organisation, willingness to exert on behalf of the organisation, degree of
goal and value congruency with the organisation and the desire to maintain
membership. The three kinds of employee commitment are effective
commitment, continuous commitment and normative commitment.
Employee engagement is essential for the success of an organisation.
Factors like employer engagement, career advancement opportunities,
timely feedback and a good rewards system enhance employee
engagement.
Organisations, irrespective of their size, follow certain procedures to function
effectively. They frame strategies, set goals, decide processes, define roles,
recruit skilled employees and evaluate performances.
Organisational culture describes the psychology, attitude, experiences,
beliefs and values of an organisation. The different kinds of organisational
culture are role culture, power culture, multi-dimensional culture,
constructive culture, brand-congruent culture, and so on.
Organisational conflict is caused due to the actual or perceived differences
in needs, interests, objectives and values of people working together.
Causes of conflict have to be identified and resolved either by counselling,
confrontation, imposing a solution or avoidance.
3.7 Glossary
Term
Description
Accruals
A gradual increase in an amount of money.
Affective
Causing emotion or feeling.
Arbitration
An informal hearing regarding a dispute.
Bureaucracy
The body of officials and administrators especially of a

government department.
Cognitive
Pertaining to the mental processes of perception, memory,

judgment and reasoning.
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Empowerment
Increasing the spiritual, political, social or economic strength of

individuals and communities.
Entrepreneurial
Willingness to take risks in order to make profit.
Ethos
The fundamental character or spirit of a culture; the underlying

sentiment that informs the beliefs, customs, or practices of a
group or society.
Hierarchies
Any system of persons or things ranked one above another.
Impede
Obstruct, hinder.
Jargons
The language and vocabulary peculiar to a particular trade,

profession, or group.
Logos
A graphic representation or symbol of a company name,

trademark, abbreviation, etc., often uniquely designed for
ready recognition.
Macho
Having or characterised by qualities considered manly.
Matrix
A form of organisation structure based on horizontal and

vertical relationships.
Mobilising
Bringing together, preparing (power, force, wealth, etc.) for

action.
Normative
Reflecting the assumption of such a norm or favouring its

establishment.
Paradigm
An example serving as a model; pattern.
Red tape
Excessive formality and routine required before official action

can be taken.
Re-engineering
Systematic starting over and reinventing the way a firm, or a

business process, gets its work done.
Status quo
The existing state or condition.
Tacit
Implied by or inferred from actions or statements.
Visioning
The process of identifying, developing and documenting vision

and values, leading towards strategy and tactics.

1. Define organisational commitment. What are the different models of
organisational commitment?
2. What are the different factors that influence employee engagement?
3. Explain briefly the different variables which are involved in the working of
an organisation.
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4. Define organisational culture. How does Charles Handy classify

organisational culture?
5. Explain the three cognitive levels of organisational culture.
6. What are the different aspects of organisational conflict?
7. How can conflicts be resolved?
3.9 Answers
1. Affective
commitment,
continuance
commitment,
commitment
2. Normative commitment
3. Inspirational
4. Organisation
5. Strategy
6. Leadership
7. Organisational culture
8. Control systems
9. Multi-directional
10. Constructive, passive-defensive, aggressive-defensive
11. Personal
12. Vertical strain
13. Confrontation
normative

1. Refer section 3.2.1
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3.10 Case Study

The Taj Group of Hotels is one of Indias premier chain of hotels. It won
the Hermes Award in 2002 for its innovative STARS (Special Thanks
And Recognition System) programme. In the hospitality industry the
Hermes Award is given for the best innovation in human resources.
The Taj Group considers its employees as its most valuable asset. In
March 2001, the Taj Group launched the STARS programme to motivate
its employees to go beyond their job duties and have fun at work. The
STARS programme awarded points to employees on the basis of
parameters like teamwork, integrity, respect for customers, co-ordination,
excellence in work, and so on. Using this score, the programme
rewarded deserving employees and thus enhanced employee
engagement and commitment. The photos of award-winning employees
were prominently displayed. The employees thus felt that their good work
was appreciated and acknowledged.
In 2000, the Taj Group developed the Taj People Philosophy (TPP) to
demonstrate its commitment to and belief in its employees. TPP dealt
with all aspects of employee career planning right from their induction
into the company until their superannuation. This programme helped the
company to boost the morale of its employees and improve its service
standards. This resulted in customer satisfaction and brought in repeat
customers.
The Taj Group has always had an employee-oriented culture. Fresh
graduates are hired from the leading hotel management institutes in India
and their attitudes and skills are shaped so that they are in alignment with
the culture of the organisation. All new employees undergo an intensive
two-year training programme, which familiarises them with the business
ethos of the company, management practices of the organisation and the
functions of various departments.
The Taj Group believes that Talent management is very important in
order to attract, recruit and retain the right talent and remain competitive.
The group assesses the potential of the employees and the training
required to develop their skills. Employees are trained in different fields
like HR, sales and marketing, finance, front office management,
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Unit 3
hospitality and service, food and beverages and more. The Taj Group
also has many leadership programmes for its employees in order to
develop a strong, warm and professional work culture. Employees are
also offered personal counselling to deal with their problems. They are
given ample scope for career development, self-development and
excellent opportunities for learning.
The Taj Group has introduced a very good performance management
system called the Balanced Scorecard System (BSS), which helps to link
individual performance with the strategy of the organisation. BSS
measures the performance of its employees at all hierarchical levels
against a set of predefined targets. The BSS includes an Employee
Satisfaction Tracking System (ESTS). As a part of ESTS, employee
satisfaction survey is carried out. The group also has a 360-degree
feedback system by which subordinates evaluate their immediate
superiors. Employees are encouraged to give suggestions and the
suggestions given are displayed.
Thus we see that the people-centric approach of the Taj Group is highly
successful. The Taj Group has one of Indias highest Employee
Retention Rate (ERR).
Questions:
1. Explain the benefits of the STARS programme of the Taj Group.
2. Why does the Taj Group have a high employee retention rate?
References:
Bateman and Strasser, (1984). A Longitudinal Analysis of the

Antecedents of Organizational Commitment, Academy of Management
Journal
Meyer and Allen, (1997). Commitment in the Workplace: Theory,
Research and Applications
Shuck and Wollard, (2009). A Historical Perspective of Employee
Engagement: An Emerging Definition,
Charles W. L. Hill and Gareth R. Jones, (2001). Strategic Management,
Mc Guire, S. (2003). Entrepreneurial Organizational Culture: Construct
Definition and Instrument Development and Validation.
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Unit 4
Unit 4
Behavioural Aspects in Employee

Relations Management
Structure:
4.1 Introduction
Objectives
4.2 Motivation
Theories of Motivation
Motivation and Achievement
Motivation and Money
Motivation and Employee Relations
4.3 Leadership
Leadership Theories
Leadership Styles
4.4 Communication
Types of Communication
Importance of Organisational Communication
Methods to Improve Organisational Communication
4.5 Decision Making
Types of Decision Making
Models of Decision Making
4.6 Power and Authority
4.7 Summary
4.8 Glossary
4.10 Answers
4.11 Case Study
4.1 Introduction
In the previous unit, you learnt about the organisational aspects of
Employee Relations Management (ERM). In this unit, you will learn about
aspects such as leadership, communication and decision-making
capabilities, which are prerequisites for effective employee relations. In this
unit, you will also learn about the behavioural aspects that affect employee
relations.
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Unit 4
Employee relations is closely linked to employee behaviour. Behavioural

aspect in employee relations management is concerned with the
development and motivation of employees. The study of behavioural
aspects in employee relations management helps organisations to create a
work environment that stimulates and enables employees to perform to the
best of their abilities. Any organisation can be successful only if it
understands the people who work in the organisation, their wants and
needs, hopes, fears, desires and aspirations.
We will discuss the following behavioural aspects in this unit:
Motivation: This focuses on how employees can be motivated to

perform better and increase organisational productivity and profitability.
Leadership: This deals with the qualities and capabilities of an effective

leader and the roles and functions adopted by a leader in employee
relations.
Communication: This focuses on the principles of effective

communication, understanding the processes involved and the different
perceptions of people.
Decision-making: This deals with the processes by which effective

decisions are achieved, communication and promulgation of decisions,
and their acceptance by the people in the organisation.
Power and authority: This deals with the sources of power and
authority, and the use of power and authority in employee relations
situations.
Objectives:
define motivation and explain theories of motivation.
define the role of employee motivation in employee relations.
explain the necessary leadership qualities for effective employee

relations.
describe the need for effective communication in employee relations.
analyse the effective use of power and authority in managing employee

relations.
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4.2 Motivation
You know that one of the aspects of employee behaviour that influences
employee relation is motivation. Employee motivation describes the intensity
of vigour, commitment and resourcefulness with which employees do their
jobs. The employee relation strategies can be successfully implemented
only if there is a clear understanding of what motivates people at work. The
principles of motivation and the organisational factors that contribute to
individual and group motivation need to be considered. The ways in which
groups and individuals function at work, and their roles and priorities have to
be taken into account. An effective employment relation is based on the
following:
Understanding how human beings react in specific situations and how

they try to satisfy basic needs, drives, instincts and wants.
The effects of education, training, ethics, standards, expectations and

rewards on the individual.
The nature of work and the effect work has on the individual.
The expectations of relations at the workplace. Workplace relations

include inter-group relations and the relation between individuals and the
organisational culture.
There are many theories regarding motivation. Let us examine some

theories of motivation.
4.2.1 Theories of motivation
Rensis Likert System 4 Theory
Likerts system describes the relationship, involvement and roles of
managers, and subordinates in industrial settings. Likert examined high
performing managers and supervisors who achieved high levels of
production at low levels of cost by employee involvement and motivation.
Likert asserted that high levels of productivity and profitability can be
achieved by an organisation only if it makes optimum use of its workforce.
Workgroups are highly productive only if a supportive style of supervision is
present and if the individuals feel a sense of worth, importance and esteem
in belonging to that workgroup. Likert identified the following four styles of
management in his System 4 Model:
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System 1: This style is exploitative authoritative. Power radiates downwards

from the top. The workforce is not consulted or involved in any decision
making. The workforce complies with the top management due to fear.
There are low levels of confidence, trust and motivation in the workforce.
The output generated is only slightly above the expected minimum.
Teamwork is absent.
System 2: This style is benevolent authoritative. There is some consultation
and participation of the work force in some areas. Confidence, trust and
communication are at low levels.
System 3: This style is consultative. Aims and objectives are framed after
consultations with subordinates. Teamwork is encouraged. Communication
is two way. Rewards are used to motivate the employees. Productivity is
higher. There are low levels of absenteeism and turnover. Production quality
improves.
System 4: This style is participative. The supervisors have a very
supportive relationship with the workforce. Group decision making is
adopted. Very high performance and ambitious goals are set for the entire
organisation. According to Likert, this system is ideal for employee and
profit-oriented organisations.
Maslow's Hierarchy of Needs Theory
According to this theory, human motivations are classified into physiological,
safety, belongingness and love, esteem, and self-actualisation needs.
Maslow's theory suggests that the most basic level of needs must be met
before the individual will strongly desire (or focus motivation upon) the
secondary or higher level needs.
ERG Theory
To bring Maslows need hierarchy theory of motivation in synchronisation
with empirical research, Clayton Alderfer redefined it in his own terms. His
theory is called the ERG theory of motivation. He re-categorised Maslows
hierarchy of needs into three simpler and broader classes of needs:
Existence needs: These include need for basic material necessities. In

short, it includes an individuals physiological and physical safety needs.
Relatedness needs: These include the aspirations individuals have for
maintaining significant interpersonal relationships (be it with family,
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peers or superiors), getting public fame and recognition. Maslows social

needs and external component of esteem needs fall under this class of
need.
Growth needs: These include need for self-development and personal
growth and advancement. Maslows self-actualisation needs and
intrinsic component of esteem needs fall under this category of need.
Frederick Herzbergs Hygiene Motivation (Two-factor) Theory1

According to this theory, the factors causing job satisfaction are different
from that causing job dissatisfaction. Herzberg called the factors causing
satisfaction as motivators and those causing dissatisfaction as hygiene
factors. Table 4.1 lists the factors affecting job attitude in their order of
importance.
Table 4.1: Factors Affecting Job Attitude
Hygiene factors
Motivators
Company policy
Achievement
Supervision
Recognition
Relation with the boss
Nature of work
Work conditions
Responsibility
Salary
Advancement
Relation with peers
Growth
According to Herzberg, the factors that determine job satisfaction or

dissatisfaction depend on the nature of the job. Incentives or threats can act
as motivators only in the short run. The management ensures that the
hygiene factors do not contribute to job dissatisfaction and that
factors are provided intrinsic to the work itself, which lead to job
satisfaction.
Herzberg believes that job enrichment is required to achieve job satisfaction.
The management ensures that the job is challenging enough and makes full
use of the employee capabilities. If an employee demonstrates increased
ability then more responsibilities may be given to the employee. According
to the Two-factor theory, job satisfaction may not cause motivation. The
theory contends that true motivation lies within the employee and not in
1
www.netmba.com/mgmt/ob/motivation/herzberg
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external factors. Let us now examine how motivation influences employee

achievement.
4.2.2 Motivation and achievement
We have discussed various theories on employee motivation. Let us now
see how motivation is linked to achievements. All employees, irrespective of
their levels, have a need to achieve. High achievers are those individuals
who regularly complete their work with high degrees of quality and
effectiveness. Employees need tasks and targets against which their
achievements can be measured and regular feedback on the work done.
To help employees attain higher levels of achievement, organisations
develop the following characteristics within their employees:
Activity
Autonomy
Long-term vision
Self-discipline
Self-motivation
Self-awareness.
Research conducted by Chris Argyris (1990) in USA has proved that
employees of organisations which encourage the opposite characteristics
(passivity, dependence, short-term vision and so on) become frustrated and
ineffective.
Employees who are achievement-oriented enjoy life and feel in control.
Their motivation to achieve targets keeps them dynamic and enhances their
self-respect. Achievement-motivated people are only concerned with their
personal achievement and not with rewards.
The three motivational factors that influence achievement are:
Attitude or belief about ones capability to achieve targets
Drive or desire to achieve targets
Strategy or techniques employed to attain targets.
Motivation is affected by many factors one of which is money. In the
following section we will see what effect money has on employee
motivation.
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Exhibit 4.1: Motivation at Microsoft

Microsoft, the most successful software company in the world, has
continually succeeded in motivating its development teams to extreme
degrees. Microsoft has achieved such a high level of motivation that it is
often called the Velvet Sweat Shop. Its employees are routinely found to be
working for 10, 14 or 18 hours a day.
The motivation levels at Microsoft are legendary. While Microsoft was still
involved with OS/2, the OS/2 development group requested the company to
install a washer and dryer in their building so that they need not go home to
do their laundry. Although the group never got its washer and dryer, the
message was clear; this team wanted to work. There was no demand for
promotions, more money, bigger offices, or fancy carpet; the management
was only asked to remove every conceivable roadblock so that the team
could concentrate on shipping a product.
How does Microsoft achieve this level of motivation?
Microsoft ensures that its employees spend very little time on

unproductive tasks, freeing up all their valuable time for productive
tasks.
Microsoft also makes extensive use of non-monetary rewards, like Tshirts, team dinners, shirts, etc.
Microsoft shows flexibility in rules so that their employees can manage
both home and office work effectively.
Microsoft does not believe in motivational speeches; motivating yourself
and other employees is part of the Microsoft corporate culture.
Anything is okay as long as it keeps the morale high.
4.2.3 Motivation and money

According to Herzberg, money does not enhance the intrinsic nature of
work. If a person is doing voluntary work, money may not have any effect on
the motivation to do the work. But sometimes, money can make work life
bearable. Money acts as a motivating factor due to the following reasons:
High salary levels enhance self-image and self-esteem.
Wages earned form the basis of inter-occupational comparisons. An

individual who earns more tends to be more satisfied than a person
earning a lower amount.
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The salary paid reflects on the importance the organisation places on

the employee. It also indicates the value of the job that is carried out. A
high-sounding job title with a low salary does not increase job
satisfaction.
Research has proved the effect of financial incentives on job performance.

Studies have shown that profit-sharing and performance-linked pay rewards
enhance productivity and organisational performance.
But organisations have to be aware of the limitations of financial incentives.
Money alone cannot be used as a motivator. It should be used in
conjunction with other non-financial reinforcements to fulfill the
psychological needs of an employee. Money, along with the organisational
conditions, contributes to employee motivation.
Money can be a positive motivator when it addresses basic necessities or a
sense of achievement. Money can be a de-motivator when it is used to gain
superiority or power over others.
Now that we have covered how monetary gains affect employees, let us
now find out how motivation affects employee relations.
4.2.4 Motivation and employee relations
You must know that managers need to learn how to motivate employees
and the factors which affect motivation. They use this knowledge along with
their skills and the processes to enhance employee relations. In order to
motivate employees and improve employee relations, managers should
identify employee needs and frame appropriate strategies. Employee needs
as discussed by Maslows theory of motivation include the following:
Basic needs: These include needs like air, water, food and shelter. If
any of these needs are not met, the employee becomes frustrated.
Safety needs: Employee job security has to be ensured to increase job

satisfaction and help the employee perform better.
Social or interpersonal needs: Employees need to interact with their

colleagues. Managers should plan team outings and teamwork activities.
Self-esteem needs: In order to have well motivated workers, their

performances need to be appreciated and rewarded. Praise from higher
authorities has to be conveyed to the concerned employee.
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Self-actualisation needs: Opportunities for growth have to be provided

in order to enhance motivation.
The next section deals with the importance of motivating employees.

Managers give high priority to employee motivation due to the following
reasons:
Motivated employees are more productive and profitable.
Motivated employees provide better quality customer service.
Motivated employees are more likely to stay with the company.
The cost of recruiting and training new staff is reduced.
Managers can focus on core business issues without getting distracted

by employee problems.
Supporting employee decisions and trusting and encouraging employees

enhance employee motivation. Financial motivation can take the form of
overtime payment, loyalty bonus or cash incentives. Perks like transport
facilities, training and education, insurance, discounted products and so on
can also help motivate employees.
Employee motivation is an ongoing process. In order to enhance employee
motivation, managers need to eliminate context obstacles, which prevent
the employees from doing a good job. Motivated employees may not be
able to meet their goals if the following conditions prevail:
Their targets are not well defined.
Their goals are not well communicated.
The work procedures interfere with their efforts.
Thus we can see that motivation plays an important role in employee
relations and that the two are closely linked. In the next section we will
discuss how leadership as a behavioural aspect affects employee relations.
1. _______________ is the intensity of vigour, commitment and
resourcefulness with which employees do their jobs.
2. In ________ management style power radiates downwards from the
top and the workforce is not consulted or involved in any decision
making.
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3. Herzberg called the factors causing satisfaction as ___________ and

those causing dissatisfaction as __________ factors.
4.3 Leadership
Let us look at the different aspects within leadership in order to understand
about it as a behavioural aspect. Leadership is defined as the process of
social influence in which one person can enlist the aid and support of others
in the accomplishment of a common task.2 Leadership is a very important
behavioural aspect that affects organisations and employee relations. The
nature and style of leadership plays an important role in employee relations,
motivation, conflict resolution, and creation of overall organisational vision
and direction.
In formal organisations, advancements are based on merit and seniority.
The power held by an individual corresponds to the position the individual
occupies in the hierarchy. But in informal organisations, leaders emerge
from within the organisational structure. The leader is able to attract
followers due to a combination of circumstances and the qualities the leader
possesses.
Exhibit 4.2: Innovation at P&G
Innovation requires a lot of time and practice. With consistency and
discipline, a degree of standardisation can emerge, creating a business
model for others to imitate. It is imperative to integrate innovation into
mainstream decision making for complete effectiveness. It was A. G. Lafley,
CEO of P&G, who decided to use The 5-Building-Block framework that
allows units to work parallel, rather than vertical. The flow of ideas states
that ideas come from both internal and external sources, and there should
be an entity within the organisation capable of receiving this information,
passing it on to others.
Flow of Ideas Selection of Ideas Nurturing Go to Market
Killing Ideas Innovation
Selection and green-lighting ideas help simplify which ideas should move on
to the next level. There should be balance between disruptive and
incremental selections. Once an idea is green lighted, the nurturing phase
2
Meta-cognitive, social, and emotional intelligence of transformational leadership: Efficacy and

Effectiveness. Chemers, M. M. (2002).
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begins. This requires someone to be accountable for the innovation, making

crucial decisions such as financing and the decision to abort if necessary.
The market phase overlaps nurturing because crucial manufacturing and
advertising issues arise, determining if the product truly has the green light.
If deemed appropriate, an innovation can be killed in a timely manner to
help save time and money. It is important for leaders to be objective, rather
than entrenched in a particular idea. Innovation reviews allow for leaders to
take an honest and helpful approach to assess different projects.
Let us now examine some theories of leadership.
4.3.1 Leadership theories
The Trait Theory: This theory uses traits (characteristics) to distinguish
between leaders and non-leaders. The traits associated with leadership
according to this theory are shown in Fig 4.1. The traits that indicate strong
leadership are as follows:
Intelligence: This refers to the mental ability of a person and is only a

moderate predictor of leadership. The Intelligence Quotient (IQ) of a
person can be used as a qualifier for high management jobs, but once
the high position is attained, an effective leader also displays good
levels of Emotional Intelligence (EI). EI helps a leader to empathise with
the emotions of others. Many people feel that Carly Fiorina, the ousted
leader of Hewlett-Packard, had a high IQ, but a low empathy for the
people around her and ignored the human aspects of her decisions.
Extraversion: Extraverts have higher social and interpersonal skills.

They are more energetic, assertive and self-confident. As extraverts are
more dominant, they emerge as natural leaders. For example, Steve
Ballmer, the CEO of Microsoft, is an extraverted leader.
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Figure 4.1 depicts traits associated with leadership.
Figure 4.1: Traits Associated with Leadership
Conscientiousness: Conscientious people are organised, dependable,

systematic, punctual and achievement oriented. They take initiative and
are persistent in all they do.
Openness: People who are open to new ideas and try new things
become effective leaders.
Self-esteem: People with good self-esteem assess their worth and

capabilities in a more positive manner. Leaders with high self-esteem
are more supportive to their subordinates. People with higher selfesteem are more confident and have greater charisma.
Integrity: Effective leaders display honesty and integrity. Such leaders

are more trustworthy.
Behavioural Theory: Behavioural theory of leadership does not deal with

the traits or capabilities of a leader. They focus more on what the leaders
actually do. According to this theory, leadership capabilities are not inherent
and can be learned. It correlates the successes of leaders with their actions.
Managerial Grid Model: This is a behavioural leadership model proposed
by Robert Blake and Jane Mouton (1964). This model identifies the different
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leadership styles based on the concern for people and the concern for
production.
Figure 4.2 shows the graphical representation of the managerial grid model.
Figure 4.2: Graphical Representation of the Managerial Grid Model
In this model, the concern for production is represented on the X-axis and
the concern for people on the Y-axis. Each axis is marked from 1 (low) to
9 (high). The different leadership styles that are identified are as follows:
The Indifferent or Impoverished Style (1, 1): Managers adopting this

style have low concerns for both people and production. Managers are
more concerned about preserving their jobs and avoiding getting into
trouble. The managers do not want to be held responsible for any
mistakes and are, therefore, less innovative.
The Accommodating or Country Club Style (1, 9): Managers using

this style are more concerned about the people than the production.
Managers try to ensure security and comfort of the employees hoping
that it will enhance performance. The workplace atmosphere is pleasant,
but not necessarily productive.
Illustration Source: www.en.wikipedia.org/wiki/File:Management_Grid.PNG#filelinks
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The Dictatorial Style (9, 1): Managers using this style are more
concerned about production than the people. Managers do not consider
the needs of their subordinates. Managers pressurise their employees to
achieve company goals by imposing rules and threatening them with
punishment.
The Status Quo or Middle of the Road Style (5, 5): Managers
adopting this style try to balance employee needs and company goals.
But in trying to compromise the managers do not meet the needs of the
company or that of the employee.
The Sound or Team Style (9, 9): Managers using this style are
concerned about the people and the production. Managers encourage
teamwork and employee commitment. Managers make employees feel
that they are contributing constructively to the company.
The Opportunistic Style: Managers using this style exploit and

manipulate their subordinates. This style does not have a fixed location
on the grid. Managers adopt the behaviour which offers them the
greatest personal benefit.
The Paternalistic Style: Managers using this style praise and support
their subordinates but discourage their being innovative. This style
alternates between the (1, 9) and (9, 1) locations on the grid.
Now that we are familiar with various theories on leadership, let us

understand the different leadership styles present in organisations. The
following section discusses the same.
4.3.2 Leadership styles
Leadership style refers to the manner in which the leader functions and is a
result of the philosophy, personality and experience of the leader. The
different leadership styles are as follows:
Autocratic: In this style of leadership, the leader always makes the final
decisions. Employees are closely supervised. Employee interest has to
give way to organisational interest. Questioning is discouraged.
Autocratic style can be benevolent or tyrannical.
Participative or democratic: In this style, group decision making is

favoured. The leaders win the co-operation of the group and motivate
them effectively.
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Laissez faire: In this style of leadership, the leader gives maximum

freedom to subordinates. The leader tries to maintain a congenial
atmosphere and avoids taking decisions. The employees decide their
own policies and methods.
Inspirational: In this form of leadership, the leader tries to motivate

people from within.
Intellectual: In this style of leadership, the leader stimulates the

employees with novel theories and opportunities.
Individualised: In this form of leadership, the leader takes into

consideration the individual needs, talents and desires, and works
toward fitting the individual into an appropriate position rather than
forcing the person to fit into the position.
Now, you must be familiar with the various aspects of leadership. Next we
will discuss the part communication plays in employee relations.
4. _______________ is defined as the process of social influence in
which one person can enlist the aid and support of others in the
accomplishment of a common task.
5. Managers using the _____________ style of leadership exploit and
manipulate their subordinates.
6. In ______________ style of leadership, the leader gives maximum
freedom to his subordinates.
Activity 1:
Think of a leader you admire. The leader can be a statesman or a CEO
of a company. Note down the traits of the leader you think are worth
emulating? Identify the leadership style adopted by the leader? Do you
think that this style can be taught to others?
4.4 Communication
Let us discuss what communication is and about its different types.
Communication is a process of exchange of information between people.
Organisational communication includes the symbols, messages,
interactions, discourses and campaigns within an organisation.
Organisational communication can also include public relations,
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advertisements, investor relations and other external communications.

Effective communication is essential for an organisation to succeed. Let us
now consider the different forms of communication in an organisation.
4.4.1 Types of communication
Communication in an organisation can be formal or informal. Formal
communications follow certain rules and guidelines. Informal
communications are unofficial communications and are influenced by the
culture of the organisation. Effective communication has both transmission
and feedback phase. The feedback phase helps in clear understanding of
the communication. The different forms of communication in an organisation
are as follows:
Passive communication: This is an ineffective form of communication.

People using this form of communication avoid confrontation. They do
not communicate their wishes or desires. This style of communication
can cause alienation, anger, frustration and depression.
One-way communication: This communication travels only in one

predetermined direction. This is common in formal organisations and in
military structures. In this form of communication, messages are issued
by organisations and their managers without any regard for whom the
messages are addressed to. The subordinates are not given an
opportunity to communicate their opinions to their superiors. Examples
of one-way communication are edicts, rules and procedures. One-way
communication enhances feelings of alienation.
Two-way communication: This form of communication encourages

dialogue between the employees and their superiors. Consistent
communication between employees and their managers helps in
building trust and loyalty. Employees are given an opportunity to clarify
their doubts, seek support and express their opinions.
Active communication: In this form of communication, messages

which everyone can understand and respond to are issued. The
employees raise issues and respond to any problem without any fear.
Misunderstandings are clarified easily.
Non-verbal communication: In this form of communication, people

communicate their attitudes without using words. G.W. Porter classifies
non-verbal communication as follows:
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Physical: This includes facial expressions, gestures, tone of voice,

body motions, touch and so on.
Aesthetic: This includes creative expressions like

instrumental music, dancing, painting and sculpturing.
Symbolic: This makes use of religious and organisational symbols.
Props and settings: These are used to put others at ease or to put
someone in a position of disadvantage. Not providing a seat to a
person can make a person uncomfortable and feel annoyed.
Signs: This is a mechanical means of communication and includes

signaling flags, gun salutes, horns and sirens.
playing
In the next section we will see the importance of communication in

organisations.
4.4.2 Importance of organisational communication
Communication is essential in an organisation for better co-ordination and
for maintaining good inter-personal relations. Organisations establish good
communication channels for the following reasons:
Good working relations: Effective communication is essential in an
organisation to establish good working relations with peers,
subordinates and superiors. Good working relations ensure a friendly
and conflict-free environment.
Problem solving: Good communication skills help employees convey

their problems and issues in an effective way. This helps in preventing
problems from escalating. Problems can be resolved quickly.
Enhance production: Effective communication is necessary to keep

employees informed about the rules, policies and procedures. This helps
employees understand their duties better and perform their work in a
better way. This increases the productivity and accuracy of the work
done.
Engaging employees: Effective communication makes employees feel

that their opinions and suggestions are being considered. This increases
employee involvement and commitment. Loyalty for the organisation
increases and this enhances employee engagement.
4.4.3 Methods to improve organisational communication

Now that you know why communication is important, let us discuss how to
make communication effective. Certain etiquettes and rules are followed
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while communicating in the organisation. These help to improve the quality

of communication and ensure effective communication. The following
guidelines ensure better communication:
Be clear and transparent: Communication has to be unambiguous,

clear and transparent. All rules, policies and procedures need to be
communicated clearly so that the employees have a clear understanding
of them.
Be comprehensive: Ensure that the communication includes all the

points to be communicated. Check if additional changes are made to the
matter to be communicated. Ensure that the communication is accurate.
Be precise and concise: Communication needs to be concise and not

elaborate. Simple words are used in order to avoid misunderstandings.
Use short sentences.
Be generic: Ensure that discussions are generic. Successes and

failures need to be discussed in a generic manner. This helps in
avoiding conflicts. Use we more than you in discussions.
Be assertive: Communication needs to be assertive and positive. This

helps in making decisions and arriving at conclusions.
Be attentive: Develop listening skills. Verbal communications can only

be clearly understood if the parties involved are attentive.
Encourage two-way communication: Two-way communication helps

improve employee relations as this considers the opinions and views of
both parties involved.
In this section you learned how effective communication can influence

employee relations. In the next section we will see how decision making is
an important aspect of behaviour with respect to employee relations.
7. _____________ communications follow certain rules and guidelines.
8. In _____________ form of communication the subordinates are not
given an opportunity to communicate their opinions to their superiors.
9. In ___________ form of communication, people communicate their
attitudes without using words.
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4.5 Decision Making

Let us first understand what decision making is. Decision making is a mental
process which results in the selection of an option from many alternatives.
Decision making is both a logical and emotional process. We will now
examine the different types of decision-making tactics employed by
managers and supervisors.
4.5.1 Types of Decision Making
Different kinds of decisions are made by organisational leaders at different
times according to the prevailing situation. The decisions made have to
ensure that the organisation is moving in the right direction. The decisions
taken are broadly classified as follows:
Authoritative: In this form of decision making, the manager makes all

the decisions and the subordinates follow them. The manager faces the
consequences of all the decisions made.
Facilitative: In this form of decision making, the manager and the

subordinates together make the decisions after discussing the options.
The subordinates need to have the expertise to make decisions. Easy
access to information is enabled. Such decisions are taken in situations
of low-risk. These forms of decisions involve the employees in the
business operations.
Consultative: In this form of decision making, the managers consult

their subordinates, but make decisions by themselves. Good leaders
consult their subordinates, if they believe that the subordinates have the
right expertise.
Delegative: In this kind of decision making the managers pass on the

responsibility of making decisions to their subordinates. The managers
trust their subordinates to make the correct decisions.
4.5.2 Models of decision making

There are different kinds of decision-making models. A model that guides
the decision-making process is normative as it suggests a set of rules to be
followed. A model which describes the decision-making process is
descriptive. Let us now examine the popular models of decision making.
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Rational Model
This is a normative decision-making model. This model is used for complex
decisions. It provides a structured approach to decision making. It finds an
optimal solution to problems. It assumes that all the components of the
problem and the various alternatives are known. It also assumes that the
decision makers have all the expertise and unlimited time to make the
decision. It outlines a sequence of steps to rationally find a solution. Figure
4.3 outlines the rational decision-making model. The steps involved in
making a rational decision are as follows:
1. Identify the problem or opportunity: First, identify and understand the
problem. Then examine the useful opportunities.
2. Gather information: Gather information which is relevant to the
problem and which helps in making the right decision.
Figure 4.3: Rational Decision-Making Model
3. Analyse the situation: Analyse the alternative courses of action that

are available. Find out the ways in which the data can be interpreted.
4. Develop options: Generate all possible options and try to be creative
and positive.
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5. Evaluate options: Choose criteria and evaluate the options for

feasibility, acceptability and desirability. Try to determine which option
helps in achieving the objectives.
6. Select an alternative: Determine the possible consequences of the
preferred option and evaluate the risks involved. Make a decision based
on this observation.
7. Act on the decision: Formulate a plan to implement the decision.
Determine the resources needed. Find if the people involved accept and
support the decision.
The main advantage of this model is it imparts a structure and logic to the
process of decision making. The disadvantages are it does not consult all
stakeholders and uses a lot of time.
Carnegie Model
This model was formulated by Richard Cyert, James March and Herbert
Simon. This is a model of decision satisficing and adopts a bounded
rational approach. Decision satisficing is selecting the first alternative that
meets a given need or selecting the alternative that addresses most needs.
Satisficing is chosen for consensual decisions when the group finds a
solution everyone can agree on even if it is not the best solution. This model
of decision making is less costly and less time consuming.
The CEO of General Electric (GE), Jack Welch, had to make a decision on
whether the company should invest in its washing machine division or
outsource it. The mangers used the bounded rational approach of the
Carnegie decision model and decided to invest $70 million in the washing
machine division.
Incremental Model
This model was developed by Henry Mintzberg. Here, decision makers
choose actions that are related to their past actions as this reduces risk.
Decision makers move forward in a series of incremental steps. Decision
makers identify familiar solutions and choose alternatives that only slightly
differ from the status quo. The three phases in this form of decision making
are identification, development and selection.
Typical decisions made using this model are deciding which aircraft is to be
bought for an airline, identifying a new market for a perfume, introducing a
new form of treatment in a hospital. The Gillette Company uses incremental
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decision making to improve the design of its razors like Mach3 Turbo or the
fusion shaving system.
Garbage Can Model
This model was developed by Michael D Cohen, James G March and Johan
Olsen. This model considers organisations to be uncertain about the
problems and solutions. According to this model, the process of decision
making begins with solutions. Organisations generally produce solutions
which are not appropriate for the problem and hence get discarded. But
these discarded solutions can be used to solve other problems. The
Garbage Can Model disconnects problems, solutions and decision makers
from each other.
When Netscape was introduced in 1994, Bill Gates the founder of Microsoft
had to quickly harness his resources and develop an alternate web browser
for the market. Bill Gates used the Garbage Can Model to make the
decision to develop Internet Explorer working back from the identified
solution of developing a new browser.
Figure 4.4 depicts the Garbage Can Model of making decisions.
Figure 4.4: Garbage Can Model

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The streams of events identified by this model are as follows:
Problems: These arise from within the organisation and due to external
factors.
Solutions: These are considered to be distinct from problems. Important

solutions may be prepared without knowledge of the problem.
Choice opportunities: These are conditions in which organisations

make decisions.
Participants: They are people who are involved in the problem or in the
solutions. Participants store knowledge of different problems and
solutions. This can be made use of to arrive at decisions.
Decision Matrix Model

This model was invented by Stuart Pugh. It is a quantitative technique and
ranks the different options of the option set based on certain criteria. It is
used to make design decisions in engineering. This model can also be used
to rank investment options, product options and vendor options. Table 4.2
shows a sample decision matrix.
Table 4.2: Sample Decision Matrix
Safety
Risk
Inflation
Risk
Rate of
Return
Compatibility
with Current
Business
Total
Real Estate
81
Web
Designing
64
Retail
Convenience
Store
46
Travels
75
Weight
The steps to construct a decision matrix are as follows:

1. Make a list of the options.
2. Identify the evaluation criteria and select the criteria that are most
important.
3. Give a relative weight to each criterion based on its significance.
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4. Draw an L shaped matrix with the criteria and the weights as rows and
the options as columns or vice-versa depending on which is lesser in
number.
5. Evaluate each option against each criterion and assign a score or a
rank.
6. Multiply the score of each option by the weight of the criterion. Add the
points for each option and find the option which has the highest score.
We have discussed the different models of decision making and the different
styles of decision making. We will next discuss how employees with power
and authority impact employee relations in an organisation.
10. _______________ is a mental process which results in the selection of
an option from many alternatives.
11. In _____________ kind of decision making the managers pass on the
responsibility of making decisions to their subordinates.
12. ____________ model of decision making is a quantitative technique
which ranks different options based on certain criteria.
Activity 2:
You are the manager of a fast food restaurant and have to make
decisions such as the food items to be included in the menu, the chefs
to be hired, the groceries to be ordered and so on. Identify the kind of
decision-making model you will use. Justify your choice.
4.6 Power and Authority

To understand how power influences employee relations, let us first
understand what power is. Different theorists define power differently. Max
Weber defines power as the probability that one actor within a social
relationship will be in a position to carry out his own will despite resistance.4
According to this definition, power is the potential or capacity to do
something. All employees in an organisation have some form of power. The
power an employee has is directly proportional to the skill and expertise of
the employee.
4
plato.stanford.edu/entries/feminist-power/
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According to Robert Dahl, A has power over B to the extent that he can get
B to do something that B would not otherwise do. According to Dahl, power
is the control a person has over another person. Power is relational in
nature. We always talk in terms of a person being more powerful or less
powerful than another person. Managers have power in an organisation as
they control decisions of awarding bonus, promotion and task allocation of
their subordinates. Power is generally used when conflicts of goals occur.
Now that we know how power affects employees, let us see what authority
is. Authority is a special form of power and the legal right bestowed upon a
person to make decisions and to direct others. For example, a manager has
the authority to give approval for new projects.
Weber classified authority in the following way:
Traditional: This form of authority is given to someone by virtue of

tradition or custom. For example, a son or a daughter succeeds a parent
in a dynastic organisation.
Charismatic: This form of authority arises due to the personality and

inherent qualities of an individual. These qualities generate strong
feelings of loyalty and commitment in the followers of that individual.
Many union leaders, managers and department heads are able to carry
out their duties due to their charisma.
Rational or legal: Weber associates this form of authority with

bureaucratic organisations. The person has authority due to the position
the person occupies. Rules and norms justified by law and customs
enable the selection. Legitimacy of the authority arises from the manner
in which the person is selected for the position. For example, the
legitimacy of an official arises from the belief that fair methods and
criteria were the basis for the appointment of that official. The authority
of the official would be undermined if fair processes were not adopted
for the selection.
When a person has authority, then the orders of that person are carried out
without any implicit bargaining. But there are limitations to authority. When a
person makes unreasonable demands, the authority of the person gets
undermined.
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Exhibit 4.3: Steve Jobs - a charismatic leader or a narcissistic leader?

Steve Jobs, the charismatic leader of Apple Inc., is an iconic figure. The
three characteristics of Steve Jobs leadership qualities that are undoubtedly
his trademark are his vision for emerging technologies, his ability to
collaborate with other great leaders and his insatiable appetite for
excellence. Apples corporate coffers, once emptied by mismanagement,
were full to the brim thanks to his vision. Apples iconic product, iMac along
with an equally iconic ad campaign like "Think Different" were all products of
his vision and were so successful that Apples stock remained rising for
seven consecutive quarters and Apples consumer market share nearly
quadrupled to about 12%.
On the other side of the same coin, there are many stories about the
narcissistic leadership qualities of Steve Jobs. At Apple, he was seen as a
leader whose brilliance and idealistic vision of providing computers as a tool
to change the world drew other talented people to him. Yet, Steve Jobs was
said to have the habit of publicly humiliating subordinates. His management
style tended towards throwing tantrums and to berating and humiliating
employees who disagreed with his ideas. Also, his habit of making decisions
and then suddenly changing his mind has been given as part of the reason
he is difficult to work with.
13. According to Dahl, ___________ is the control a person has over
another person.
14. _____________ is a special form of power and the legal right bestowed
to a person to make decisions and to direct others.
15. In ____________form of authority, the authority arises due to the
personality and inherent qualities of an individual.
4.7 Summary
The behavioural aspects to be considered in employee relations
management are motivation, leadership, communication, decision making,
power and authority.
Employee motivation is the intensity of vigour, commitment and
resourcefulness with which employees do their jobs. The different theories
of employee motivation include Likerts System 4 Theory and Herzbergs
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Hygiene Motivation (Two-factor) Theory. Motivation affects employee

achievement and employee relations. Money in the form of wages paid,
bonuses and performance incentives can affect motivation.
Leadership is the process of influencing people in the organisation. The
nature and style of leadership plays an important role in employee relations,
motivation, conflict resolution and creation of overall organisational vision
and direction. The different theories of leadership include the Trait theory
and the behavioural theory. Trait theory of leadership deals with the
character or capabilities of a leader while behavioural theory focuses more
on what leaders actually do.
Effective communication is essential for an organisation to succeed. The
different kinds of communication that exist within an organisation are
passive, active, one-way, two-way, verbal and non-verbal communication.
Decision making is a mental process, which results in the selection of an
option from many alternatives. The different models of decision making
include: Rational Model, Carnegie Model, Incremental Model, Garbage Can
Model and Decision Matrix Model.
Power is the potential or capacity to do something or the ability to control
others. Authority is a special form of power and it is the legal right bestowed
on a person to make decisions and to direct others.
4.8 Glossary
Term
Description
Aesthetic
Concerning or characterised by an appreciation of beauty or

good taste
Alienation
Becoming unfriendly or hostile; becoming withdrawn or

unresponsive; isolation or emotional dissociation
Autonomy
The condition or quality of being independent
Congenial
Of a pleasant disposition; friendly and sociable; suited to one's

needs or nature; agreeable
Laissez faire
Non-interference in the affairs of others
Profit-sharing
A system in which employees of an organisation receive a

share of the net profits of the business
Predictor
A variable that estimates the value of another variable
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Satisficing
Examining alternatives until a most attainable or reasonable

solution with adequate level of acceptability is found; Aiming
to achieve only satisfactory results; sufficing satisfaction
Self-actualisation
A driving life force that ultimately leads to maximising one's

abilities and determining the path of one's life; the desire for
self-fulfillment
Status quo
The existing state of affairs at a particular time; the situation

as it currently exists

Explain Likerts System 4 theory of leadership.
Explain the role of motivation in employee relations.
Explain the different traits which help in identifying a leader.
Explain the different styles of leadership according to the Managerial
Grid Model.
5. What are the different types of organisational communication?
6. Explain the rational model of decision making. Contrast it with the
incremental model.
7. Differentiate power and authority.
1.
2.
3.
4.
4.10 Answers
1. Employee motivation
2. Exploitative authoritative
3. Motivators, hygiene
4. Leadership
5. Opportunistic
6. Laissez faire
7. Formal
8. One-way
9. Non-verbal
10. Decision making
11. Delegative
12. Decision Matrix
13. Power
14. Authority
15. Charismatic
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4.11 Case Study

An oil and gas company in the U.K. encourages its managers to show
leadership at every level. Every manager has a set of objectives and all
managers are responsible for the successes and failures in their area of
work. Employees are hired to perform varying functions like drilling for oil
in the North Sea, developing legal agreements and so on. The skills and
expertise of the employees vary widely. Managers have to manage their
employees effectively and organise resources in order to achieve their
objectives. Different managers display different styles of leadership
depending on their area of operation.
Autocratic style: Managers who work offshore have to oversee crucial or
dangerous maintenance work. Managers have to adhere to the Minimum
Industry Safety Standard. Hence such managers adopt an autocratic
style and just instruct workers on what to do. For example, the Offshore
Installation Manager (OIM) is responsible for the safety of all employees
on the installation. Hence, the OIM uses an autocratic style to ensure that
all employees have undergone safety training and follow the established
rules and procedures strictly.
Democratic style: In some matters, managers consult employees before
making a decision. For example, shutting down a piece of equipment that
affects other production systems. In such cases, the operations manager
consults the engineers and then arrives at a decision.
Paternalistic style: Sometimes, managers make decisions for the benefit
of the employees without consulting them. At times, managers adopt a
paternalistic style and arrange for training of the employees and thus
responding to the developmental needs of the employees.
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The oil and gas industry motivates its employees in different ways.
Managers ensure a safe, rewarding and challenging work environment to
motivate the employees. Employees are encouraged to undergo many
training programmes, which contribute to their career development.
Employees are enabled to choose their career paths. Employees are
given more responsibilities and encouraged to solve problems. This
shows the trust the management has in the employees. Management
also encourages commitment by providing various benefits and rewards.
1.
What are the different styles of leadership adopted by the U.K. oil
and gas company?
2.
How does the company motivate its employees?
References:
Chemers, M. M. (2002). Meta-cognitive, Social, and Emotional
Intelligence of Transformational Leadership: Efficacy and Effectiveness.
Cohen, M. D., March, J. G. & Olsen, J. P. (1972). A Garbage Can Model
of Organizational Choice Administrative Science Quarterly, Vol. 17.
Gamage, D. T. (2006). Professional Development for Leaders and
Managers of Self-governing Schools.
Daft, R. L. (2007). Organisation Theory and Design.
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Unit 5
Unit 5
Human Resource Information System (HRIS)
Structure:
5.1 Introduction
Objectives
5.2 Overview of Human Resource Information Systems
Guidelines to Select Human Resource Information Systems
Examples of Human Resource Information Systems
5.3 Importance of Human Resource Information Systems
5.4 Features of Human Resource Information Systems
5.5 Common Applications of Human Resource Information Systems
Planning
Staffing and Employment
Training and Career Development
Performance Management
Compensation and Benefits
5.6 Summary
5.7 Glossary
5.9 Answers
5.10 Case Study
5.1 Introduction
The first unit on Employee Relations Management (ERM) familiarised us
with the concept of managing human resources using certain software
applications. In this unit, we will learn more about the features of Human
Resource Information Systems (HRIS) like payroll, training, performance
record, and benefits administration. HRIS includes systems and processes
which combine the functions of Human Resource Management (HRM) and
the tools of information technology. HRIS helps organisations to carry out
their Human Resource (HR) administrative functions in an effective manner
and reduces the manual work to be done by the HR personnel. HRIS helps
in reducing costs and saves time.
In the following section, we will see an overview of HRIS. Thereafter, we will
discuss the features of HRIS and the importance of implementing HRIS in
organisations.
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Objectives:
After reading this unit, you will be able to:
define HRIS
explain the importance of HRIS
explain the features of HRIS
assess the importance of HRIS applications.
5.2 Overview of Human Resource Information Systems

Human Resource Information Systems (HRIS) is a software application that
caters to the human resource information needs of an organisation like
monitoring employee attendance, payroll and benefits administration, career
development, employee information, performance management, and
training. HRIS is a collection of components which work together to gather,
process and store information that the HR department can use to make
decisions, to coordinate and to plan its activities. HRIS facilitates easy
access and management of employee-related information.
For example, Terasen Pipelines, a Canadian company was using a manual
system to maintain its records. But when its workforce increased, it began to
use HRIS to maintain accurate employee records.
Initially, mainframe computers were used by organisations to manage
human resource management functions. A large amount of capital was
needed to operate these systems. The advent of client-server architectures
and Software as a Service (SaaS) models has lowered the maintenance
costs of HRIS.
HRIS comprises the following modules:
Payroll: This module of HRIS keeps track of the pay grades and
positions of the employees. Pay raise details are also recorded. This
module gathers information on employee time and attendance. It
calculates the deductions and taxes and generates pay slips and tax
reports. Cheques get automatically deposited in the employee bank
accounts. Inputs for this module are obtained from HR and time-keeping
modules. This module integrates with the current financial systems of
the organisation.
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Benefits administration: This module tracks and administers employee

benefit programmes. The benefit programmes include insurance,
reimbursements, profit sharing and pension programmes.
HR management: This module covers many HR aspects, ranging from
employee recruitment to retirement. It records employee details like
addresses, training programmes undergone, skills, position and so on.
The functions addressed by this module are recruitment, placement,
evaluation and career development of the employees. Job sites on the
Internet are increasingly being used for recruitment. This module tracks
job applications. Interviews and selection details are also maintained.
Training: This module administers and tracks employee training and
development programmes. Records of employee education,
qualification, and skills are maintained. It also outlines the training
courses and training materials (CDs, books, web-based learning
programmes, etc), which help employees develop their skills. Courses
can be planned and scheduled using the data stored. Managers can
approve training and budgets.
Performance appraisal: This module evaluates the job performance of
employees in terms of quality, time and cost. This helps in analysis of
employee strengths and weaknesses and suitability for promotions. It
gives feedback to employees on performances and identifies employee
training needs. It also documents criteria which can be used for
organisational rewards.
Work time: This module helps to track the work done by the employees.
This module merges the functions of work management and time
management across a wide range of activities that include project, tasks,
requests and deployment. This module maintains attendance and leave
details of employees, which are exported in various formats for further
processing.
Employee self-service: This module permits employees to update their
personal details, query HR databases and perform HR transactions.
Employees are allowed to apply for leave, raise purchase requests, file
expenses, view their salary details and keep track of their project-related
activities. Employees use this to update their tax savings details and
bank-related information. Table 5.1 outlines some of the applications
that are used in HRIS.
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Table 5.1: HRIS Applications

Application
Function
Example
Internet
Portal
Merges data from several sites

in a single site. Users can
customise data.
The state of West Virginia

(USA) uses an enterprise
portal to offer timely
information and e-government
services to its citizens,
Shared
Service
Centres
Consolidates different functions

at one location. This eliminates
redundancy and reduces
administrative costs.
Allied Signal combined

different functions of finance
and HR at a shared service
centre.
Application
Service
Providers
(ASP)
Companies pay rent and use a

remote computer system to
manage their HR activities
KPMG uses an ASP for

implementing its employee
learning programmes.
Business
Intelligence
Provides information on
business trends and practices
and enables accurate decision
making
A hotel franchise uses

business intelligence to gather
data about average occupancy
rates and predict revenue.
In Table 5.1 we have outlined some of the applications that are used in
HRIS. Now let us examine the guidelines which help in the selection of an
HRIS.
5.2.1 Guidelines to select Human Resource Information Systems
Human Resource Information Systems (HRIS) have become very essential
for organisations to manage employee information and administer benefits
effectively. In this section, we will discuss how managers decide which HRIS
will best suit their needs. The following guidelines help management to
choose the correct HRIS:
Assess the degree of flexibility and scalability that the HRIS offers. The
HRIS has to allow importing of data from varied sources like
spreadsheets, databases and documents. The HRIS has to enable
interface with different kinds of system and data.
Assess whether the HRIS incorporates the rules of the company.
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Clarify if the HRIS is able to grow as the company creates new

employee records, new benefit details and new rules. The limits of this
capability to grow have to be assessed.
Assess whether the HRIS is able to integrate with different systems.

Information in one system needs to be shared with other systems. For
example, the payroll module and the benefits module need to share
employee details.
Determine the level of training and technical expertise required to use

the HRIS. Costs of training have to be assessed.
Resolve issues of ownership of data. Companies need to be able to

transfer their data to any Application Service Provider (ASP). If the data
is stored in the server of the HRIS-developing company, the company
may charge fees for transferring data to another ASP.
Determine the type of maintenance required. Plan the method of

updating technologies.
Determine how secure the HRIS is. Find if the service provider (carrier)
ensures backups if the HRIS is being implemented online. Find the
systems and procedures which will safeguard and protect the data. The
HR department of the organisation has to have the absolute authority to
determine who should have access to information stored in the HRIS.
Find out whether employees can update their personal details in realtime. Employee-self service must be enabled and employees have to be
able to access the HRIS at anytime and from anywhere through the
Internet. Employees have to be guided on how to use the system.
Find out whether the reporting capabilities of the HRIS. Multiple

reporting formats (PDF, HTML, spreadsheets) are necessary for
organisations. The HR personnel have to be able to assess changes in
employee data and make decisions.
Determine the features that will help HR save time. Batch processing,
self-billing and self-notification are features that save time.
Find out whether the HRIS enhances employee communication. The

HRIS has to offer flexible means of communication like mass e-mail,
electronic bulletin boards and filtered communication based on
departments, designations, location, insurance plans, retirement status
and so on.
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Find out whether the HRIS provides checks and balances, which will
enable the HR personnel to audit carrier bills, assist the enrollment of
employees, judge the eligibility of employees for benefit schemes.
Find out how information is exchanged with the carriers and the type of
connection which will enable this exchange. Managers need to select
carriers who offer clean and accurate transfers.
Determine the level of customer service offered. Online help, online

chats, telephone help, direct conversations, etc., aid customer service.
Assess the costs and the benefits of the HRIS. Assess all one-time,
monthly and annual charges. Consider factors like time savings,
accuracy and convenience.
Thus, we see that it is very important to assess and weigh the advantages
and disadvantages of the HRIS before making a choice. In the next section,
we will examine some examples of HRIS.
5.2.2 Examples of Human Resource Information Systems
There are many HRIS software available in the market today. Some of them
are listed below:
Sage Abra HRIS: It has modules for benefits enrollment, benefits

messenger, recruitment, employee self-service, payroll, HR features and
training features. It simplifies routine employee management tasks,
ensures compliance with government regulations, keeps track of
employee attendance, makes recruitment more effective, automates
employee training and updates employees on benefit programmes.
Oracle HRMS: This has different modules for HR, payroll, training
administration and time management. Oracle HRMS supports
application processing, employee profiling, career development, and
management of compensation and benefit plans.
SAP HR: This has modules for personnel administration, recruitment,

training, time management, payroll, compensation management, budget
management, travel management and personnel development.
PeopleSoft: This has modules for payroll, benefits administration,

employee and manager self-service, talent management, learning
management and HR business intelligence.
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iVantage HRIS: This is a web-based talent management and HR

management suite, which offers modules for recruitment, candidate selfservice, performance management, work flow with conditional routing,
salary planning, alerts, notifications, compensation management, and
reporting.
Kronos: This web-based HRIS offers various solutions for time and
attendance, scheduling, absence management, labour analysis, hiring,
HR and payroll.
Now you are familiar with some of the HRIS applications available for
organisations to choose from. In the next section, we will understand the
importance of using HRIS.
1. __________ merges the functions of Human Resource Management
with information technology.
2. __________ on the Internet are increasingly being used for employee
recruitment.
3. _____________, self-billing and self-notification are features which
save time.
5.3 Importance of Human Resource Information Systems

Figure 5.1 shows the activities and data of a HRIS.
Figure 5.1: HRIS

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You know that human resources play a very important role in all
organisations. The HR department is involved in formulating the company
policies and streamlining the business processes. Efficient and new
applications like HRIS make the HR department more effective. HRIS
assists the HR department in decision making, employee recruitment,
benefits administration, payroll, and employee training and performance
analysis. HRIS simplifies the HR processes and organises company and
employee data in a better way. By using HRIS, confidential information can
be protected. HRIS integrates the financial and the HR aspects of a
business.
The four main functions of a HR department are payroll, time and labour
management, employee benefits and HR management. The advantages of
implementing HRIS in these functions are as follows:
Payroll: HRIS automates the entire payroll process by collecting and

maintaining payroll data. It collects information such as employee
attendance, computes the deductions and taxes and generates paycheques automatically and periodically.
Time and labour management: HR personnel can collect and assess

employee time and work information. HRIS helps in analyses of
employee performance. It helps employees to perform better through
efficient career planning.
Employee benefits: Employee benefits are very important because

they help in motivating employees. Employees log in to the system and
find the benefits they can avail. Organisations use HRIS to keep track of
the benefits employees avail and inform employees of the advantages of
various benefit programmes. The HR personnel use relevant data and
statistics to compute benefits and compensations of the employees or
their dependants. Employee performances are tracked and incentives
are computed. Employees can view the details of the incentives. It helps
in planning and monitoring employee training. Costs of training are
computed. For example, IBM uses a web-based employee benefits
enrolment system which enables employees to access the system and
view their benefits any time and at any place.
HR management: HRIS reduces the manual and paper work of the HR

personnel in performing their routine tasks. The HR personnel can thus
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focus on more important duties. HRIS provides data support to HR

decisions. HRIS helps in succession planning. It helps to integrate
employee performance, development and payroll modules and thus
retain key employees who can ensure organisational success. HRIS
helps in career management and talent management by identifying the
skills of the employees. It helps in monitoring the productivity of
employees. HRIS helps in assessing why employees leave
organisations.
Exhibit 5.1: Human Resource Innovations
The impact of technology has led to the development of various HR
innovations. These emerging customised innovations have made a great
difference to the way HR services are administered. Some of these HR
innovations are:
Human Resource Information Systems (HRIS)
HR web-based applications
HR service centres
Employee self-service system and
HR data marts.
One of the most commonly used HR innovations in organisations is HRIS.
Since HR activities have become complex they require a professional
approach. This is where HRIS has come to the rescue of HR professionals.
HRIS is a computer-based system, which helps managers take decisions
pertaining to various aspects of HR management.
There are three levels of decision making in an organisation -- strategic,
tactical and operational. The information needs of the manager depends on
the level at which they work. Therefore information systems are also
categorised into three types:
Operational HRIS
Tactical HRIS
Strategic HRIS.
Table 5.2 provides information on the various systems available under each
category.
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Table 5. Types of HRIS
In the above section you learnt that by automating the HR processes, the
HRIS provides time and cost savings, makes work processes more
effective, adds strategic value to the organisation and makes the
organisation more competitive. Businesses view HRIS as a big asset and
invest in it. In the next section we will discuss some of the features of HRIS.
4. The four main functions of a HR department are _______,
_____________, ____________ and ______________.
5. __________ are very important because they help in motivating
employees.
6. HRIS makes work processes more effective, adds ___________value
to the organisation and makes the organisation more competitive.
7. HRIS helps in ___________ and ____________by identifying the skills
of the employees.
Activity 1:
You are the HR manager of an organisation and have to implement
HRIS. Note down the factors that will influence your choice of HRIS.
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5.4 Features of Human Resource Information Systems

You have seen that HRIS helps an organisation keep track of employeerelated information. Let us now examine the features of a good HRIS. The
important features of a good HRIS are as follows:
Job and pay history: The HRIS documents details and salary of past
jobs. The education details of the employee are also recorded. The HR
personnel are able to view salary details including bonuses awarded and
deductions made. They can view job details like positions held and the
period of employment in that position. Salary changes of the employee
are recorded.
Ability to import and export data: The HRIS scans images of

resumes, employee photographs, employee signatures, job applications
and accident reports. The HRIS is able to link to multiple file formats like
PDF, Excel and Word. Exporting data in HTML or XML formats is also
supported. Employee information is exported to programmes like Visio
or OrgPlus and graphical organisation charts are produced.
Ad-hoc report writing: Powerful reporting tools like Crystal Reports

are used. Users select the reporting criteria such as department,
location or position. Customised reports are created and saved using
report generators. Information that needs to be included in reports can
be selected. Lists such as staff directories, lists of offices, lists of
positions are generated. Such lists can be sorted or filtered. Reports
include tables and charts. Reports can be formatted as PDFs for
printing. Time-stamps are also included in reports.
Automated reminders and alerts: Reminders are set for important

dates and deadlines. HR personnel schedule reminders for birthdays,
anniversaries, company events, performance reviews, training,
probation periods, and promotions. HR personnel can e-mail important
reminders to employees.
User-defined fields: Users define the organisation structure according

to individual organisations. They can include company policies for
recruiting, salary structure, promotions, increments, appraisal, transfers,
confirmation and other areas. They specify the business rules and logic,
which are applicable to their company.
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Attendance and leave tracking: Employee vacations, leaves and

absences are tracked and documented. Company policies on leave and
vacation are documented. The number of days of leave available is
computed based on the years of service of the employee and the leave
taken.
Employee self-service: Employees are allowed to record and update

their personal details like name, gender, nationality, address, marital
status, passport number, date of birth, number of dependants,
education, and contact phone numbers. They have the facility to record
notes in a log. They can apply for leave and view their leave details.
They can also change their bank account details and view their payslips. They manage their inboxes, personal calendars and service
requests. They can view their work schedules. They are allowed to file
their expense reports, can view and enroll in various benefit plans. They
are permitted to sign up for training and view their training schedules.
They are allowed to create purchase requests and confirm receipt of
goods. For example, mySAP HR has more than 80 ready-to-use
employee self-services.
Exhibit 5.2: ESS at Cisco

Cisco Inc. used an advanced employee self-service system which has been
implemented using wide area network (WAN). The aim is to provide
employees with relevant information wherever and whenever they need.
ESS helped Cisco reduce its administrative costs and improve the
productivity of employees. With ESS, the process of decision making
became faster and more effective because of information sharing at all
levels. Cisco uses ESS for administering payroll and benefits, getting
information on competitors and customers.
Benefits administration: The HR personnel define the benefit plans for

each employee and track details like eligibility, premiums paid and
beneficiaries. Organisations can analyse the impact of their benefits
administration policies and track employee enrolment. For example,
Cisco is providing an online benefits administration package for its UK
and Ireland employees called i-Benefits@Cisco to help them understand
their full rewards package and the benefits that they are eligible for. The
staff can view the benefits online and select their perks. This package
includes information about life assurances, group income protection,
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holiday and voluntary benefits. Cisco uses National Insurance Savings

to provide health assessments of staff.
Performance management: The HR personnel or supervisors can track

all employee performance reviews. Details of past reviews are
maintained. Managers can include their comments about each
employee and schedule future reviews. Employee performance in
training is also tracked. The performance management system helps set
goals for the employees, evaluate employee performance, improve
employee performance, and promote employees to the right position.
HRIS allows managers to set goals for their unit and assign the goals to
individuals and teams. The people planning module assists managers
to assess and track progress.1 The performance management feature
streamlines performance appraisals and makes them more transparent.
Management uses reporting and analytics tools to identify top
performers and non-performers.
Payroll: The HRIS system manages all aspects of payroll functions like
payroll processing, reimbursements, salary statements, insurance
payments, income tax and so on. The pay structure can be configured
as per company policy. Employees can choose their benefit plans.
Arrears are calculated and e-mails are sent to employees on arrear
payments. Loan policies and pre-requisites are configured. Employees
are allowed to generate pay-slips, loan statements and tax statements.
They can use the tax calculator to calculate tax. Final settlements of
employees are also computed.
Security: Access to confidential information is strictly controlled.

Different levels of employees have different access permissions.
Password-protected logins ensure authorised access. The passwords
are regularly changed by the system administrator. Data integrity is
ensured. A log is maintained of user name, date and time of data access
for auditing purposes. Firewalls are created to prevent hacking. Data is
replicated on different servers at different sites to act as standby. Data is
backed up on a regular basis.
Global Information Systems and Technology: Focus on the Organisation and its Functional Areas by
P.Candace Deans and Kirk R Karwan, 1994.
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Document library: The HRIS includes templates of letters and forms

such as offer letters, welcome letters to new employees, termination
letters, exit-interview forms, employee surveys and so on.
Exhibit 5.3: HRIS- A Useful Tool for the Modern Organisation

A leading hospital chain wanted to improve the value of its employee
appraisal process. It realised that with a tight labour market including a
retiring workforce and increasing competition for specialists it needed to
look at its annual review process as part of a complex skills retention and
talent optimisation strategy. Its paper-based process was no longer
providing the value, consistency or quality control that was required. The
strong opinion among the employees was that the performance-appraisal
process had no value to their careers. Employees specifically mentioned
that the appraisal process was time consuming and lacked direct connection
to their jobs.
The hospital chain decided to source an automated employee-performance
and talent-management solution, E-Solutions, to drive the change. ESolutions provides its customers the choice of having the solution administered
on-site by the customers IT department, or having E-Solutions host and
manage the software and associated hardware. The hospital chain chose the
latter option.
After a short training process, E-Solutions team rolled out the e-appraisal
with multi-rater to almost 3,000 users among five hospitals in the chain.
Immediate improvements were visible, with comments pouring in from all
the hospitals. The most visible change was the completion of appraisals on
time. While in the past the appraisal process spilled well over the deadline,
there was now 100% on-time completion.
The e-appraisal also included a new aspect--peer appraisal. This aspect
was very important for an organisation like the hospital chain because
healthcare workers can engage with numerous colleagues in each shift.
This perspective provides important feedback in a review.
You now know the features of a good HRIS. In the following section, we will
explain the applications of HRIS.
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Unit 5

8. Customised reports
_____________.
are
created
and
saved
in
HRIS
using
9. The ________________ helps set goals for the employees, evaluate

employee performance, improve employee performance, and promote
employees to the right position.
10. ___________ logins ensure authorised access.
11. The _______________ of HRIS includes templates of letters and
forms.
5.5 Common Applications of Human Resource Information

Systems
An HRIS is an integrated approach to acquiring, storing, analysing and
controlling the flow of information throughout an organisation.2 A welldeveloped HRIS is useful in many HR applications and can enhance the
efficiency and time-of-response of many HR activities. Some of the common
applications of HRIS are as follows:
Planning: The HR activities implemented by this application are

personnel and succession planning, labour-relation planning, target
analysis and organisational charting.
Staffing and employment: This application handles recruitment

activities. It ensures compliance with employment equity.
Training and career development: This application deals with

analysing training needs, training administration, and career planning.
Performance management: This application deals with performance

appraisals, monitoring time and attendance of employees.
Compensation and benefits: This application deals with employee

compensation and benefits administration.
Let us now discuss each of these common applications in details.
Human Resource Information Systems: Development and Application by Michael J Kavanagh, Hal G
Guental and Scott I Tannenbaum, 1990.
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Unit 5
5.5.1 Planning
Planning is a very important activity of HR management. Planning identifies
and implements the activities that ensure that the organisation is moving in
the right direction. Planning is concerned with implementing the business
strategy of the organisation. The components of planning are as follows:
Environmental scanning: It identifies the business opportunities and

threats after reviewing the external factors that affect an organisation.
Business plan analysis: It reviews the business plans and strategies.
Manpower planning: It reconciles any imbalance between HR supply

and demand.
Programme and policy review: It ensures that the HR policies and

programmes are aligned with the organisational needs.
The components of HRIS which assists in planning are:
Workforce profile review: It assesses the demand and supply of

workforce by analysis of employee data elements like age, wage,
performance rating, position and organisational data elements like
employee turnover.
Workforce dynamic analysis: It examines the employee movement in

the organisation by analysing historical data like service, promotions,
performance ratings, and salary. Various reports which provide
information on lateral transfers, promotions, new recruits and turnover
are generated.
Succession planning: It identifies potential successors for critical

positions. Employees are scored and assessed for suitability of predefined job profiles. The staff details (job history, competencies,
assessments) are analysed to find which position the individual can fit
into. Employee databases are searched to retrieve profiles of employees
who fit certain criteria. Reports are generated of individual
competencies. Figure 5.2 depicts the employee details window of the
Succession Wizard of Peoplesoft.3
Illustration Source: www.succession-wizard.software.informer.com/screenshot/11723/
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Figure 5.2: Screenshot of PeopleSoft Succession Planning Wizard
Strategic HR planning: It analyses HR data and compares it with

performance benchmarks. It is used to evaluate policy compliance and
impact of new programmes.
5.5.2 Staffing and employment

Staffing refers to the process of attracting candidates, interviewing them,
and negotiating a compensation package with them. The process of staffing
is very important as organisations have to recruit the right candidates who
will help in realising the organisational goals.
The components of HRIS which assists in staffing and employment are:
Applicant tracking: This helps in identifying competent candidates

quickly and effectively. It organises information about applicants and
their availability and helps in automating the recruitment process.
Resumes are imported from job portals. Candidates are short-listed by
pre-screening their profiles. It helps to match applicant capabilities with
job openings. It compares candidates applying for the same job and
helps in scheduling and tracking interviews. The tracking component
also generates employment letters. For example, Bell Helicopter
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Company uses its HRIS to recruit technical staff. MCI

Telecommunications uses a resume-tracking system called
SmartSearchTM to spot eligible candidates.
Employment equity compliance: Employment equity is a process

which helps organisations to identify and eliminate barriers in their
employment policies and procedures in order to have representation of
women, people with disabilities, and minorities at all levels. Employee
personal data (gender, sex, and group) and reports of employees hired
and employees promoted are used to make decisions to ensure fairemployment practices.
5.5.3 Training and career development

Employee training and career development are very essential for motivating
employees. HRIS is a very important training and career management tool.
Training: Organisations need to measure costs of training and their

effectiveness. HRIS helps in scheduling and monitoring training
programmes. Employees use the self-service module to apply for
training. Employee data like skills, goals and performance rating are
used to evaluate training needs of an employee. Based on this analysis,
the HR personnel or managers grant training approval. Training budgets
are fixed using HRIS tools.
Career development: HRIS can be used to monitor employee career

trajectories. Many organisations seek to fill vacancies from within the
organisation. HRIS informs employees about the current vacancies and
the requirements of those positions. HR personnel are also able to
identify employees who fit the requirements for vacant job positions by
using employee data. For example, the company 3M has implemented
a job information system, which lists the jobs available companywide.
All employees can view this listing and apply for the desired position.
5.5.4 Performance management

Employee performance management is essential to ensure that employee
performance is monitored. This makes the organisations more productive
and profitable.
Performance appraisals: Performance appraisal results are used to

make administrative decisions like promotions, salary increments and so
on. Feedback of performance appraisals improves employee
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performance. Performance management of HRIS uses data like

position, supervisor, date of appraisal, performance rating, appraiser
comments, history of performance, and date of next appraisal.
Performance appraisals help in identifying the strengths and
weaknesses of employees and their training needs.
Time and attendance: Information on attendance and time worked is

very important as absenteeism results in considerable loss to the
organisation. Time and attendance module analyses information like
time spent on a job, start date, end date, total time taken and reason,
and leave details. Overtime calculations are also performed. Some HRIS
also manage attendance details of multiple shifts. Time sheets are
created for different categories of employees. Time sheets can also be
configured for each project. Off-time information is also captured. Time
sheets can be approved. After approval, time worked and leave details
are exported to payroll module. Department-wise reports of absenteeism
with reasons are generated.
5.5.5 Compensation and benefits

Attractive compensation packages and good benefits programme help
motivate employees and retain skilled employees. The University of
Michigan uses HRIS to manage pay, benefits and pensions of its current
and retired faculty members.
Compensation management: All organisations have to offer a

competitive compensation package, maintain payroll costs and comply
with government laws. Employee compensation is determined by
examining jobs and determining their relative worth to the organisation.
Compensation management function of HRIS uses data like salary
based (hourly commission and so on), bonuses, hours worked, types of
increment (annual, biannual, promotion) and interfaces with the payroll
system. It interfaces with the performance management system to
ensure correct pay based on performance ratings.
Benefits administration: Employees use HRIS to enroll in various

benefit programmes. For example, the employees of Apple enroll in
benefit plans using the HRIS of the company. Employees can also
change their enrollment plans. HRIS determines benefits by using
employee data like date of enrollment, type of insurance plan opted
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(health, life), memberships availed (health clubs), loans and beneficiary

details. HRIS automates the computation of flexible benefits. Employees
are also educated about the various benefit plans they are eligible for
through HRIS.
12. ___________ refers to the process of attracting candidates,
interviewing them, and negotiating a compensation package with them.
13. ______________ is a process which helps organisations identify and
eliminate barriers in their employment policies and procedures.
14. ______________ results are used to make administrative decisions
like promotions, salary increments and so on.
15. ______________ module analyses information like time spent on a job,
start date, end date, total time taken and reason, and leave details.
16. __________________ is determined by examining
determining their relative worth to the organisation.
jobs
and
Activity 2:
You are a human resource personnel in an organisation. You are
assigned the task of recruiting new employees. How will you use HRIS to
implement your task?
5.6 Summary
Human Resource Information System (HRIS) is a software application that
caters to the human resource information needs of an organisation like
employee attendance, payroll and benefits administration, career
development, employee information, performance management, and
training.
HRIS is very important for organisations as it streamlines and automates the
HR processes. HRIS provides time and cost savings, makes work
processes more effective, adds strategic value to the organisation and
makes the organisation more competitive.
The important features of a good HRIS are job and pay history, ability to
import and export data, ad-hoc report writing, automated alerts and
reminders, user defined fields, attendance and leave tracking, benefits
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administration, employee self-service, performance management, payroll,

document management and security .
Some of the common applications of HRIS are planning (personnel and
succession planning, labour relation planning, target analysis and
organisational charting), staffing and employment (recruitment, employment
equity), training and career development (analysing training needs, training
administration, and career planning), performance management
(performance appraisals, monitoring time and attendance), compensation
and benefits.
5.7 Glossary
Term
Description
Application Service
Provider
It provides services based on information technology

using a network.
Batch processing
This is an execution of a series of jobs on a computer

without any manual intervention.
Business intelligence
It refers to computer-based techniques used in

spotting, uncovering, and analysing business data.
Career trajectories
Upward career path that realises career goals.
Client-server
architectures
Network architecture in which every computer or

process on the network acts as a client or a server.
Servers are powerful computers or processes which
manage disk drives, files, printers, or network traffic.
Clients are PCs or workstations, which run
applications.
Firewall
A system of hardware and software designed to

prevent unauthorised access to or from a private
network
HTML
HyperText Markup Language, the authoring language

used to create World Wide Web documents.
Lateral transfers
A lateral transfer is a transfer to another position

having the same salary range. A lateral transfer can
be within a department, or between departments.
PDF
A portable document format developed by Adobe

Systems, PDF is a file format that preserves most
attributes (including colour, formatting, graphics, and
more) of a source document no matter which
application, platform, and hardware type was originally
used to create it.
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Unit 5
Scalability
It is the capacity of a computer application or product

(hardware or software) to maintain its performance
when it (or its environment) is changed in size or
volume. The computer application or product should
be able to take full advantage of the change.
Software as a Service
(SaaS) model
Software deployed as a hosted service and accessed

over the Internet.
XML
Extensible Markup Language is a flexible text format

used to create structured documents.

1. What are the different modules of a Human Resource Information
System (HRIS)?
2. What is the importance of HRIS?
3. Explain the features of HRIS.
4. Explain any two HRIS applications.
5.9 Answers
1. Human Resource Information System (HRIS)
2. Job sites
3. Batch processing
4. Payroll, time and labour management, employee benefits, HR
management.
5. Employee benefits
6. Strategic
7. Career management, talent management
8. Report generator
9. Performance management system
10. Password protected
11. Document library
12. Staffing
13. Employment equity
14. Performance appraisal
15. Time and attendance
16. Employee compensation
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Unit 5

5.10 Case Study

Boston Medical Centre HealthNet Plan (BMC HealthNet Plan) is a
managed care organisation operating in the state of Massachusetts in the
U.S. The HR department of BMC HealthNet Plan had no dedicated HRIS.
The HR personnel depended on spreadsheets and informal databases to
store the employment details of its 400 staff members. But managing all
the employee data became a very difficult task.
The organisation then decided to use Sage Abra HRIS and implemented
Sage Abra HR, Link, OrgPlus and Train modules. Sage Abra HRIS
has multiple layers of security to protect the employee data. It ensures
that only authorised personnel access confidential data. When BMC
HealthNet Plan stored employee data in spreadsheets, it did not have
routine backups. But after implementing Sage Abra HRIS the data
stored in a secure server of BMC HealthNet Plan is backed up regularly.
The Sage Abra OrgPlus module enabled BMC HealthNet Plan to
effortlessly construct and maintain an organisational chart, which
included job titles and photographs. This organisation chart was posted
on the intranet of the company and the employees of all departments
could easily view it.
The Abra Link module is used to send employee information to the
organisations outsourced payroll processing provider. The link utility is
run every week and it creates a file in the format required by the provider.
This simple process saves staff more than four hours every week, time
earlier spent manually entering the data.
With HR, OrgPlus, and Link operating successfully, BMC HealthNet Plan
decided to implement the rest of the modules of Sage Abra HRIS,
including Employee Self Service (ESS) and Benefits Connect.
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Unit 5
Questions
1. How did the implementation of Sage Abra HRIS benefit BMC
HealthNet Plan.
2. In what ways do you expect BMC HealthNet Plan to benefit from
Employee Self Service (ESS) and Benefits Connect modules of Sage
Abra HRIS?
References:
Deans, P. Candace and Karwan, Kirk R; 1994; Global Information

Systems and Technology: Focus on the Organisation and its Functional
Areas. .
Hollenbeck, Noe; Wright, Gerhart; 2007; Fundamentals of Human

Resource Management. .
Kavanagh, Michael J., Guental, Hal G; Tannenbaum, Scott I.; 1990;

Human Resource Information Systems: Development and Application..
Ivancevich, J. M.; 2007 Human Resource Management.
http://succession-wizard.softwar
Page No.: 129
Unit 6
Unit 6
Organisational Discipline
Structure :
6.1 Introduction
Objectives
6.2 Overview of Organisational Discipline
Definitions of Organisational Discipline
Objectives of Organisational Discipline
Progressive Discipline
6.3 Types of Organisational Discipline
Preventive and Corrective Discipline
Positive and Negative Discipline
6.4 Types of Disciplinary Problems
6.5 Disciplinary Procedure
Factors to Consider when Disciplining
Guidelines to an Effective Disciplinary Process
Common Disciplinary Procedure
6.6 Summary
6.7 Glossary
6.9 Answers
6.10 Case Study
6.1 Introduction
Having familiarised ourselves with the concepts of Employee Relations
Management (ERM) and how it is facilitated by tools like Human Resource
Information Systems (HRIS), let us now learn what organisational discipline
is and the need for organisational discipline.
Discipline is derived from a Latin word meaning to teach. Discipline is
essential for organisations to succeed and to stay competitive. While it
fosters self-control, character, and efficiency, discipline does not destroy
individuality, rather it builds character. Organisational discipline entails strict
observance of rules or policies for the orderly coordination of efforts and for
the benefit of the organisation. Organisational discipline aims to train and
control the workforce keeping in mind the attainment of common goals.
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Unit 6
Objectives
define organisational discipline.
explain the objectives of organisational discipline
compare the different types of organisational discipline
differentiate between the different types of disciplinary problems
describe disciplinary procedures of organisations.
6.2 Overview of Organisational Discipline

Discipline is essential for the smooth functioning of an organisation, as it
improves harmony and prevents conflicts in an organisation. Let us now see
how some management experts define discipline.
6.2.1 Definitions of Organisational Discipline1
W. R. Spriegel and Edward Sohelge define discipline as the force that
prompts an individual or groups to observe rules, regulations, and
procedures that are deemed necessary to the attainment of an objective.
Michael J Jucious (1973) defines discipline in the following way: Discipline
means that workers willingly abide by company rules and executive orders.
To set right the indiscipline or improve its causes provided punishment
provisions are known is discipline.
Ordway Tead (1935) defines discipline as the orderly conduct of affairs by
the members of an organisation who adhere to its necessary regulations
because they desire to cooperate harmoniously in forwarding the end which
the group has in view, and willingly recognise that, to do this, their wishes
must be brought into a reasonable unison with the requirements of the
group in action.2
These definitions make it clear that discipline is necessary for the orderly
and efficient functioning of an organisation and for the attainment of
organisational goals. If an organisation has no discipline, then chaos
prevails and the organisation finds it very difficult to attain its goals.
Let us now analyse the purpose of enforcing organisational discipline.
1
Industrial Labour in India by Rajendra Kumar Sharma, 1997
Professional Growth and Staff Education by Irene Robertson; The American Journal of Nursing, Vol.
36, No. 10 (Oct., 1936)
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6.2.2 Objectives of organisational discipline

The objectives of organisational discipline are to correct, educate and
reform the workforce. Organisational discipline aims to correct wrong
behaviours, discipline offenders, prevent inappropriate actions, and maintain
standards.
The main objectives of organisational discipline are as follows:
To obtain voluntary acceptance of rules, regulations and policies of the
company: Members of the organisation have to voluntarily comply with
the rules, regulations and policies of the company to enable easy
attainment of the organisational goals.
To provide direction and leadership: Discipline guides the workforce in
the right manner so that they act in the right way and achieve their
goals.
To promote co-operation and unity: When the workforce is disciplined,
they voluntarily co-operate with each other and work as a united team.
Ideas are shared for attaining common goals. Individual ambitions make
way for team achievements.
To improve employee relations: When employees work in a disciplined
way, they respect one another. Thus the work atmosphere becomes
pleasant and conflicts are avoided.
To improve efficiency and productivity: Organisational discipline brings
the best performance out of the employees. Concentration on core
issues improves efficiency of the processes. This maximises productivity
and minimises costs.
Let us now learn about progressive discipline, a discipline format usually
adopted by organisations.
6.2.3 Progressive discipline
Most organisations follow a policy of progressive discipline. Stronger
penalties are imposed for repeat offences. This gives employees an
opportunity to correct inappropriate behaviour. Management counsel
employees and try to correct their behaviour. Figure 6.1 shows the
procedure for progressive discipline. Termination of employment is done
only as a last resort.
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Unit 6
Figure 6.1: Progressive Discipline Procedure
The steps involved in progressive discipline are as follows:

Step 1: An oral warning is given to the subordinate by the supervisor. The
supervisor explains the violation of the rules or procedure committed by the
subordinate and warns the subordinate of stricter action for future violations.
Step 2: A written warning is issued to the employee for a repeat violation
and it becomes a part of the personal record of the employee. Written
warnings are used as evidence during grievance redressal procedures.
Step 3: Employees who do not correct themselves with oral or written
warnings are suspended from work.
Step 4: Indiscipline over an extended period of time or major offences result
in demotion. Employees lose pay and status.
Step 5: Very serious offences result in the employee being dismissed from
the organisation.
In this section we have clarified the purpose of organisational discipline. In
the next section, we will examine the different types of organisational
discipline.
1. __________ is the force that prompts an individual or groups to
observe rules, regulations, and procedures that are deemed necessary
to the attainment of an objective.
2. In ________________, stronger penalties are imposed for repeat
offences.
3. Organisational discipline promotes co-operation and unity. (True/
False).
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6.3 Types of Organisational Discipline

Organisational discipline enforces organisational standards. The nature of
organisational discipline has a great impact on its employees.
Organisational discipline can be ensured in the following ways:
Compliance with the rules because the employees want to please the
management.
Compliance with the rules because the employees fear the
management.
Different organisations follow different styles of discipline. Now let us
compare the different types of organisational discipline.
6.3.1 Preventive and corrective discipline
Discipline can be classified as preventive and corrective on the basis of the
methods of implementation of disciplinary measures.
Preventive discipline: This form of discipline encourages employees to
follow rules and standards to avoid contravention. Employees are
educated on the company policies and procedures. Preventive discipline
emphasises employee self-discipline. Managements want employees to
voluntarily follow the rules and regulations and they avoid imposing them
on the employees. Policies and standards are explained to the
employees. Employees follow these policies and standards when they
have a clear understanding of the reasons behind them. They also
voluntarily follow standards that they have helped to create.
Corrective discipline: This form of discipline is the action taken to
correct employees who have violated organisational rules or procedures.
It aims to discourage future violations and encourage compliance with
standards. Usually a penalty like suspension with or without pay is
imposed.
6.3.2 Positive and negative discipline
Organisational discipline tries to regulate employee behaviour through
rewards and punishment. On this basis, we can classify organisational
discipline as positive or negative. Organisations need both positive and
negative discipline in order to function effectively.
Positive discipline: Positive discipline makes employees voluntarily
follow rules. It emphasises co-operation and focuses on positive
employee behaviour. It teaches employees to become more responsible
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and resourceful. Positive discipline focuses more on counselling than

penalising. Positive discipline requires employee self-regulation. The
Union Carbide plants have adopted the positive discipline model. The
supervisors want the employees to co-operate and improve their
behaviour.
Negative discipline: Negative discipline emphasises on punishment.
Discipline is enforced by threats and warnings. Employees are informed
about the nature and quantity of punishment in advance in order to deter
wrong behaviour. Negative discipline requires intense supervision.
Now you can differentiate between the different types of organisational

discipline. Let us next examine the different types of disciplinary problems
that occur in organisations.
4. _______________ aims to correct employees who have violated some
organisational rules or procedures.
5. Organisational discipline tries to regulate employee behaviour through
____________ and _____________.
6. ____________ emphasises punishment.
6.4 Types of Disciplinary Problems

Discipline is essential for organisations to regulate employee behaviour and
to channel employee efforts in realising organisational goals. Management
deals with all acts of indiscipline or misconduct according to the
organisational rules and policies and the nature of the indiscipline.
Indiscipline can be classified as minor or major on the basis of the impact
they have on the functioning of the organisation.
Minor acts of indiscipline include absenteeism, late coming, negligence at
work, failure to be present when required, inefficiency and acts of omission.
Management correct minor indiscipline with written or oral warnings.
Major acts of indiscipline have to be dealt seriously and they include theft,
fraud, breach of contract, accepting or giving bribes or gifts, drunkenness,
violent or disorderly behaviour, insubordination, sleeping while on duty,
disclosing confidential information, sabotage or misuse of company
equipment, inciting other employees to act against the interests of the
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Unit 6
company, absence without leave for a period of more than a month, and
committing any offence punishable by the law of the land.
Let us now analyse these disciplinary problems that managers have to deal
with in their line of work. The main types of disciplinary problems are as
follows:
Excessive absenteeism: Absenteeism occurs when an employee does

not report to work due to time off, illness or any other reason. Excessive
absenteeism results in loss of productivity. Absenteeism is corrected by
employing progressive discipline. Employees need to be aware of the
absenteeism policy of the company. They also have to be aware that the
company monitors employee absence. They need to take responsibility
for their absenteeism and substantiate their absenteeism with valid
records like medical certificates in case of health-related absences.
Poor timekeeping: Reporting late to work, leaving early, indulging in

extended tea or lunch breaks, doing personal work during office hours,
and other time-wasting practices reduce the time spent doing productive
work. Poor timekeeping disrupts business and creates a bad
atmosphere. These habits have to be curbed and employees need to
know that it is mandatory for them to spend certain fixed hours at their
workstations or premises doing productive tasks.
Improper personal appearance: Dress codes are enforced in

organisations to project a professional appearance or for safety reasons.
Employees are to be made aware of the consequences of their
inappropriate attire. For example, synthetic clothes can catch fire easily.
Company policy also needs to describe situations where the employee
has to dress formally.
Substance abuse: Alcohol and drug abuse can lower employee

concentration and decrease performance. Substance abuse also results
to absenteeism, accidents at workplace and inappropriate behaviour.
Organisational policies on substance abuse need to be communicated
with the staff. Employees who are addicted to alcohol or drugs have to
be counselled or helped in other ways like therapy and detoxification
programmes.
Defective performance: Defective performance results when a task is

not completed on time, or is of sub-standard quality, or the task is not
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Unit 6
done according to requirements. An employee may perform poorly either

due to lack of interest or due to lack of capability. Managers need to
assess poor performances individually, determine the constraints and
take corrective actions.
Poor attitudes: Sleeping on the job, being careless while working,

fighting with co-workers, gambling in the work place, insulting
supervisors, being rude to customers and colleagues, and such
practices reflect poor attitudes. These actions can adversely affect other
employees. Thus, these attitudes have to be corrected to maintain a
good and productive work atmosphere.
Violation of health and safety rules: Smoking in unauthorised places,

failure to use safety devices, not following safety rules regarding fire
safety, dealing with hazardous chemicals, electrical and mechanical
equipment and radiation protection are serious violations and have to be
dealt with immediately and effectively.
Insubordination: Insubordination can take the form of refusing to

perform a legitimate task that has been assigned, ignoring the
instructions of managers, criticising or challenging the orders of a
superior, using abusive language or making disrespectful gestures like
rolling the eyes. Insubordination can affect the morale of the entire team.
Organisations need to spell out their policies on insubordination.
Managers have to be equipped with proper procedures to deal with
insubordination.
Workplace violence: Companies need to have training programmes for

its security personnel so that they recognise warning signs and know
how to deal with violent behaviour of employees. Employee handbooks
need to clearly state that violent behaviour will not be tolerated and will
result in termination.
Harassment: This behaviour causes discomfort to co-workers and

reduces employee morale. Making crude and sexual remarks or forcing
another co-worker to do certain non-legitimate tasks constitutes
harassment. For example, a manager may repeatedly ask an unwilling
subordinate for a date. Companies need to have in place a clear sexual
harassment policy and employees have to be trained on what
constitutes harassment.
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Exhibit 6.1: What Constitutes Sexual Harassment at the workplace and

What Employees Should Know
Sexual harassment is defined as the unwelcome sexual advances, requests
for sexual favours and other verbal behaviour or physical conduct of a
sexual nature. In addition, when it is conveyed that submission to such
advances is made an implicit condition for an individuals employment, then
it is sexual harassment within the workplace. Sexual harassment is
considered a violation of human rights as it is a form of sexual
discrimination.
There are three types of sexual harassment which are recognised the world
over. First, quid pro quo, which mean this for that and when employment
decisions or expectations are based on an employees willingness to grant
or deny sexual favours. Second is hostile environment where verbal or nonverbal behaviour in the workplace focuses on the sexuality of another
person or occurs because of a persons gender or other protected
characteristic; where such verbal or non-verbal behaviour in the workplace
is unwanted or unwelcome; and where verbal or non-verbal behaviour is
severe or pervasive enough to affect the persons work environment. The
third, as discussed above, is the violation of human rights.
As per the Supreme Court of Indias guidelines, it is mandatory that an
organisation sets up a committee to deal with cases of sexual harassment. It
is also the responsibility of the organisation to create an environment that
shows zero tolerance to sexual harassment.
The Indian Penal Code, Section 509 states, Whoever, intending to insult
the modesty of any woman, utters any word, makes any sound or gesture,
or exhibits any objects, intending that such word or sound shall be heard or
that such gesture or object shall be seen by such woman as intruding upon
her privacy shall be punished with simple imprisonment for a term extending
to one year or with fine or with both. In addition, the Supreme Court
Guidelines 1997 states any unwelcome act of physical, verbal or non-verbal
conduct of a sexual nature as sexual harassment. It is the mandatory duty of
an employer to prevent and address sexual harassment by forming a
committee against sexual harassment.
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Unit 6
Theft and sabotage: Sometimes employees steal money, equipment,

supplies or confidential information belonging to the company. Some
aggressive employees may damage or destroy organisational
equipment and facilities. Some employees may falsify records and
accept bribes and indulge in actions that are detrimental to the
organisation. Organisations have to strictly deal with such problems.
Exhibit 6.2: Managing Data Theft

Data theft is a major headache for companies all around the world. An
independent poll conducted on about 1,000 people found that more than 53
percent of them admitted to having stolen data at some point or the other
during the course of their employment. While some incidents are minor and
involve stealing phone numbers of employees, others are seriously
damaging and involve stealing client information, including e-mail lists,
employee records, customer data and other records. Measures to prevent
such infractions range from installing business security camera systems to
installing complex access-based security systems.
Use passwords to limit access to databases, documents and other files

that not everyone needs to use.
Remove CD-burning drives from workstations. If there is an occasional

need for an employee to burn something to a disc such as a PowerPoint
presentation, have a few computers available with this capability.
Update employee policies and procedures to include limits or bans on

the possession and usage of removable media such as MP3 players or
Flash drives. Lay out the consequences for the unauthorised use of
such media.
Install a firewall, which can protect and control the access to and from
the server or business network. This will especially keep hackers from
gaining access to the system.
In todays information technology era, data protection is a vital element for

the organisation. It is one of the strategic forces which can impact an
organisation.
In this section, we identified the different kinds of disciplinary problems that
exist in organisations. Let us now examine the disciplinary procedure
commonly followed in organisations.
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Unit 6

7. _______________ occurs when an employee does not report to work
due to time off, illness or any other reason.
8. ___________ are enforced in organisations to project a professional
appearance or for safety reasons.
9. _________________ results when a work is not completed on time, or
a sub-standard work is done or the work is not done as per
requirements.
10. Refusing to perform a legitimate task that has been assigned to the
employee is classified as ________________.
11. Classify the following as major or minor offences.
a. Sabotage of company equipment.
b. Failure to be present when required.
c. Theft, fraud, dishonest or breach of contract.
Activity 1:
You are the project manager of a team. David, a new recruit in your
organisation, has been assigned to your team. His productivity is only
half of the rest of the team. You find that he reports late to work regularly
and clears his desk half an hour before closing time. He takes long lunch
and tea breaks. He wears very casual clothes to work. List the various
types of indisciplinary behaviour being adopted by David.
6.5 Disciplinary Procedure

Disciplinary procedure is a step-by-step process which an organisation
follows while dealing with indiscipline of any kind. It is a good practice for
organisations to establish a proper disciplinary procedure in order to ensure
just decisions. A disciplinary procedure includes a formal system of
documented warnings and hearings, with rights of representation and
appeal at each stage. Disciplinary procedures have to be fair and
transparent in order to avoid legal complications. Caution has to be taken as
disciplinary procedures have to be directed against the employees
behaviour rather than the employee themselves.
Let us now examine some factors which need to be considered when
disciplining.
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Unit 6
6.5.1 Factors to consider when disciplining

All disciplinary actions have to be fair and impartial. The nature and the
impact of the misconduct have to be analysed before any disciplinary action
is taken. The following factors have to be considered while analysing a
disciplinary problem:
Seriousness of the problem: Consider the severity of the problem.

Insubordination is more severe than reporting late to work.
Duration of the problem: Analyse if there have been any past

violations and the period over which it is happening. First-time violations
are dealt with in a different manner compared to violations which have
been repeated for the third time.
Frequency of the problem: Examine if the current problem is a part of

a pattern of disciplinary infractions. Continual violations require more
severe punishments.
Extenuating circumstances: Examine if there are any external factors

which are leading to the indiscipline. Reporting late to work due to the
illness of a family member has to be dealt with more leniently than
reporting late to work because of oversleeping.
Degree of familiarisation: Find if the employee causing the problem

has been familiarised with the rules and procedures of the organisation.
Consider if the violator knows the organisational standards of acceptable
behaviour. Organisations that have formalised written disciplinary rules
are more justified in enforcing discipline than organisations that only
have informal and unwritten rules.
History of the organisations disciplining practices: Find how similar

misconducts have been dealt with in the past. Find out if the
organisation has consistent disciplining practices. Impartial treatment of
violations requires certain benchmarks.
Management backing: Ensure that the higher authorities back the

disciplinary process. Disciplinary actions are not effective if they are
over-ridden by the upper levels of the management.
Now that we have learned the factors to consider in disciplining, next let us
get familiar with the guidelines to make a disciplinary procedure effective.
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Unit 6
6.5.2 Guidelines to an effective disciplinary process

Disciplining delinquent employees is a very difficult process and can cause
resentment. The Red-Hot Stove rule of Douglas Mc Gregor highlights the
principles which guide disciplinary process in organisations.
Red-Hot Stove Rule
The four characteristics of an effective discipline procedure according to this
rule are:
Immediacy: If you touch a red hot-stove, your hand gets burnt

immediately. Likewise, all disciplinary problems have to be handled
immediately. Only then will the employees understand the reason for the
disciplinary action.
Forewarning: When you approach the red-hot stove, you feel the heat
and you are warned not to touch it. Likewise, employees have to be
warned beforehand of the consequences of unacceptable behaviour.
Consistency: Any person who touches the red-hot stove will get burnt.
In a similar way, all employees who perform the same undisciplined act
must be given the same form of punishment.
Impartiality: All persons who touch the red-hot stove get burnt. In the
same way, all disciplinary actions must be impartial.
An effective disciplinary process ensures that all employees conform to the

standards and regulations of the organisation. All managers need to be
aware of the guidelines to administer discipline. The guidelines to an
effective disciplinary process are as follows:
1. Interview as many witnesses as possible during investigations. Use
sufficient documentary evidences.
2. Keep the length of time between the misconduct and the disciplinary
action very short. Discipline rationally and do not involve emotions.
3. Forewarn the employees about the consequences of repeat violations
before any disciplinary action is taken. Suggest ways to correct
inappropriate behaviour. Specify the disciplinary rules in the employee
handbook or in a separate booklet.
4. Give the same punishment to misconducts of the same nature.
Inconsistencies in the disciplinary process lower employee morale. For
example, if one employee is fired for being late three times, but another
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Unit 6
employee is let off with just a written warning for the same
misdemeanour, then this indicates discrimination.
5. Conduct an impartial disciplinary process. The disciplinary action has to
be for the misconduct and not for any bad relation between an
employee and the supervisor. There has to be no feelings of anger
while administering discipline. For example, the director general of
CSIR (Council for Scientific and Industrial Research) punished two
scientists for plagiarism in a paper published in an international journal
by demoting them.
6. Discipline employees in private. Only serious violations should be
reprimanded publicly.
7. Document in sufficient detail and accurately all disciplinary actions
taken. Inform higher authorities of the violation and the action taken.
Exhibit 6.3: Reprimand in Private and Praise in Public
The old management mantra Reprimand in private and praise in public
holds good even today. Disciplining or reprimanding employees in front of
others indicates a lack of respect and a desire to have power over them.
When reprimanded in front of others, employees will lose face, making it
very difficult for them to rebuild a relationship with their co-workers, as well
as management. This is basic respect that employees deserve. But
violations of this rule are frequent and often take place in the hallway, in
meeting rooms, and on the shop floor.
With Web 2.0 becoming a business norm, the danger of this practice has
increased. Its quite common practice for managers to rely on e-mail to
provide updates to his team and sometimes the higher-ups. This is done as
the practice saves a lot of meeting time and ensures that everyone stays in
the loop. But the downside of this practice is when the higher ups correct or
advise the managers in the reply all e-mail, the managers are made to
look like fools in front of the entire team. The so-called corrections and
constructive criticism can get totally misinterpreted on forums and comment
boards, leading to difficult situations in the workplace.
Experts say that whether intentional or not, the boss is only weakening the
effectiveness and the drive of his manager. He is also encouraging political
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posturing among the entire team. Neither of these will lead to an increased
dedication to goals or higher productivity.
So the bottom line is praise in public, but correct in private.
6.5.3 Common disciplinary procedures
Different organisations follow different disciplinary procedures. The
disciplinary procedure followed in many organisations usually has the
following steps:
1. Issuing a letter of charge: The manager issues a chargesheet to the
employee committing the misconduct. The charges are precisely and
clearly stated in the chargesheet. The chargesheet also asks the
employee to give an explanation for the misconduct. Sufficient time is
given to the employee to prepare a reply to the chargesheet.
2. Consideration of the explanation: Once the reply is obtained from
the chargesheeted employee, the explanations are considered. If the
explanation is found to be satisfactory, then no further action is taken.
But if the management does not find the explanation satisfactory, it
decides to issue a show-cause notice.
3. Show-cause notice: This is issued by the management when there is
sufficient evidence of the misconduct of the employee. This gives the
employee another opportunity to provide an explanation for the charges
made. Enquiry can also be initiated by issuing a notice of enquiry
detailing the name of the enquiry officer, the time, date and place of
enquiry.
4. Conducting a full-fledged enquiry: The employee is given an
opportunity for justification. The findings of the enquiry are recorded
and the enquiring officer suggests the disciplinary action to be taken.
5. Making a final order of punishment: The punishment for the
misconduct is decided after considering the nature of the indiscipline,
the past record of the employee, the precedents, and the effects of the
disciplinary action on other employees.
6. Appeal: When the employee feels that there has not been a fair
hearing, the employee is given a chance to make an appeal.
7. Follow-up: The consequences and the impact of the disciplinary action
are noted.
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12. _______________ is a step-by-step process, which an organisation
follows while dealing with indiscipline of any kind.
13. The four characteristics of an effective disciplinary procedure according
to the Red-Hot Stove rule are ___________, _____________,
____________, and ______________.
14. Organisations that have ______________disciplinary rules are more
justified in enforcing discipline than organisations that only have
informal and unwritten rules.
15. When the employee feels that there has not been a fair hearing, the
employee is given a chance to make an ___________.
Activity 2:
Visit an organisation and find the disciplinary procedure followed by the
organisation. Illustrate the steps involved using a flowchart.
6.6 Summary
Organisational discipline is the process by which employees conform to the
rules and regulations of the organisation in order to achieve the
organisational goals. Discipline is essential for the smooth functioning of an
organisation. The objectives of organisational discipline are to correct wrong
behaviours, discipline offenders, prevent inappropriate actions, and maintain
standards. Most organisations follow a policy of progressive discipline in
which stronger penalties are imposed for repeat offences.
Discipline can be classified as preventive and corrective on the basis of the
methods of implementation of disciplinary measures. Preventive discipline
encourages employees to follow rules and standards. Corrective discipline
is the action taken to reform employees who have violated some
organisational rules or procedures. Organisational discipline can be
classified as positive or negative on the basis of the manner it regulates
employee behaviour. Positive discipline makes employees voluntarily follow
rules. Negative discipline emphasises punishment.
The different kinds of disciplinary problems in organisation are excessive
absenteeism, poor timekeeping, improper personal appearance, substance
abuse, defective performance, and poor attitude, violation of health and
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safety rules, insubordination, workplace violence, harassment, theft and

sabotage.
Depending on the nature and impact, acts of indiscipline are classified as
minor or major. Minor acts of indiscipline are corrected by oral or written
warnings. Major acts of indiscipline are dealt with more severely.
The four characteristics of an effective discipline procedure according to the
Red-Hot Stove rule are immediacy, forewarning, consistency, and
impartiality. Factors like the severity, frequency, duration, and external
factors of the problem have to be considered while analysing a disciplinary
problem. Chargesheet and show-cause notices are issued before
conducting a full disciplinary hearing. The punishment for the misconduct is
decided after considering the nature of the indiscipline, the past record of
the employee, the precedents, and the effects of the disciplinary action on
other employees. The employee is also given a chance for making an
appeal and all disciplinary actions are documented.
6.7 Glossary
Term
Description
Contravention
An act which violates a law or an agreement.
Chargesheet
A formal document of accusation, which details the charges

against the person accused of committing certain violations.
Detoxification
programmes
A medically-monitored treatment programme for alcohol or

drug addiction designed to remove intoxicating or addictive
substances from the body in order to overcome
physiological or psychological addiction.
Infraction
A minor violation or an excusable misdemeanour, which

usually attracts less severe forms of punishments like fines.
Sabotage
A treacherous act of destruction of property or obstruction of

normal operations.
Show-cause notice
A written notice asking an individual to explain or to show

cause why disciplinary action should not be taken for the
actions committed or omitted by the individual.
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1. What are the objectives of organisational discipline?
2. Explain the steps involved in progressive discipline.
3. Differentiate between the different types of organisational discipline.
4. What are the different types of disciplinary problems that are found in
organisations?
5. What are the factors to be considered when disciplining?
6. Explain the guidelines for effective disciplining.
7. Explain the common procedure for disciplining.
6.9 Answers
1. Discipline
2. Progressive discipline
3. True
4. Corrective discipline
5. Rewards, punishment
6. Negative discipline
7. Absenteeism
8. Dress codes
9. Defective performance
10. Insubordination
11. (a) major (b) minor (c) major
12. Disciplinary procedure
13. Immediacy, forewarning, consistency, impartiality
14. Formalised written
15. Appeal
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6.10 Case Study

The Disciplinary Process within the Internal Revenue Service (IRS) of the
United States
The disciplinary model of the IRS is a hybrid one, which merges
progressive discipline and positive discipline. Adherence to the rules of
conduct and union guidelines is emphasised. Managers have the
responsibility of motivating their employees and disciplining them fairly
and in a timely manner.
In 1991, when an internal task force reviewed the disciplinary actions
taken, it was found that African-Americans and Hispanics were subjected
to more disciplinary actions than Caucasians. A 1994 follow-up of the
review revealed that minority groups were subjected to three times the
disciplinary actions when compared to the majority Caucasian
employees. The IRS task force found that disparity in the disciplinary
process impacted recruitment negatively, decreased employee morale
and increased turnover.
The second defect found in the disciplinary process was toleration for
poor performance. Almost half the employees felt that the management
was too soft on performance issues. Termination processes were very
lengthy in the IRS and the managers felt it easier to avoid confrontation.
Managers did not address poor performance because of the need of
affiliation with their subordinates and lack of support from upper
management. This caused a reduction in employee motivation.
The third defect was that managers were not adequately trained in the
disciplinary process. Managers were not familiarised with the rules and
regulations. First-line managers were not trained on disciplinary practices
and documentation. An employee was frequently late, had extended
breaks and long lunches. The manager warned the employee orally and
in writing, but failed to document the dates and the times of the
misconduct. Later, the employee denied any wrongdoing and demanded
proof for the misconduct.
The three major areas of disciplinary problems identified were absence
and leave problems, undesirable performance and individual tax
violations. The majority of the disciplinary actions taken were oral
reprimands and written warnings.
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The review task force made the following recommendations to improve

the disciplinary process:
Train managers in labour relations, disciplinary counselling and
documentation.
Give the training within 30 days of assumption of the managerial
position.
Provide additional training as and when needed to update managers
on the changes in the rules, regulations and the disciplinary process.
Analyse the impact of the disciplinary process on minority groups.
Educate the employees on the rules and the disciplinary measures
within 90 days of joining duty.
Ensure managers regularly meet with the employees and discuss
issues and the rules of conduct.
Following this, the IRS undertook the following initiatives to introduce
positive discipline:
In the Boston district, a labour-relations specialist discussed the most
common violations of rules by video.
In Oklahoma, a Rules of Conduct lesson plan was prepared for
managers.
In Nashville, managers were educated about the differences between
absence without leave and leave without pay.
Pamphlets, charts and videos informed employees about security
violations, criminal activities and the disciplinary action taken.
In Fort Lauderdale, managers were educated on working in a multicultural environment.
The senior management conducted periodic reviews of line managers
to ensure that they were implementing the disciplinary process in a
consistent manner.
Thus the positive changes made in the disciplinary process of the IRS
helped in achieving its goal of maximising employee success.
Questions:
1. What were the findings of the internal task force of the IRS?
2. What were the recommendations made by the review task force?
3. What were the initiatives taken by the IRS to introduce positive
discipline?
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References:
Sharma, R. S; 1997; Industrial Labour in India.
Robertson, I; Oct., 1936; Professional Growth and Staff Education. The
American Journal of Nursing, Vol. 36, No. 10 (Oct., 1936)
Newstrom, J. W.; 2008; Organisational Behaviour: Human Behaviour at
Work.
Bogardus, A. M.; 2007; Professionalism in Human Resource
Certification.
Mohapatra, A. K.; Giri, D. V. and Murthy, B. S.; 1992 Industrial
Indiscipline in India.
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Unit 7
Grievance Handling
Structure:
7.1 Introduction
Objectives
7.2 Grievance
Reasons for Grievances
7.3 Needs for Grievance Redressal
Types of Grievances
7.4 Steps in Grievance Redressal Procedure
Formal Grievance Redressal
Informal Grievance Redressal
Collective Bargaining
Types of grievance policy
Grievance Redressal Policy in Indian Industry
7.5 Essential Pre-requisites of Grievance Redressal Procedure
7.6 Grievance Interview
7.7 Precautions While Handling Grievances
7.8 Conflict Resolution
Methods of Conflict Resolution
7.9 Summary
7.10 Glossary
7.12 Answers
7.13 Case Study
7.1 Introduction
In the previous unit you learnt about organisational discipline, the need for
organisational discipline and the types of disciplinary issues that arise in
organisations. In this unit you will learn about the concept of grievance.
Grievance is defined in several ways by experts in the field of management.
According to Michael Jucicus1 (1971), a grievance is any discontentment or
dissatisfaction, whether expressed or not, whether valid or not, arising out of
anything concerned with the company which an employee thinks, believes
or even feels to be unfair, unjust or inequitable.
1
Human Resource Management: Managing People at Work Mrs. Y. L. Giri
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Thereafter, you will learn about the causes of grievance and effective
grievance redressal procedures. We will also familiarise ourselves with the
concepts of mediation, arbitration and compromise and understand how
important it is for organisations to address grievances.
Exhibit 7.1: Grievance Redressal Procedure in Indian Industry
The 15th session of the Indian Labour Conference held in 1957 emphasised
the need for an established grievance redressal procedure for the country,
which would be acceptable to unions as well as to management. In the 16th
session of the Indian Labour Conference, a model for grievance redressal
procedure was drawn up. This model helps in creation of grievance
redressal machinery. According to it, workers representatives are to be
elected for a department or their union is to nominate them. The
management has to specify the persons in each department who are to be
approached first and the departmental heads who are supposed to be
approached in the second step. The Model Grievance Redressal Procedure
specifies the details of all the steps that are to be followed while redressing
grievances.
Objectives:
define grievance.
explain the causes of grievance in an organisation.
describe the need to redress grievances of employees.
describe the different steps towards grievance redressal.
identify the methods of conflict resolution.
7.2 Grievance
Grievance may be defined as a complaint or resentment against any unjust
or unfair act. Grievance is any issue associated with an organisation or its
management such as employee discrimination or harassment by managers.
It may also be any alleged violation of employee contracts or settlements or
violation of any laws, or discrimination on the basis of race, age or sex.
The International Labour Organisation (ILO)2 defines a grievance as a
complaint of one or more workers with respect to wages and allowances,
conditions of work and interpretation of service, condition covering such
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areas as overtime, leave, transfer, promotion, seniority, job assignment and

termination of service.
Our society has police stations, panchayats and NGOs that handle
grievances of the public. In the same way, organisations have grievance
redressal committees where aggrieved employees present their unresolved
issues. Organisations generally provide a quality work environment to boost
employee morale and enhance employee performance to help the
organisation achieve its goals. Employee grievances are one of the factors
that impede establishing appropriate work environment. To establish a good
working atmosphere and to assure employees, grievance handling is
important for any organisation. In this unit we will learn the different
techniques of grievance handling. Organisations ought to be efficient in
handling employee grievances and ought to have appropriate dispute
resolution and grievance handling procedures. However, experience shows
that most organisations only pay lip service to the concept and never
actually implement it.
To start with, let us understand why grievances occur, i.e., what are the
common reasons for grievances.
7.2.1 Reasons for grievances
There are a number of causes of employee grievances. Some of the
reasons are as follows:
Economic: Issues related to wages like wage calculation, overtime, and
bonus. Employees often feel that they earn less than what they deserve.
Working environment: Issues related to the employees work environment
like poor working conditions, defective equipment and machinery, tools,
materials.
Supervision: Issues like behaviour of the boss towards the employee,
perceived ideas of partiality, discrimination, preferential treatment, prejudice.
Work group: Issues with co-workers like stressed peer relations or
inaptness with peers.
Work organisation: Issues related to the organisation like rigid and unfair
rules and lack of recognition.
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It is not always the case that the organisation is at fault. There are times
when the grievances are due to the employees. Some of the instances
where grievances of management are against its employees are the
following:
Disobedience on the part of employees
Going on leave without prior permission, absenteeism
Indiscipline
Illegal strikes
Wrong conclusions
Go-slow tactics
Improper methods adopted by the trade unions in dealing with

management
Arrogant behaviours of the employees
Reckless charges by the employees. trade union leaders against the

supervisors or management
Whatever the cause of grievance, efforts must be put in to find out the best
possible solutions or methods of settling grievances. For that purpose, there
should be an effective grievance redressal procedure.
1. A __________ is any alleged violation of the employment contract.
2. ________ may be defined as a complaint or resentment against any
unjust or unfair act.
3. One of the reasons for employee grievances is employers treating
employees equally, showing no partiality or discrimination. (True/
False).
Activity 1:
You are the trade union representative at the Marriott Hotel chain that
aims at providing customer service round-the-clock. Employees go
through chaotic work timetables, clocking an average of more than 50
hours a week, regardless of weekends and holidays. Employees have
requested you to discuss with the management about their grievances. In
preparation for the management meeting, identify the probable reasons
that have caused employees grievances.
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7.3 Needs for Grievance Redressal

Organisations have to create a favourable work environment for employees,
where grievances are handled promptly and appropriately. Improper or lack
of proper grievance handling leads to the following:
Employees lose interest in work and consequently the morale declines.
Lack of commitment from the employees.
Poor quality of work.
Lowered productivity.
Increase in resource wastage, leading to increasing company costs,
Pilots of Jet Airways went on a nationwide strike resulting in air travellers
throughout the country suffering, as most of the flights had to be cancelled.
One of the major reasons for the strike was the ineffective grievance
redressal system employed in Jet Airways. Pilots faced problems ranging
from pay and allowances to hectic work schedules. Since the issues of the
pilots were never resolved, the problem escalated and led to the nationwide
strike. This led to a loss of millions of rupees for Jet Airways.
From the above example it is evident that effective grievance handling is an
essential in maintaining good employee relations and in keeping with the
goals of an organisation. Organisations may consider the grievances
handling procedures as mentioned below:
It should
Be in writing
Be made known to all
Ensure a speedy and fairly resolution of the problem
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Figure 7.1 represents a general procedure of grievance handling.
Figure 7.1: Grievance Handling
The aggrieved employee approaches the supervisor to find a resolution. If

the organisation is unionised, the employee addresses the union steward. If
the issue is not resolved at this stage, the matter is forwarded to higher
authorities in the organisation and the union. To understand better how to
handle grievances, let us look at the various types of grievances that need
to be addressed.
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Exhibit 7.2: Uncovering Grievances

Grievances can be uncovered in a number of ways. Gossip and grapevine
offer vital clues about employee grievances. Others methods are:
Observation: A manager/ supervisor can usually track the behaviour of
people working under him. If a particular employee does not get along with
people, spoils materials due to carelessness or recklessness, shows
indifference to commands, reports late for work or is always absent, the
signals are fairly obvious.
Grievance procedure: A systematic grievance procedure is the best means
to highlight employee dissatisfaction at various levels. Management must
encourage employees to use it whenever they have anything to say.
Gripe boxes: A gripe box may be kept at prominent locations in the factory
for lodging anonymous complaints pertaining to any aspect related to work.
Since the complainant need not reveal his identity, he can express his
feelings of injustice or discontent frankly without any fear of victimisation.
Open door policy: This is a kind of walk-in-meeting with the manager when
the employee can express his feelings openly about any work-related
grievance. The manager can cross-check the details of the complaint
through various means at his disposal.
Exit interview: Employees usually leave their current jobs due to
dissatisfaction or better prospects outside. To elicit valuable information, the
manager must encourage the employees to give a correct picture so as to
rectify the mistakes promptly.
Opinion surveys: Surveys may be conducted periodically to elicit the
opinions of employees about the organisation and its politics.
7.3.1 Types of grievance
Displeasure or disappointment is not a grievance. They initially find
expression in the form of a complaint. When a complaint remains
unattended and the employee concerned feels there is a lack of justice and
fair play, the dissatisfaction grows and assumes the status of grievance.
The grievance redressal procedure can be categorised as formal grievance
redressal and informal grievance redressal procedure. Formal grievance
redressal procedure follows a formal method involving application forms.
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Informal grievance redressal procedure, on the other hand, is more informal

and simpler in dealing with resolving grievances. The next section discusses
in detail the two types of grievance redressal procedures.
4. Grievance redressal procedures can be categorised into______
grievance and _____ grievance procedures.
5. An aggrieved employee first directly approaches the head of the
organisation to resolve issues. (True/ False).
6. The informal method of resolving grievances is time consuming and
complex. (True/ False).
7.4 Steps in Grievance Redressal Procedure

Organisations (whether unionised or non-unionised) are legally bound to
provide in a written statement of terms and conditions of employment,
details of the person whom any employee who has a grievance may
approach. A grievance redressal procedure sets out how such an
application is made and how it is dealt with. The procedure aims to settle the
grievance as quickly, fairly, and as near to the point of origin as possible. In
practice, this means that the issue is more often settled by the employees
immediate supervisor or line manager. The grievance redressal procedure
describes about what happens if the grievance cannot be resolved at this
level. The different types of grievances redressal procedures are discussed
below.
7.4.1 Formal Grievance Redressal
There are three formal stages to redress any grievance. Each stage has a
form which is numbered according to the stage it belongs. First, it has to be
noted that the grievances have to fall under one of the following categories
to be considered as one:
Amenities
Compensation
Conditions of work
Continuity of service
Disciplinary action
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Stage I of Grievance Redressal

An employee who has a grievance meets the shift-in-charge and discusses
it. If necessary, the employee obtains a copy of grievance Form 1. It is done
within a week of occurrence of the aggrieving incident or when the
employee became aware of the situation. In case of promotion, a time limit
of six weeks from the date of the promotion is permitted.
The employee fills up the particulars and hands it over to the shift-in-charge
and obtains an acknowledgement receipt in return. The shift-in-charge
makes the necessary enquiries and returns the form to the employee with
remarks filled in the form within two working days from the date of receipt of
the form. In cases where reference to higher authorities or to another
department is necessary, more time is provided.
Stage II of Grievance Redressal
If the matter is not resolved at Stage 1, the employee obtains grievance
Form 2 and submits it to the next senior manager. The senior manager
arranges a meeting within three working days. The department head
discusses the issue with the concerned supervisor and the employee and
returns the grievance form to the employee with remarks. A unionised
member may assist the employee at this stage of grievance redressal.
Stage III of Grievance Redressal
If the employee is not satisfied with the reply of the departmental head, the
employee appeals to the chairman of his unit grievance redress committee
within seven working days of the receipt of reply at Stage II. The employee
obtains a copy of grievance Form 3 from the shift-in-charge.
The recommendations of the unit grievance redress committee are
considered unanimous and binding on the employee, if no objections are
raised by either the management or the union. If objections are raised, the
matter is sent for further consideration to the resident director, who
discusses it over with the president or the deputy president before arriving at
a definite conclusion. Figure 7.2 depicts the formal flow of grievance
redressal procedure.
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Figure 7.2: Grievance Redressal Procedure within an Organisation
7.4.2 Informal Grievance Redressal

In the informal method, the aggrieved employee directly approaches the
shift-in-charge or section head (in case of a major grievance). They engage
in a direct consultation and resolve the grievance amicably in stage I itself.
This way, the employee saves a lot of time and also avoids going through
the psychological tension and pressure that comes with a long and formal
procedure.
Most employees agree that the informal method of resolving grievances by
directly approaching the supervisor is a much better and less complicated
method to redress grievances. Most employees feel that the formal system
is too tiresome and time-consuming.
Exhibit 7.3: Arresting Sexual Harassment in the Indian Workplace
Though out-of-court settlements were the norm for most workplace sexual
harassment suits the world over, it clearly was not the best solution. Instead
of addressing the problem, this solution simply paid off the victim, so that the
accused could walk away. The larger issue of the emotional, physical and
financial damage caused to the victim, could be dealt with only if strict
policies and guidelines regarding sexual harassment were established by
the companies.
After the apex court guidelines on the issue in 1997, many firms in the
Indian industry laid down policies to the issue. Grievance redressal policy at
the IT giant, Infosys includes a well-documented anti-sexual harassment
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policy. This includes an independent (non-Infosys) grievance redressal body

and procedure. The redressal body consists of an independent chairperson
who is a lady, as required by the Supreme Court guidelines and four
committee members who are employees.
Similarly, every employee at Tata Consultancy Services (TCS) has to sign
the Tata Code of Conduct that has clauses on sexual harassment, too. TCS
has a grievance cell at every office of the Tata group, where employees can
register their complaints. However, anonymous letters and allegations are
not encouraged. The complainant has to reveal his/her identity before any
action is taken and grievances are handled in total confidence.
Marico Industries Ltd has policy guidelines. The staff is trained in the
appropriate social conduct expected in the workplace. An open culture
where members are encouraged to talk regarding any complaint or
grievance is another aspect of Maricos grievance redressal procedure.
Cola giant Coca-Cola has The Coca-Cola India Prevention of Sexual
Harassment Policy, which reaffirms their commitment to maintaining a work
environment free from all forms of harassment and discrimination for all
associates.
7.4.3 Collective bargaining
It is important to differentiate individual grievances from group grievances. If
the issue involves one or a few individual employees, it is handled through a
grievance procedure. But when the issue involves policy implications and
wider interests, they are resolved by the method known as collective
bargaining.
Collective bargaining is a grievance-handling process where a large number
of employees are involved and their issues are handled collectively. Unions
typically represent the employees during the process of collective
bargaining. The primary role of trade union is to protect the interests of its
members. Collective bargaining is a negotiation method undertaken by the
union with the objective of resolving labour issues while protecting employee
interests.
Grievance procedure can be categorised in another way depending on the
policy adopted by an organisation. The policies are open door policy and
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step ladder Policy. You will learn in detail about the two policies in the next
section.
7.4.4 Types of grievance policy
Grievance procedure is a communication between an employee and the
management intended to resolve a grievance. Grievance procedures are
different in different organisations. They depend on the policy adopted in the
organisation. In the previous section, you learnt about the two different
policies followed by organisations:
Open Door Policy
In this policy, the distressed employee is free to meet the top executives of
the administration and get his grievances redressed. This policy normally
works well only in small firms where the management is more transparent
and approachable to all employees.
In larger organisations, top management executives are usually very busy
and have no time to spare on individual employee grievances. In addition, it
is believed that open door policy is suitable for executives as operation
employees may be hesitant to approach the top management.
Step Ladder Policy
In this policy, the distressed employee has to follow a step-by-step method
to get the grievance redressed. In this process, whenever an employee has
a grievance, the problem is presented to the employees immediate
supervisor. If the employee is not happy with resolution stated by the
superior, then the grievance is discussed with the departmental head. The
crisis is generally discussed with a joint grievance committee.
Even if the committee is unsuccessful in resolving the grievance, it is then
presented to the chief executive. If the chief executive also fails to find
solution, then the grievance is presented to voluntary arbitration where the
decision of authority is binding on both the organisation as well as the
aggrieved employee.
7.4.5 Grievance redressal policy in Indian industry
Let us look at the grievance policy as adopted by Indian industry. The Indian
Labour Conference has adopted a model grievance redressal procedure. It
consists of six steps. First the aggrieved employee approaches the foreman
and presents the grievance orally. If the employee is not satisfied with the
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redressal, the supervisor is approached. The supervisor provides an answer

in two days. If still the employee is unsatisfied with the redressal, the head
of the department is approached, who gives an answer in three days.
The next level is the grievance committee that consists of representatives of
the employee and the employer. The grievance committee gives an answer
within a week. The next level for redressal if the employee is still not
satisfied is the manager who responds in three days. In case there is no
agreement yet, the grievance is referred to voluntary arbitration where the
decision is binding to both the employee and the employer.
Even though the legislation spells out the model grievance redressal
procedure, organisations do not always follow the exact procedure. They
sometimes follow procedures similar to the legislated grievance procedure.
7. Formal grievance redressal procedure consists of three formal stages
for redressing employee issues. (True/ False).
8. The primary role of a trade union is to _______ the interests of its
members.
9. Collective bargaining is done when a single employee has unresolved
issues. (True/ False).
10. In stage III of formal grievance redressal, the recommendations of the
________________ are considered unanimous and binding on the
employee.
Activity 2:
Ruchi is an employee of a large organisation called Tinkle Bell
Corporation. She found her manager to be very rude towards her as well
as other women employees. Identify the grievance procedure Ruchi has
to follow to get an effective resolution.
7.5 Essential Pre-requisites of Grievance Redressal Procedure

Every organisation needs a methodical grievance redressal procedure in
order to resolve grievances effectively. Unresolved grievances may end in
the form of aggressive conflicts later on. We have learnt about the various
steps of grievance redressal procedure and the policies associated with it.
Let us now familiarise ourselves with the essential pre-requisites of
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grievance redressal procedure for it to be sound and successful. The prerequisites are as follows:
Conformity with statutory provisions: Due thought must be given to
the laws of the land while formulating the grievance handling procedure.
Clarity: Every aspect of the grievance handling procedure has to be clear
and definite. All employees have to know whom to approach first when
they have a grievance, whether the grievance is to be written or oral, and
the maximum time in which the redressal is guaranteed. The redressing
spokesperson also has to know the limits within which the employee can
take the required action.
Simplicity: The grievance handling procedure has to be simple and
short. If the procedure is complex it may discourage employees and they
may fail to make use of it in a proper manner.
Promptness: The grievance of the employee has to be quickly handled
and essential action must be taken at once. This is good for both the
employee and the management because if action is delayed or deferred,
it may affect the confidence of other employees as well.
Training: The manager and the union representatives need appropriate
training in all matters of grievance handling so that no complications arise
during the grievance handling process.
Follow-up: The personnel department needs to keep track of the
efficiency and the performance of the grievance handling process and
make necessary changes to improve it with time.
7.6 Grievance Interview

In the previous section we learnt about the pre-requisites in grievance
handling. In this section we will learn the methodology for handling
grievances, i.e., interviewing.
The solution to good grievance management is correct investigation. It
begins with interviewing the aggrieving employee. Interviewing the
aggrieved employee requires three critical skills, namely, interviewing,
listening and writing. Based on the result of the interview, you will make a
number of significant decisions such as what to do with the problem,
whether to investigate it further, and how to resolve the issue. The following
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are the different questions, commonly known as the five Ws, which need to
be asked during the interview:
Who
Is involved
Names of the employees and the essential work information about the
associates such as division, shift, job title, superiority, worker number.
Most of this information needs to be filled in the grievance form.
Witnessed the occurrence or who else was involved.
Management representative present at the scene.
When
Did the occurrence or incident happen?
Get dates and time as precisely as possible.
What
Happened or didn't happen?
Were the employees responsible?
Was the management responsible?
Has it occurred in the past?
Where
Did the occurrence take place?
Why
Did the event occur?
In answering the mentioned questions, one may have to sift through
contradictory opinions to get the right facts.
Asking the five Ws may not be difficult. The supervisor needs to speak with
the member and elicit complete information. It is mandatory to take down
notes. This conveys to the employee that the issue has been taken
seriously. This way anyone associated with the case also takes it seriously
and supplies more evidence and fewer opinions if their words are being
written down. Some facts may not seem significant at first, but written
documentation is important. Further analysis makes all the information
critical to the case.
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The grievance form helps in conducting a complete enquiry during the

interview. The worksheet is stored in the union files so that the investigation
results are conserved for the next level union grievance officers.
There are two other types of questions that have to be kept in mind while
conducting the interview. They are the following:
What else
Is there a need to perform an appropriate investigation?
What additional information is essential?
What are the other sources of information?
How
How should the topic be resolved?
An explanation to the problem or complaint may occur in the course of the
interview. Give the employee a chance to help resolve the issue. Use the
information to guide the worker by making sure the employee understands
the effect of any recommended solution.
All the steps and methods for grievances must be handled with restraint. In
this section, we will understand the precautions that can be taken while
handling grievances.
11. The five Ws in grievance interview are_______, _______ ,____,
_______and _________.
12. The solution to good grievance management is a correct investigation
and that procedure should begin with interviewing the aggrieved
employee. (True/ False).
13. The grievance handling procedure should be complex and lengthy.
(True/ False).
7.7 Precautions While Handling Grievances

Maintaining a good work life for employees is important for any organisation.
The grievance handling procedure of an administration can influence the
pleasant atmosphere of the organisation. The management has to take care
of the following aspects while handling grievances to ensure a culture of
belief and assurance among the employees:
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Always make sure that the managers concerned in the grievance

handling events have a quiet place to meet the complainant.
Always ensure that managers have sufficient time to dedicate to the
complainant.
Explain the role of the manager, the strategy and the events clearly in
the grievance handling procedure.
Explain the situation in detail to the employee to avoid any
misunderstanding and encourage better acceptance of the
circumstances complained.
Let the employees present their issues without anticipation or
interruptive comments.
Use a positive and friendly way to resolve the crisis rather than
corrective steps which upset the system.
Stay quiet, cool, composed during the course of the meeting.
Always focus on the subject of the grievance rather than deviating to
related issues.
Never make allegations against others.
Acknowledge employee concerns about possible consequences of
registering a grievance. Do not become angry, aggressive or destructive
during the grievance handling procedure.
Pay attention to the main point of arguments.
Listen and respond delicately to any form of distress exhibited by the
employees.
Remove the source of anger or discomfort.
Assure the employees that the managers are neutral and show no bias.
Make sure there is successful, responsive and confidential
communication between all involved.
Take all possible steps to ensure that no one is ill-treated because of the
grievance being raised.
The researcher or decision maker acts neutrally, which means they must
rule themselves out if there is any partiality or conflict of interest.
Try to look upon the problem from different angles for better
understanding.
Consider all important information in the research process.
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Ask the staff member his/ her favourite decision option, although it is
significant to make it clear that it may not be a possible outcome.
Be aware of the limits of power of the person who is anxious in the
grievance handling procedure.
If the manager feels that the person handling the grievance procedure is
not suitable for dealing with the issue, refer the complainant to the
appropriate person as soon as possible.
To a great extent, the industrial problems of organisations depend on the

approach adopted by the manager. Care should be taken about how
managers approach the problem and recognise the pros and cons of the
situation.
Conflict management policies include the win-win approach that helps in
healthy organisational practices. This, in turn, reflects strong organisational
culture. Collaboration from all disputing parties is a pre-requisite in handling
the problem and in effectively resolving the grievance.
7.8 Conflict Resolution

Conflict involves the struggle of a person with another person, or a thing or a
situation. It is a problem or disagreement, a situation that needs resolution.
Every employee faces an issue of conflict at work. Conflicts can be resolved
if dealt the right way. Conflict resolution is the process of finding a solution
to a conflict.
Resolving conflicts effectively creates more understanding among those
involved in conflict, increases team work, as members develop stronger
bonds., It also increases mutual respect, and improves self-knowledge as
conflict is a testing time, when the members can examine themselves.
On the other hand, if conflicts are not effectively resolved, its results will be
damaging. If team members have conflicting goals and no solution is
attained, it can break the team. Employees with conflicting goals ultimately
start disliking one another on a personal level. Conflicts within the workplace
that are not effectively and timely resolved, affect the organisation in the
long run.
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7.8.1 Methods of conflict resolution

There are several methods of conflict resolution. Some result in win-lose
solutions, while others result in a win-win for the two parties involved. The
three methods commonly adopted are discussed in the next section.
Mediation
In this method, a mediator, who is a third party, facilitates the resolution
process. The mediator may suggest a resolution, typically called the
mediators proposal. The mediator cannot impose a resolution on the
conflicting parties.
The mediator is involved in structuring the meetings between the conflicting
parties. The final decision is based on the facts presented through the
discussions. Mediation is not a legal process, so if one of the conflicting
parties is not satisfied with the process, they can approach a court of justice
to further resolve their case.
Mediators use appropriate techniques to improve talks between disputants.
The aim of the mediator is to help the parties reach an agreement on the
disputed matter. The conflicting parties view the mediator as impartial. A
third-party representative can mediate between unions and organisations.
For instance, when workers of a union go on strike, a mediator (in some
cases the government) makes an attempt to settle the dispute and reach an
agreement between the union and the organisation.
Exhibit 7.4: Advantages of Workplace Mediation
The advantages of adopting mediation as a method of conflict resolution
are:
Quick to set up
Less costly in terms of finances, management time, employee stress,
and the effects of an unproductive working environment
More positive as it is more likely to give those involved the outcomes
they want
More constructive as it will help in restoring working relations rather than
destroying them.
Arbitration
In this method, a third party called the arbitrator is involved and is typically a
private judge. The conflicting parties agree in advance the choice of
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arbitrator and certify that they will abide by the arbitrator's decision. The
arbitrator reviews the case presented by both sides of the disputing teams.
The arbitrator then imposes a decision that is legally binding for both sides.
Arbitration offers a faster resolution than through a judicial system. It also
avoids the costs of lengthy and costly legal expenses. Thus arbitration is a
legal form of conflict resolution outside the courts.
Compromise
It is a method in which conflicting parties voluntarily engage in basic
negotiation. Both parties give up something that they want in order to
resolve the conflict. Compromises usually occur in win-lose situations, that
is, in such situations, neither side gets everything they want. They lose
something in order to gain something. Each party makes concessions to
reach an amicable agreement that is acceptable to both.
Exhibit 7.5: Team Mediation to Counter Bullying at the Workplace
A member of a team made an anonymous complaint of harassment against
two senior managers of a department in a large insurance company. The
complaint brought to light several areas of conflict and differences within a
team of twelve people. While the usual grievance procedure was followed,
no improvement in interpersonal relationships was reported. The
management decided that the best way forward would be to offer the whole
team a team mediation'.
Team mediation is very similar to mediation between two people, the
principles and structure are the same, but it does demand more skills and
experience from the mediator because of the number of people involved and
the group dynamics and the emotions that may arise.
The first day was spent by the mediator meeting each person in the team
individually. There were several major issues that needed to be addressed one person felt that he could not work with a colleague who was offered a
much-coveted promotion. The other issue was that two members of the
team felt that harassment incidents were being ignored by their managers.
After a series of meetings that involved a great deal of useful
communication, the mediation in the end proved beneficial for everyone.
At the end of the mediation, the team had come up with some agreements
and clear strategies for addressing the main issues they had identified.
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Resolving the issues would improve working relations within the team and
would move things forwards in a constructive way. The mediator had a
follow-up meeting with the group of employees two months later and there
was definite all-round improvement. They felt that their concerns had been
addressed, changes had taken place that improved working relations, and
members of the team treated each other with more professionalism and
respect.
14. The three methods of conflict resolution are _____, _______and
_________.
15. The mediator suggests a resolution called the _____________.
16. The solution offered by the arbitrator cannot be imposed on the
conflicting parties. (True/ False).
17. Compromise involves voluntarily negotiation of the disputing parties.
(True/ False).
7.9 Summary
Grievance is any discontent or dissatisfaction which results from violation of
employee contracts or settlements or violation of any laws, or discrimination
based on race, age or sex. Reasons for grievances include unsatisfactory
wages, poor working conditions or issues with the supervisor or
management.
Aggrieved employees in an organisation result in lowered productivity, lack
of commitment and loss of interest to work. This, in turn, affects the
organisations in terms of increased costs and wasted resources. Thus,
organisations adopt suitable grievance redressal procedures.
The grievance redressal policy adopted by an organisation can either be
open door policy, which is more effective in smaller organisations, and step
ladder policy mostly for larger organisations, where grievance handling is a
step-by-step process.
Grievance redressal can be formal or informal in the way it is tackled. It is
considered formal if an employee approaches the management by filling up
and submitting grievance forms. If the issue is directly taken up verbally by
the supervisor of the employee it is considered as an informal procedure.
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Grievance redressal procedure has set pre-requisites conformity with

statutory procedures, the process has to be clear, simple and prompt in its
response. These pre-requisites are to ensure effective grievance redressal.
Grievance interviews have to be thorough examination of the situation. The
case is probed by essentially asking the five Ws who, when, what, where
and why. The people involved in the grievance handling procedure have to
deal with the case sensitively, following certain guidelines.
Collective bargaining is a form of collective grievance redressal of the issues
involving a large number of employees. It is normally taken up by unions
whose primary interest is to protect employee rights.
Conflict resolution is the method of reaching an agreement between
disputing parties when a conflict arises within an organisation. Three types
of conflict resolutions are discussed in this unit. Mediation is a method
where a mediator assists the disputing parties reach an agreement.
Arbitration involves an arbitrator whose decision is followed by the disputing
parties. Compromise involves a voluntary negotiation between the two
conflicting parties, both desiring to settle the conflict in an amicable way.
7.10 Glossary
Term
Description
Lip service
When people do not act on their words, the

commitments are hollow and empty.
Collective bargaining
It is a process between employers and employees to

reach an agreement regarding the rights and duties of
people at work.
Complainant
The one who files a complaint. It is usually the

aggrieved employee.
Steward
An official within the organisational hierarchy of a

labour union.
Top management
Highest ranking executives. Example, CEO
Middle management
Layer of management in an organisation whose

primary job responsibility is to monitor activities of
subordinates while reporting to upper management.
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1.
2.
3.
4.
5.
Explain the reasons for grievances.

What are the needs for grievance redressal?
Explain the term conflict resolution.
Describe the three stages involved in formal grievance handling.
Describe the different methods of conflict resolution.
7.12 Answers
1. Grievance
2. Grievance
3. False
4. Formal/Informal
5. False
6. False
7. True
8. Protect
9. False
10. Unit grievance redressal committee
11. Who, when, what ,where, why
12. True
13. False
14. Mediation, arbitration and compromise
15. Mediators proposal
16. False
17. True
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7.13 Case Study

XYZ is one of Indias largest retailers and is the single largest employer in
India. XYZ is involved in a dispute that women were paid less than men in
every region and in most job categories; that the salary gap widens over
time even for employees hired into the same jobs; women take longer to
reach management positions; and there is a low percentage of women in
higher-paying positions.
Among the facts presented by the plaintiffs, it is noted that of the 3 million
employees of the ogranisation, 1.82 million workers are women and only
14 percent of the store managers are women. None of the facts presented
suggest that there is deliberate, orderly prejudice, but the results show
that XYZ engages in discriminatory practices.
In defence, XYZ claimed that the inequality between its male and female
workers was caused by factors other than unlawful prejudice. They
argued that the female employees were not interested in or not capable of
the higher-paying positions.
Questions:
1. What are the means by which organisations can find out if there is any
discrimination against employees?
2. What are the reasons that led the female employees of XYZ
organisation to file a case against the organisation?
References:
Giri, Y. L.; Human Resource Management: Managing People at Work..
http://www.referenceforbusiness.com
www.industrialrelations.naukrihub.com/collective-bargaining.htm
http://www.beyondintractability.org/essay/compromise/
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Unit 8
Industrial Relations
Structure:
8.1 Introduction
Objectives
8.2 Overview of Industrial Relations
Objectives of Industrial Relations
8.3 Composition of Industrial Relations
The Actors in the Relationship
The Processes and Procedures
The Legislations
8.4 Importance of Industrial Relations
8.5 Perspectives of Industrial Relations
Unitary Perspective
Pluralistic Perspective
Marxist or Radical Perspective
8.6 Summary
8.7 Glossary
8.9 Answers
8.10 Case Study
8.1 Introduction
By now you must be familiar with the concepts of Employee Relations
Management (ERM), Human Resource Information Systems (HRIS) and
grievance handling procedures. Now let us discuss the issues related to
Industrial Relations (IR).
Industrial Relations, in a broad sense, refers to the relations between
employees and employees and relations between employers and
employees within an industry. In particular, Industrial Relations is concerned
more with the relations between the management of an industry and the
union of employees, which represents the interests of the employees.
Originally, Industrial Relations incorporated all aspects of employeremployee relationships, including the functions of Human Resource
Management (HRM). Now, it has become restricted and pertains to the
study and practice of collective bargaining, trade unionism, and labourSikkim Manipal University
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management relations. Now, as you already know, it is ERM which deals

with all non-union employment relationships and the personnel practices
and policies of the organisation.
The following section gives you an overview of Industrial Relations.
Objectives:
define Industrial Relations.
describe the Industrial Relations system.
explain the importance of Industrial Relations.
compare the different perspectives of Industrial Relations.
8.2 Overview of Industrial Relations

Industrial Relations refer to the processes and systems by which relations
with employees are managed that include trade unions, employer
associations, labour legislations, collective negotiations and agreements. It
refers to all relations that emerge in a workplace and that include relations
between individual employees, employer and employees and also between
employers. It also includes the relations that the employers and the
employees have with the organisations, which promote their respective
interests. According to Lester (1967), "Industrial relations involve attempts at
arriving at solutions between the conflicting objectives and values; between
the profit motive and social gain; between discipline and freedom, between
authority and industrial democracy; between bargaining and co-operation;
and between conflicting interests of the individual, the group and the
community.1 A good Industrial Relation system is one that promotes
harmony in all forms of relationships, which exist within the organisation.
The Japanese have good Industrial Relations because of the teamwork and
co-operation among workers, government, and employers.
Industrial Relations can be traced back to the Industrial Revolution when
many large-scale organisations employed thousands of workers. But bad
working conditions, low wages, and abusive treatment from the employers
led to many labour problems. Thus, Industrial Relations evolved in the mid-
Labour Policy and Administration by Balwant Singh; 1996
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nineteenth century to overcome these labour issues. The approach to

Industrial Relations influenced the U.S. government to introduce the
National Labour Relations Act and the Fair Labour Standards Act. In India,
the first industrial laws were introduced by the British. The Factory Act of
1881 and the Mines Act of 1923 aimed to regulate child labour, working
hours, safety and sanitation conditions in factories and mines. After
independence, the Indian government has introduced many laws that
regulate Industrial Relations like the Industrial Disputes Act of 1947,
Minimum Wages Act of 1948, Employee Provident Fund Act of 1952, and
Apprentice Act of 1961 and so on.
In 1958, John Dunlop equated the Industrial Relations system with an
economic system. John Dunlop viewed Industrial Relations as a separate
discipline focusing on the rules of employment, the employers and
employees, and the government, that formulated and administered Industrial
Relations, and also external influences like technology, economy, and
politics.
But in the 1970s, the influence of the trade unions decreased. Organisations
began to focus on replacing collective bargaining by enhancing employee
involvement and commitment. Nowadays, HRM has overtaken Industrial
Relations. The changes in the composition of the workforce like inclusion of
part-time workers, increasing number of women employees, and reduction
of manual labourers have reduced the influence of unions. Generally,
educated workers and those having high occupational status are more likely
to assert their interests individually rather than through collective bargaining.
Professionals like doctors, lawyers, engineers, scientists, and middle
managers prefer to act through occupational associations rather than
through broad-based unions.
Exhibit 8.1: Professional Associations -- an example
Indian Pharmaceutical Association (IPA) is the premier professional
association of pharmacists in India, with a member base of over 10,000
spread across the length and breadth of the nation. IPA operates in India
through 17 state branches and more than 33 local branches.
The members represent various facets of pharmaceutical profession, viz.
industry, regulatory, community pharmacy, hospital pharmacy and
education. IPA is also actively associated in managing several academic
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programmes. As member of Drug Technical Advisory Board, India, IPA is

actively involved in advising the government on matters of professional
importance. IPA is affiliated with international pharma associations like FIP,
FAPA, CPA, AAPS, AAiPS, IPSF and WHO, for carrying out various
collaborative professional activities. These include organising training
programmes for professionals from industry, academics, regulatory and
practice, making representations to the authorities on matters of
professional interest and working towards constantly upgrading the
standards of professional services offered by pharmacists.
You have learnt the meaning of Industrial Relations and a brief history of it.
Let us now learn the objectives of an Industrial Relations system.
8.2.1 Objectives of Industrial Relations
The main objective of an Industrial Relations system is to maintain
harmonious relations between the employers and the employees. The other
objectives are to:
Protect the interest and the rights of the management and the workforce.
Promote mutual understanding and goodwill among those involved in

the industrial process.
Minimise industrial conflicts.
Regulate production and increase productivity.
Improve worker participation and involve them in decision making.
Eliminate or minimise the number of strikes and lockouts.
Enhance the economic status of the workers by means of good wages

and benefits.
Establish and maintain industrial democracy.

1. ___________ refers to the processes and systems by which
employment is managed and includes trade unions, employer
associations, labour legislations, collective negotiations, and
agreements.
2. Industrial Relations can be traced back to the _____________.
3. Nowadays, _______________ has overtaken Industrial Relations.
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4. The main objective of an Industrial Relations system is to maintain

_______________ between the employers and the employees.
8.3 Composition of Industrial Relations

Now that we know the objectives of Industrial Relations, let us next examine
the components of an Industrial Relations system.
The major components of an Industrial Relations system are the actors in
the labour relationship, the processes (collective bargaining, workers
participation) involved, and the legislations governing it. These components
interact in different ways and are influenced by many societal variables. Let
us now examine each of these components in detail.
8.3.1 The Actors in the Relationship
The following are the main actors, who are directly involved in Industrial
Relations:
Employers: Employers are those who engage workers and pay them a
fixed salary in return for services rendered. Employers have the right to
employ and fire employees. Their decisions like relocation, introduction
of new technologies, mergers and acquisitions affect their employees.
Employee: Employee is an individual hired by a person or a company

and is remunerated for the services rendered. Employees need a good
working environment. They have a right to voice their opinions and
convey their grievances. Employees generally form a union in order to
obtain their rights from the management. They expect the union to
support them on all issues.
Government: It influences employee relations by means of laws, rules,

regulations, and policies. The government establishes the legal
framework for management-trade union interaction and, helps in the
settlement of industrial disputes. It also regulates incomes and
establishes minimum wages. For example, in Australia, the
Commonwealth has enabled employers under its jurisdiction, to bypass
unions and negotiate directly with individual employees. But the
individual states have reaffirmed the collective bargaining process and
the role of unions.
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Trade unions: They promote and protect employee interests. Trade

unions help in making decisions by following the process of collective
bargaining and negotiations with the management. Good trade unions
improve communication between the management and the employees.
They also help in settling industrial disputes. For example, the United
States has a fewer number of unions compared to the European Union.
Hence, the companies in the United States hire and fire employees at
will, while their European counterparts have to consult the trade unions.
Employer associations: They help in enhancing the performance of

enterprises. Employer associations represent employers in collective
bargaining, depose before tribunals and courts, and engage in public
and media relations. They also provide a forum for discussions and
debates on specialised subjects. Employer associations advise,
educate, and assist members in industrial disputes. They also lobby with
the government for industrial reforms.
Courts and tribunals: These help in resolving industrial disputes. Labour

courts examine the legality of orders passed by the employers, the
discharge of employees, withdrawal of concessions or privileges,
matters relating to lock-outs and strikes. Industrial tribunals deal with
matters related to wages, compensations and other allowances,
bonuses, rules of discipline, retrenchment, and closure of organisations.
For example, Australian Industrial Relations give great importance to
courts. The courts give quick binding decisions thus minimising
economic losses.
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Figure 8.1 shows all the above actors who form a major component of
Industrial Relations.
Figure 8.1: Actors Involved in an Industrial Relations System
The influence of each actor varies in different industrial systems. In some

systems, the government dominates the relationships and in some others, it
only plays a minor role. Some industrial systems emphasise employee
interests while others emphasise employer interests. Employees usually
interact with their employers through representative unions. Some countries
facilitate these trade unions, whereas some countries discourage them.
Hence, the goals and actions of the trade unions vary from country to
country.
Exhibit 8.2: Relevance of Trade Unions--A Changed Scenario
The situation of the trade union movement has changed quite drastically in
the last twenty years or so because power relations in society have
changed. The first happened in the late 1940s and was a consequence of
World War II (WWII); the second happened forty years later because of
globalisation.
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At the end of WWII, unions were in a strong position, politically and

industrially. The end of the Cold War coincided with the end of the post-war
economic boom. Mass unemployment started appearing in industrialised
countries in the early 1980s after the first "oil shock" of 1974, the fall of the
Berlin Wall in 1989 and the dissolution of USSR in 1991.
At the same time, in a little over ten years, the world economy underwent a
fundamental change, moving from an aggregate of national economies,
linked together by a network of trade, investment and credit, to an
integrated, borderless global economy.
In the global labour market, workers of all countries have been compelled to
compete against each other, with huge wage spreads ranging from one to
one hundred. Over the past ten years, all industrialised countries, in Europe,
North America and Japan, have experienced outsourcing of labour and
workers relocating to low-wage countries. The world is becoming one giant
global labour pool.
For industries to remain competitive, workers will have to take pay cuts and
work longer hours. "Reform" used to mean progress. Today it means social
regression: cuts in benefits and dismantling of social protection. Workers'
rights and union contracts are referred to as "labour market rigidities" and
introducing "flexibility" means dismantling such rights.
8.3.2 The processes and procedures
Disputes occur whenever there is a conflict of interests among the parties
involved. The Industrial Disputes Act of 1947 defines industrial disputes as
any dispute or difference between employers and employers or between
employers and workmen, or between workmen and workmen, which is
connected with the employment or non-employment or the terms of
employment or with the conditions of labour, of any person.2 Industrial
disputes take different forms such as protests, strikes, demonstrations, lockouts, retrenchment, dismissal of workers, and so on.
The dispute prevention and resolution processes aim to help parties settle
their grievances or disputes peacefully and with minimum disruption of work.
pblabour.gov.in/pdf/acts_rules/industrial_disputes_act_1947.pdf
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Dispute settlement procedures are usually established in the light of

government legislations. Some organisations have their own procedures.
These procedures involve conciliation and mediation, arbitration and
adjudication through a tribunal or labour court. Model standing orders, joint
management councils and collective bargaining help in settlement of
industrial disputes. Model standing orders accurately define the conditions
of employment. Joint management councils help in facilitating mutual
consultation between employers and workers over many important issues,
which affect industrial relations.
Collective bargaining has been the most important process of resolving
industrial disputes. But now, more emphasis is given to worker participation.
Collective bargaining can be centralised or decentralised. It can also be
done in a random or orderly manner.
The other processes in an Industrial Relations system include dispute
settlement, communication procedures, discipline and grievance
procedures, and systems for formulation of agreements. The nature and
importance of these procedures is influenced by various external factors.
Let us now analyse some of these processes.
Collective bargaining: The term collective bargaining refers to the
negotiations concerning pay and conditions of employment between trade
unions and either an employer or an employers association.3 The outcome
of collective bargaining is called collective bargaining agreement (CBA).
Collective bargaining agreements can be procedural agreements or
substantive agreements. Procedural agreements deal with the procedures
that are used to resolve individual or group disputes. Procedural
agreements are included in the company hand book and provide information
on the overall terms and conditions of employment and codes of behaviour.
A substantive agreement deals with specific issues like basic pay, overtime
and bonus payments, holiday privileges, working hours and so on.
Collective agreements have a fixed time frame and have to be periodically
reviewed.
Industrial Relations by Michael P. Jackson; 1977
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The different activities involved in collective bargaining can be classified as

follows:
Distributive bargaining or conjunctive bargaining: It involves

negotiations of the distribution of surplus. It also discusses economic
issues like wages and bonus. Here, one party involved in the negotiation
gains, while the other loses. For example, when the management and
union are in conflict with respect to the employee bonus. The settlement
of such issues results in a situation where one of the parties involved
must either win or lose.
Integrative bargaining or co-operative bargaining: It involves

negotiations where both parties gain and neither loses. For example,
employees may bargain for better performance evaluation or training
methods.
Attitudinal restructuring: It involves negotiations for changing attitudes

and ensuring harmony in the work place. It creates trust and cooperation between the parties involved. It involves demand creationbuilding up the perceived value of the commodity offered. Attitudinal
bargaining usually takes place outside the boardroom. This could mean
having dinner together, playing golf together, and just being friends.
Intra-organisational bargaining: It involves building consensus

between workers and management in order to avoid conflicts. For
example, if skilled workers feel that they are being neglected, the trade
union negotiates to resolve this issue.
Collective bargaining operates at the following three levels:
National level: It involves negotiations among union confederations,

employers associations, and government agencies. Bargaining is done
for realisation of macroeconomic goals.
Sector or industry level: Here, negotiations standardise terms of

employment within one industry. Bargaining is done in terms of industrial
activities that can be divided among the sub-units.
Company or enterprise level: It is a supplementary form of bargaining

that involves the company or the enterprise. Here agreements cover the
workers in one workplace.
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Characteristics of collective bargaining: The characteristics of the

collective bargaining process are as follows:
It is a group process wherein the employees are represented by one

group and the employers by another.
It involves negotiations, discussions and compromises.
It is a very formal process governed by specific rules and regulations.
It is procedural and involves a number of steps starting from the

presentation of demands to the acceptance of the agreement.
It is a bipartite process and always involves two parties.
It is a democratic process and involves co-operation and consensus.
Importance of collective bargaining: Collective bargaining is very

important for both the employees and the employers due to the following
reasons:
It makes the employees more responsible.
It increases the morale of the employees.
It prevents the employers from taking unilateral action against the

employees.
It enhances employee involvement as employees can voice their

opinions to the management.
It also helps employees to take part in the decision-making process.
It assists in prompt settlement of disputes and grievances.
It enhances the feeling of job security and reduces employee turnover.
Workers participation in management: Workers participation in

management decisions meets the psychological needs of the workers and
bridges the gap between management and the workers. Their participation
enables them to shape industrial relationships. Work committees with equal
representation of employers and employees encourage workers
participation. Their participation improves organisational communication,
enhances employee commitment, and increases productivity. One form of
workers participation is self-management. Here, the workers manage the
industry through workers councils and management boards. Workers
councils take decisions regarding investments and achievement of
economic goals. The management boards prepare monthly operative plans
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and resolve issues related to discipline, wages, promotions, and welfare

schemes.
Exhibit 8.3: Worker Self-management in Argentina
Worker self-management (sometimes called workers' control or autogestion)
is a form of workplace decision making in which the workers themselves
agree on choices (for issues like customer care, general production
methods, scheduling, division of labour, etc.) instead of an owner or a
traditional supervisor telling workers what to do, how to do it and where to
do it. Argentina's fbricas recuperadas movement is the most current and
significant workers' self-management phenomenon in the world.
Fbricas recuperadas means "reclaimed/recovered factories. The
movement emerged as a response to Argentina's 2001 economic crisis and
as a result of the movement about 200 Argentine companies were
"recovered" by their workers and turned into co-operatives. Prominent
examples include the Brukman factory, the Hotel Bauen and FaSinPat
(formerly known as Zanon). As of 2005, about 15,000 Argentine workers run
recovered factories.
The system of Industrial Relations in the European Union (EU) is influenced
by the aspects of national systems of the member states. For example,
employee representation is determined by the member states labour laws
on trade unions and representation of workers, the different organs of the
workplace, and corporate structures. Promotion of collective employee
representation is now being emphasised in the EU.
Dispute settlement: An atmosphere of mutual trust and co-operation helps
in dispute settlement. Industrial disputes are classified as economic and
non-economic disputes. Economic disputes arise due to issues relating to
wages, bonus, allowances, leave without pay, and retrenchments. Noneconomic disputes arise due to issues relating to discipline, ill-treatment of
employees, and safety measures.
The following outlooks help in resolving disputes:
Mutual accommodation: Employees have to avoid uncompromising

attitudes. They have to recognise, the unions right for collective
bargaining. Management needs to avoid threatening the workers and
have to co-operate with them.
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Sincere implementation of agreements: The management needs to

implement all agreements reached with the trade unions, both in letter
and in spirit. Non-implementation of agreements creates an atmosphere
of mistrust and uncertainty.
Sound personnel policies: Personnel policies have to be formulated

after consultation with workers or their representatives. Personnel
policies have to be stated clearly and implemented in a fair manner.
Progressive outlook: Management needs to have a progressive

outlook and be aware of their responsibilities and duties. Managers have
to recognise the workers unions, which aim to protect the interests of
the workers.
The dispute settlement machinery which help in resolving disputes are as

follows:
Conciliation and mediation: The conciliation and mediation machinery

consists of personnel trained in the art of conciliating disputes. The aim
of the conciliator or the mediator is to break the deadlock by explaining
the perceptions of one party to the other, conveying messages and
generally keeping the negotiations going. The conciliators or the
mediators make suggestions, but it is the parties who ultimately decide
the issues.
Arbitration or adjudication: When strikes and lock-outs appear to be

against national or public interest, the government may decide to refer
the dispute to adjudication and force the parties to abide by the
judgement of the adjudicator and also prohibit the parties from stopping
work. In India, the Labour Court and the Tribunal can be established
both by the Central and state governments. But the National Tribunal is
established only by the Central government to adjudicate disputes
related to issues of national importance or which are of such a nature
that industries located in more than one state are likely to be interested
in or affected by them. The Labour Court adjudicates disputes related to
the propriety or legality of standing orders, discharge or dismissal of
workers, strikes or lock-outs. The Tribunal and the National Tribunal
generally deal with subject matters like wages, bonus, profit sharing,
nationalisation, provident fund, gratuity, and so on.
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8.3.3 The legislations

The legislations governing Industrial Relations vary from country to country.
Differences can be found in the kind of protection granted to employers and
employees, the freedom to form associations, the right to bargain
collectively, and the concepts of fairness in legislations. Some laws which
are not directly connected to Industrial Relations can also impact it. In some
cases, government intervention is required for settling disputes between the
management and the employees.
For example, the Indian government has the following legislations to govern
Industrial Relations. The Industrial Disputes Act of 1947 has provisions for
settlement of industrial disputes and protection of the rights of the workers.
Amendments were made to the Trade Unions Act in 2001, which regulates
the functioning of the trade unions. Schemes were also introduced for the
participation of workers in public sector companies.
The 1980s labour laws of the British government led to the decrease in the
influence of the trade unions. The Canadian government has Industrial
Relations legislations for governing the functioning of trade unions,
employment standards, employee health and safety, workers
compensation, equality in the workplace, and globalisation.
Now that you have understood the components of Industrial Relations, let us
examine its importance.
5. _______________ promote and protect employee interests.
6. ___________________ refers to the negotiations concerning pay and
conditions of employment between trade unions and either an
employer or an employers association.
7. _____________ collective bargaining involves negotiations among
union confederations, employers associations and government
agencies.
8. ________________ in management decisions meets the psychological
needs of the workers and bridges the gap between management and
the workers.
9. ________________ arise due to issues relating to wages, bonus,
allowances, leave without pay, and retrenchments.
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Activity 1:
List some of the legislations that govern Industrial Relations in your country
and analyse their scope and impact
8.4 Importance of Industrial Relations

Industrial Relations are the process of managing individual and collective
relationship between the workers and the management in organisations so
that the needs of both the parties are met.4 Healthy Industrial Relations
ensure harmony and progress. Good Industrial Relations are important not
only for the employers and employees but also for the entire society.
Unhealthy Industrial Relations are harmful to the industry and the nation.
They result in wastage of resources, reduction of productive working days,
and reduction of the national output. The creation and maintenance of
Industrial Relations promotes industrial peace. It is important to ensure good
Industrial Relations for the following reasons:
Uninterrupted production: Good Industrial Relations ensure continuity

of production. Resources are fully utilised and production is maximised.
All employees of the organisation are assured continuous work.
Uninterrupted production is very important for organisations as some
products act as inputs for other organisations; some products are
exported, and some products are very essential for consumers.
Reduction in industrial disputes: Good Industrial Relations help in

reduction of industrial disputes. Resolution of disputes promotes
harmony and co-operation within the organisation.
Enhancement of morale: Good Industrial Relations improve the morale

of the employees. It increases employee involvement and commitment.
Workers display more interest in achieving the organisational goals.
Transformation of attitudes: Good Industrial Relations enable

employers and employees to view themselves as partners in the
industry. Employees and employers recognise the rights and interests of
the other.
Industrial Psychology: Fresh Perspectives by Roelien Theron, A Moerdryk, A Schlechter, P Nel, A

Crafford, C ONeill; 2006
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Reduces wastage: Good Industrial Relations enhance co-operation.

Wastages of time, resources, and materials are minimised. This in turn
increases production.
Increases profit: Good Industrial Relations maintain competitive labour
costs, increase production and thus increase profits.
Thus, we see that good Industrial Relations are very important for the
success of an organisation. Let us now examine the different perspectives
of Industrial Relations.
8.5 Perspectives of Industrial Relations

Industrial Relations experts have different perspectives about workplace
relations. Hence, each perspective interprets issues like industrial conflicts,
the role of unions, and job regulations differently. The three main
perspectives of Industrial Relations are unitary, pluralistic, and Marxist.
Marxist perspectives are also called radical perspectives. Let us now
examine each of these perspectives.
8.5.1 Unitary Perspective
The unitary perspective views the organisation as an integrated and a
harmonious system. This perspective assumes that organisations have a
single source of authority and that all members of the organisation have the
same objectives, interests, and goals. Management is viewed as having the
sole rights to manage the organisation. This perspective expects total loyalty
from the employees. Any opposition to management is not tolerated.
Employees try to increase production in order to share rewards. Trade
unions are viewed unfavourably and conflicts are viewed as disruptions.
Conflicts are believed to be caused by employees and not by management.
Managers use their power and either dismiss, discipline or transfer
troublemakers to resolve conflicts. Trade unions are considered to direct the
loyalty of the employees away from the management.
Unitary perspective from the viewpoint of the employee implies the
following:
Employees need to improve processes. Employees need to have

multiple skills and be efficient.
The role of the unions is to improve the means of communication

between the staff and the management.
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Employees seek good relations and good terms of employment.
Employees participate in workplace decisions. Teamwork, innovation,

problem solving, and quality improvement are emphasised.
Managers need to support their skills and expertise.
Unitary perspective from the viewpoint of the employer implies the following:
Employers need to have staffing policies that motivate employees.
Organisation objectives have to be communicated clearly to all

employees.
Rewards systems have to enhance employee loyalty and commitment.
Line managers have to be responsible for their teams.
The personal goals of all employees have to be aligned with the

organisational goals.
Conflicts arise due to improper interpretations of the company policies.
Exhibit 8.4: IG Metall Trade Union Relevance in Todays World

IG Metall Trade Union is one of the oldest and largest trade unions in
Germany. Since 1949, IG Metall has played an important role in German
labour relations and is considered by many as the pioneer in collective
bargaining in Germany.
Over the years, IG Metall has made significant contributions to the Industrial
Relations climate in Germany. But it has also been accused of improper
protection and harming the interests of workers and employees. With
globalisation and modernisation in Germany and Europe, IG Metall, with its
traditional and inflexible views on labour relations, began to face a crisis in
terms of decline in membership and bargaining power. The achievements
and accusations present a contrasting and interesting picture of a trade
union in a changing business environment.
8.5.2 Pluralistic Perspective
The pluralistic perspective views the organisation as a collection of different
powerful sub-groups, each having its own loyalties, goals, and objectives.
The main sub-groups are the management and the trade unions.
Organisations have to manage competing claims from these sub-groups.
This perspective views workplace conflicts as normal and inevitable. Trade
unions are considered to represent the employees. They recognise the role
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of the management in the organisation. Conflicts are resolved by collective

bargaining. Conflicts, if managed properly, are considered to be helpful in
bringing about changes.
Pluralistic perspective implies the following:
The services of Industrial Relations specialists help managers in matters
related to staffing and union negotiations.
The expertise of independent external arbitrators is used to resolve
disputes.
The representatives of trade unions need to be encouraged to carry out
their duties.
The management and the trade unions need to negotiate
comprehensive agreements.
8.5.3 Marxist or Radical Perspective
This perspective is based on the works of Karl Marx. This perspective
focuses on the fundamental differences between capital and labour. Marx
considered a socialistic system to be better than a capitalistic system. He
presented the following arguments in his theories:
Industrial conflict is inherent in a capitalistic economic system.
Capitalism encourages monopolies.
Conflicts arise due to divisions in society between those who own and
manage production and those who only sell labour.
The working class do not have sufficient access to educational, political
and other economic institutions.
Capitalists constantly try to keep wages to the minimum and workers
constantly try to increase their wages.
Trade unions are an inevitable response to a capitalistic system.
Trade unions protect employee interests and act as a means of
communication.
The main aim of the management is to increase profit.
Collective bargaining only helps to draft in trade unions into a capitalistic
system.
Exhibit 8.5: The Changing Roles in Industrial Relations (IR)
The trends in the present markets indicate a changing role in IR. A decline
in employment in the manufacturing sector, low union activity in sunrise
sectors and decentralised collective bargaining have changed the interplay
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between the main players in IR. Direct communication with workers is

increasingly being preferred as the means of conflict resolution. Involvement
of workers in management decisions can be seen as an effort at political
restructuring of Industrial Relations.
10.
The _____________ perspective views the organisation as an

integrated and a harmonious system.
11.
The __________ perspective views the organisation as a collection of

different powerful sub-groups each having its own loyalties, goals and
objectives.
12.
The __________ perspective focuses on the fundamental differences

between capital and labour.
Activity 2:
Visit an organisation and find the perspective it has regarding Industrial
Relations. Enumerate the advantages and disadvantages of this
perspective.
8.6 Summary
Industrial Relations refers to the processes and systems by which
employment is managed that include trade unions, employer associations,
labour legislations, collective negotiations and agreements. The main
objective of an Industrial Relations system is to maintain harmonious
relations between the employers and the employees. The other objectives
include increasing production, resolving conflicts, and increasing worker
participation.
The major components of an Industrial Relations system are the actors in
the labour relationship (employers, employees, government, trade unions,
employer associations, courts and tribunals), the processes (collective
bargaining, workers participation) involved and the legislations governing it.
These components interact in different ways and are influenced by many
societal variables.
Good Industrial Relations are important not only for the employers and
employees but also for the entire society. Unhealthy Industrial Relations are
harmful to the industry and the nation and result in wastage of resources,
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reduction of productive working days and reduction of the national output.

Good Industrial Relations are necessary to ensure uninterrupted production,
reduce industrial disputes, enhance employee morale and reduce wastages.
The three main perspectives of Industrial Relations are unitary, pluralistic
and Marxist. The unitary perspective views the organisation as an integrated
and a harmonious system. This perspective assumes that organisations
have a single source of authority and that all members of the organisation
have the same objectives, interests and goals. The pluralistic perspective
views the organisation as a collection of different powerful sub-groups each
having its own loyalties, goals and objectives. The Marxist perspective
focuses on the fundamental differences between capital and labour and
considers a socialistic system to be better than a capitalistic system.
8.7 Glossary
Term
Description
Adjudication
The act of making a judgement.
Capitalistic system
An economic system in which the resources of production

and distribution are privately or corporately owned and
progress depends on the reinvestment of profits obtained
in a free market.
Macroeconomics
The study of the forces like income and output, that

influences the functioning of a national economy, and the
inter-relationship among different economic spheres.
Monopolies
A condition in which a single company owns all or most of

the market for a given type of product or service as the
company operates without competition.
Societal variables
Social standards or variables which are believed to be

important and desirable.
Socialistic system
A system based on the concept of equality for everyone.

Every individual has to surrender their class rights in a
socialist system. The socialist system caters to the needs
of the poor as it provides the same facilities to everyone
regardless of income.
Tribunals
A person or institution with the power to judge, arbitrate or

settle claims or disputes.
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1.
2.
3.
4.
What are the objectives of Industrial Relations?

Explain the composition of Industrial Relations.
Why is it important to have good Industrial Relations?
Explain any two perspectives of Industrial Relations.
8.9 Answers
1. Industrial Relations
2. Industrial revolution
3. Human Resource Management
4. Harmonious relations
5. Trade unions
6. Collective bargaining
7. National level
8. Workers participation
9. Economic disputes
10. Unitary
11. Pluralistic
12. Marxist
8.10 Case Study

Irish Ferries Trade Dispute of 2005
A collective bargaining agreement was made between Irish Ferries (IF)
and Services Industrial, Professional and Technical Workers Union
(SIPTU) in 2004. But, on September 19, 2005, IF decided to layoff 534
crew workers (who were paid a minimum of 7.65 Euro per hour) and
replace them with Latvian workers, who were willing to work for 3.57 Euro
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per hour. The crew workers were represented by the Seamen's Union of
Ireland (SUI). The few officers in the crew were represented by SIPTU.
The crew workers could choose to remain with the company with a
considerable reduction in pay and longer shifts, fewer holidays, and new
working structures or they could accept within a two-week time frame a
redundancy package.
A majority of the crew workers who were members of SIU decided to
accept the company's offered buyouts. But the officers who were
members of SIPTU objected strongly to it. Hence feelings of animosity
arose between the two unions. In early November 2005, the SIPTU led a
protest march by 15 of the largest trade unions in Ireland and brought the
Dublin city traffic to a standstill.
When IF decided to de-register one of its larger vessels from Irish listing
and to re-flag under Cypriot law, the Irish Prime Minister refused to grant
permission for this. The government then aligned itself with SIPTU.
The SUI members who had not accepted the buyout filed a claim with the
Labour Court claiming that any pay reduction would be an unfair
unilateral change by the company. The SIPTU also filed a claim with the
Labour Court contending that the company's terminations, replacements
and outsourcing violated the 2004 agreement. The Labour Court ruled in
favour of SUI, and stated that the wage decreases were unfair. The Court
recommended that IF red-circle the workers who wanted to remain with
the company. Red-circling implies retaining the Irish workers at their
existing rates of pay, regardless of any contractual arrangements the
company had made with the Latvian workers.
Then CEO Rothwell announced that the buyout package offers would be
withdrawn and that there would be compulsory terminations with only
statutory redundancy payments or continued work by Irish crewmen with
Latvian new hires for the same pay, longer hours and fewer holidays.
On November 23 and 24, 2005, the SIPTU workers boarded IF
passenger vessels in order to prevent entry of the newly hired Latvian
workers. The management responded by seizing and locking the SIPTU
workers in the room. SIPTU responded to this by picketing and
preventing the docking at Roeselare in south-eastern Ireland of the MV
Normandy, an IF passenger ship with more than 100 passengers sailing
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from Cherbourg in northern France. The union finally allowed the ship to
dock several hours later. The union also organised countrywide protest
marches on December 9, 2005. IF services were suspended for several
days. All these caused damages to IFs customers, Ireland's system of
Industrial Relations, the Irish economy, and relations between native and
immigrant workers.
Communications between IF and the unions deteriorated beyond
resurrection. Then the Labour Relations Commission offered its
conciliation services and the parties reached a settlement on December
13, 2005. The company agreed to pay the newly hired Latvians a
minimum wage of 7.65 Euros per hour and to "red-circle" the SUI workers
who had opted to remain and continue to pay them their existing wages.
The two unions signed a three-year agreement that included a no-strike
commitment. The estimated loss to IF due to this industrial strife was
32.9 million Euros in termination payments and 1.5 million Euros in legal
fees. The company's operating profit of 23.3 million Euros had become a
net loss of 15.6 million Euros.
Questions
1. What caused the Irish Ferries Trade Dispute of 2005?
2. How was the Irish Ferries Trade Dispute of 2005 resolved? What were
the losses suffered by Irish Ferries due to the dispute?
References:
Singh, Balwant; (1996); Labour Policy and Administration.
Jackson, Michael. P; (1977); Industrial Relations.
Monappa, Arun; (1985); Industrial Relations.
Sheldon, Peter Michael; (1999); Employer Relations and Industrial
Relations Change: Catalysts or Captives.
Sinha, P. R. N.; Sinha, Indu Bala; and Shekar, Seema Priyadarshini;
(2006); Industrial Relations, Trade Unions and Labour Legislation.
http://www.scribd.com/doc/18961201/Industrial-Relations
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Unit 9
Trade Unions
Structure:
9.1 Introduction
Objectives
9.2 Trade Unions
Objectives of Trade Unions
Activities of Trade Unions
9.3 Reasons for Joining Trade Unions
9.4 Functions of Trade Unions
9.5 Types of Trade Unions
9.6 Advantages and Disadvantages of Trade Unions
9.7 Trade Unions in India
9.8 Summary
9.9 Glossary
9.11 Answers
9.12 Case Study
9.1 Introduction
In the previous unit we learnt about the concept and importance of Industrial
Relations. In this unit, we will learn the concept, functions and importance of
trade unions. A trade union is an organisation that consists of workers and
union leaders created to improve working conditions and other work-related
issues of its members and to regulate employee-employer relations. On
behalf of union members, trade unions discuss with employers issues
related to salary, sick leave or medical benefits.
Before the advent of trade unions, the living and working conditions of the
working class were not only poor and deplorable, but operational hours were
long. In addition, the workers were paid very low wages and the economic
conditions in industries were poor. Capitalists in those times were only
concerned with productivity and profitability. They did not concern
themselves with the matters of the working class. Once trade unions started
establishing, the living and working conditions of labourers were elevated
considerably. Trade unions helped control the working hours and working
conditions of labourers, apart from bettering the other workforce-related
issues.
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In this unit, we will learn about the meaning of trade unions, reasons
employees join trade unions, types of trade unions and the evolution of
trade unions in India. Trade unions in India developed rather slowly
compared to the Western nations. Now, there are many trade unions in
India which monitor the aspirations of the operational classes. The oldest
trade union is the All India Trade Union Congress (AITUC).
Objectives:
define trade unions
explain the reasons for employees joining trade unions
explain the functions of trade unions
compare the different types of trade unions
list the advantages and disadvantages of trade unions
identify some of the prevalent trade unions of India.
9.2 Trade Unions

Let us first understand what a trade union is. A trade union or labour union
is an administration of workforce grouped together to attain common goals
such as enhanced operational circumstances. The Trade Union Act of India
19261 defines a trade union as an organisation, whether temporary or
permanent, formed primarily for the purpose of regulating the relations
between workmen and employers or between workmen and workmen, or
between employers and employers, or for imposing restrictive condition on
the conduct of any trade or business, and includes any federation of two or
more trade unions..
Trade unions are created with the key goal of protecting the rights of the
labour force. The Indian labour market consists of three sectors:
The rural workers, which comprise 60 percent of the labour force.
Organised sector, which employs 8 percent of the labour force.
The urban informal sector (includes the IT industry and other services)
which comprises the remaining 32 percent of the workforce.
Trade unions bargain with employers on behalf of union members and
negotiate labour contracts with employers. This includes negotiation of
1
http://industrialrelations.naukrihub.com/
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wages, work rules, complaint procedures, rules governing hiring, firing and
promotion of workers, benefits, workplace safety and policies. Negotiation is
a passive technique adopted by trade unions. The terms negotiated by the
union leaders are binding on the rank and file of the union and the employer
and in some cases on other non-member workers.
Seldom, when trade unions do not attain their goals through passive
methods, they take drastic steps. Trade unions resort to forceful or
aggressive means like strikes and resistance to lock-outs to achieve their
goals. Many disagreements in multinational and domestic companies are a
direct result of these aggressive actions of trade unions. The Indian
economy, which depends a lot on the service sector, is affected by such
disruptions organised by trade unions.
For example, in India, pilots of Jet Airways went on a nationwide strike for
five days. This disrupted the air travel schedules of millions of domestic and
international passengers. The strike also resulted in huge monetary loss and
bad reputation for the airline and its employees.
The Indian labour law stance is towards protecting the interests of the
comparatively powerless employee community with quite a few favourable
amendments over the years. Trade unions, in turn, take active interest in the
economy of the country. For example, labour unions welcomed the planned
union of HMT Limited (HMTL) with Heavy Engineering Corporation (HEC),
stating that the mutual entity could potentially become one of the high
performing' public sector undertaking (PSU) of India.
Exhibit 9.1: Does Indian IT industry Need a Union?
Does India's booming information technology and information technologyenabled services (IT/ITES) industry, which employs almost one million
professionals, require a trade union to fight for its rights?
The Leftist trade unions insist that it is high time the massive industry, which
contributes more than 4.5 percent to the country's national economic output,
had a trade union to protect their jobs.
The Indian ITES-BPO (business process outsourcing) industry aggregated
revenues to the tune of $5.2 billion in 2004-05.
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The proposal to forge a union for IT workers has now come from the Centre
for Indian Trade Unions (CITU) -- the trade union wing of the Communist
Party of India (Marxist) -- the largest Left party in the country.
So why do white-collar IT professionals need a trade union?
According to CITU president M K Pandhe, "A union for IT workers is the
urgent need of the hour. I would call the IT professionals 'the labourers of
the information age.' They toil long hours; they work at night; and some of
them still get meagre salaries. So a labour union for them would help fight
for their rights." According to Pandhe, the main reason why CITU has
mooted the idea is because the IT industry is not governed by any labour
laws. "The IT industry continues to chart remarkable double-digit growth. But
isn't it ridiculous that the IT workers are working hard without the backup of
any labour laws? Workers in the IT and ITES industry work for 10 to 14
hours daily. There are no fixed timings for them. The moment the IT
professionals get together to discuss their problems at work, the
management victimises them and they are shown the door," Pandhe
pointed out. The task is not going to be easy because young IT
professionals always have a negative image of trade unions in India.
The move to form a union for IT workers is not new. In fact, as early as in
2000, Left leaders attempted to organise a union for Indian software
programmers in Bangalore, the hot-spot of the country's IT industry. But the
move to form a forum did not succeed then as programmers baulked at the
prospect of joining any union.
How has the IT industry leaders reacted to the Lefts move to create a union
for IT workers?
According to Kiran Karnik, President, National Association of Software and
Services Companies (NASSCOM), Employees in IT and ITES sector do not
need any external intervention as they are looked after very well. It is not a
good move and I don't think it would succeed. The employees who think of
themselves as the CEOs of the future may not support it." His view is
supported by Prosenjit Ganguly, Head (HR), HTMT, a BPO firm, who says,
The move to unionise workers is a retrograde step and would spell disaster
for the industry. After having reached this level, any attempt to unionise the
workers would set us back."
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But Raman Roy, ex-CEO, Wipro BPO says, "I have no problems with a
union in the BPO industry, as long as it guarantees that no employee will
leave the organisation before one year. The union should work with the BPO
industry to control the menace of attrition."
Now that we are familiar with the meaning of trade unions, let us take a look
at the objectives of trade unions.
9.2.1 Objectives of Trade Unions
The primary objective of any trade union is to protect and promote the
interest of its members. Trade unions are permanent workforce bodies
within an organisation so that workers have constant access to their
representative. Unions achieve their objectives through collective action and
group effort. The objectives of trade unions are the following:
To improve the economic conditions of employees by securing better
wages for them.
To provide better working environment for the employees.
To secure employee bonuses from the profit of the organisation.
To resist schemes of the management which reduce employment, such
as rationalisation and automation.
To secure social welfare of employees through group schemes which
benefit every employee.
To protect the interests of employees by actively participating in the
organisational management.
To provide organisational stability, growth, and leadership.
9.2.2 Activities of trade unions
In this section, we will discuss the activities of the trade unions. Trade
unions involve in various activities to accomplish their mission of
safeguarding employee rights and interest. They engage in activities like
negotiating or representing aggrieved workers or compromising on issues
related to all union members. The following are the activities that unions
generally engage in:
Representation
Trade unions represent labourers when they have crises at work. If
employees feel they are being unduly treated, they can ask their union
representative to help in solving their issues with the manager or
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employer. Unions also offer their members legal representation. This is

normally to help people get monetary reimbursement for work-related
injuries or to assist people who have to take their employer to court.
Negotiation
Unions discuss with employers issues which influence people working in
an organisation. There may be differences of opinion and interest
between organisation and union members. Trade unions bargain with
the management of the organisation and try to find a solution to these
differences. Pay, working hours, holidays and changes to working
practices are the issues that are commonly negotiated. In many
organisations, there are correct agreements between the union and the
organisation, which states that the union has the right to negotiate with
the employer on behalf of the employees.
Member benefits
Trade unions provide a variety of benefits to its members. They insure
members against unemployment, ill health, and funeral expenses.
Providing qualified training, educating the workforce and giving legal
advices are some important activities of trade unions.
Collective bargaining
This is a process employed in grievance handling and is recognised by
employers. In collective bargaining, union representatives hold
discussions with the employers and reach an agreement on employee
rights and duties. Unions are popular at collective bargaining.
Industrial action
Trade unions enforce strikes, resistance or lockouts to attain specific
goals.
Political activity
Trade unions endorse legislation favourable to the interests of their
members or workers. They follow campaigns, undertake lobbying, or
monetarily support individual candidates or parties contending for public
offices. For example, Indian National Trade Union Congress (INTUC)
undertakes lobbying for the Congress party of India.
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1. _______ may endorse legislation favourable to the interests of their
members or workers
2. In ________ actions trade unions enforce strikes,, resistance or lockouts to attain specific goals.
3. Trade unions represent labourers when they have _______ at work.
4. One of the objectives of a trade union is to protect the interests of
employers by taking active participation in the management. (True or
False)
5. The expansion of INTUC is _________.
Activity 1:
You are a trade union leader with twenty years of experience in an
industrial organisation. One of the labourers in the organisation met with
an accident while on duty. Write down the different means by which you
will ensure that the labourer is well compensated for the work-related
injury.
9.3 Reasons for Joining Trade Unions

In this section we will learn why workers join trade unions. Trade union is an
organisation formed by and for employees and there are a number of factors
that make workers join unions. Some of the reasons are as follows:
Greater bargaining power
Employees have very little bargaining authority with the employer. If
employees are not satisfied with their salary or other issues related to their
employment, the option they have is to quit their jobs. It is not realistic to
frequently change jobs when employees are dissatisfied. It imposes great
monetary and emotional problems on workers. It is better to join a union that
can take precise action against the employer. The threat or reality of a strike
by a union is an influential tool that often causes the employer to accept the
demands of the workers for better conditions of employment.
Minimal discrimination
Decisions regarding pay, work, transfer, and promotion are highly subjective
in nature. There are chances of prejudice and discriminations as managers
can be partial or discriminate against few employees. Trade unions compel
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managements to set up workforce policies that propose equal treatment and

fair chances for all workers. All labour-related decisions made by the
management are closely inspected by the labour union. This helps
minimising partiality and discrimination within the organisation.
Sense of security
Trade unions secure retirement reimbursement of workers and compel the
management to invest in welfare services for the benefit of workers.
Employees join unions as they believe trade unions ensure compensation
for various types of occupational and personal hazards such as accidents,
injury, illness and unemployment.
Sense of participation
Employees can take part in discussing issues affecting their security only if
they join trade unions. Trade unions influence employee-related decisions of
the management through collective bargaining and negotiation.
Sense of belonging
Many workers join unions because their friends or co-workers are members.
At times, they join unions under group pressure, that is, if workers do not
join union, they may face difficulties at work. On the other hand, workers
who join unions feel that they gain more respect from their co-workers.
Platform for self-expression
Workers can voice their problems with union leaders. Trade unions provide
a medium for workers to express, discuss and broadcast their work-related
issues. These issues are then given due consideration when the
management decides on workforce policies.
Betterment of relationships
Employees feel that unions fulfil their needs for a proper balance of
employer-employee relations. Unions help in enhancing Industrial Relations
between management and workers by solving the issues peacefully.
6. Employees feel that ________fulfil their needs for a proper balance of
employer-employee relations
7. Employees have very little ________ authority compared to that of the
employer.
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9.4 Functions of Trade Unions

In the earlier sections, we learnt about the objectives of trade and the
activities unions involve in to achieve these objectives. Unions are a major
factor in maintaining effective communication between the workers and the
management. It means that unions are able to communicate worker needs
to employers through collective bargaining and negotiations. They also
provide advice and support to both the parties to ensure that differences of
view do not turn into major conflicts. Hence, you can see that trade unions
also play an important role in promoting and maintaining good Industrial
Relations. Based on the activities undertaken by trade unions, their
functions are classified into the following two classes:
Militant functions
Fraternal functions.
Militant functions
Trade unions work toward improving work conditions of the members,
ensuring sufficient wages and better treatment from employers. Under
extreme circumstances, when unions fail to attain these aims by means of
collective bargaining and discussions, they change their approach and put
up a fight with the management in the form of go-slow tactics, strike,
boycott, and so on. These functions of trade unions are known as militant or
fighting functions. The radical functions of trade unions are performed to
attain the following:
Higher wages and better working conditions
Rise in the status of workers as a part of industry
Protect labourers against victimisation and injustice.
Fraternal functions
Fraternal functions of trade unions aim at representing its members in times
of need, and improving worker efficiency. Trade unions try to promote a
spirit of teamwork, encourage friendly industrial relations and spread
education and culture among its members. They organise legal support to
their members, carry out welfare measures for their members like schools
for children, library, reading rooms, games, and other recreational
amenities. Some trade unions even publish magazines or weekly journals.
These activities that the trade unions involve in are known as fraternal
functions. Their activities depend on the availability of finances, which they
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raise through contributions from members and aids from outsiders. The
fraternal functions of trade unions are performed to achieve the following:
Encourage welfare measures to improve self-esteem of workers
Generate self confidence among workers
Encourage sincerity and discipline among workers
Provide opportunities for promotion and growth
Protect women workers against discrimination.
Some of the basic services availed by members of trade unions are the
following:
Education and training: Most unions provide training courses for their
members on employment rights, health and safety and other issues.
Some unions also help members by offering courses on basic skills and
courses leading to professional qualifications.
Legal assistance: Unions recommend legal advice on employment
issues, some unions help with personal matters, like housing, wills and
debt.
Financial discounts: Employees can get discounts on mortgages,
indemnity and loans from unions.
Welfare benefits: Some of the older unions offer monetary help to their
members when they are sick or out of work.
8. ________ensures
employers.
sufficient
wages
and
better
treatment
from
9. ____encourages welfare measures to improve the self-esteem of

workers.
10. In _______and ______ most unions start training courses for their
members on employment rights, health and safety and other issues.
11. ___________ protect labourers against victimisation and injustice.
Activity 2:
Visit the websites of different trade unions and analyse the functions of
these trade unions and the employee benefits offered by each union.
Tabulate the differences in the functions and benefits.
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9.5 Types of Trade Unions

In the previous section, we studied about the two different kinds of union
functions based on the nature of their activities. Let us now take a look at
the differentiation of trade unions based on the type of people they
represent.
There are four types of trade unions as given below:
Craft or skills union: These unions represent skilled workers like

Musicians Union (MU).
Industrial unions: These unions represent members of one particular

industry such as Fire Brigades Union (FBU).
General unions: These unions represent workers from all types of

industries and with any level or range of skills. For example, Amicus
the Manufacturing Science and Finance Union (MSF).
White-collar unions: These unions represent office workers, such as

National Union of Teachers (NUT).
Craft or skills union

Craft union is an arrangement of labour unions that bring together workers
with knowledge of the same part of a craft or a skill. Some examples are
typographical unions, unions for carpenters, stoneworkers, iron moulders,
boilermakers, railway engineers and so on.
These craft unions have substantial power in the workplace and generally
resist others controlling their work processes and standards of training as
their members have essential knowledge and physical and theoretical skills.
Industrial unions
Industrial unionism is a labour union organising method through which all
workers in the same industry are grouped into the same union, regardless of
skill or trade. This gives workers in all industries more leverage in bargaining
or when workers go on strikes. Advocates2 of industrial unionism value its
contributions in promoting unity. They describe the solidarity of these unions
with slogans like, an injury to one is an injury to all and the longer the
picket line, the shorter the strike.
2
www.en.wikipedia.org/wiki/Industrial_unionism
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An example for an industrial union is a union for oil workers. Members of

such an industrial union would include people who are involved in
exploration, extraction, refining, transport and all the other areas associated
with the oil and gas industry.
General unions
A general union is a type of trade union that represents workers from all
industries. Unlike craft unions or industrial unions where just a particular
sector forms a union, general union, as its name suggests, is for any worker
irrespective of organisation or sector.
General unions declare that their broader variety of members allows more
opportunities for harmonious action and better management in general
strikes. Detractors claim that the broader dispatch means they tend to be
more technical and respond less effectively to events in a single industry.
An example of a general union in Australia is the Australian Workers Union.
White-collar unions
White-collar worker refers to a salaried person, who either works as an
educated worker and performs semi-professional office, administrative or
sales coordination tasks, or works in any service industry like a teacher, a
software engineer or a customer care executive. White-collar workers, as
opposed to blue-collar workers, perform no manual labour. White-collar
union is a type of union that represents white-collar workers.
12. A ________is a type of trade union that represents workers from all
industries.
13. ________refers to a salaried person, who either works as an educated
worker who performs semi-professional office.
9.6 Advantages and Disadvantages of Trade Unions

In this section, you will get familiar with the advantages and disadvantages
of trade unions. First, we will discuss the advantages of trade unions. They
are as follows:
Increased wages: Organisations that have trade unions tend to offer
higher wages compared to non-unionised industries.
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Counterbalance monopsony: In the case of monopsonistic employers,

trades unions can bargain to raise wages and increase employment.
Monopsonistic employers are those who have market authority in fixing
salary and employing staff. An example of monopsony is an organisation
that is the only buyer of labour in an isolated town. Such an organisation
would be able to pay lower wages than it would if other firms were
present.
Represent workers: Trades unions defend employees from exploitation

by their employers. They also help to support fitness and safety
legislation. Trades unions also represent workers facing legal action.
Productivity deals: Trades unions discuss with employers about wages

for efficiency deals. This means they help the organisation enhance
employee productivity by which it enables the organisation to pay higher
wages to its employees. Trades unions play a significant role in setting
up new operational practices that improve productivity.
Earlier in the unit we learnt that trade unions, through their militant functions,
organise and conduct strikes and boycotts. This is considered a general
problem for the society as it disrupts routine life of the whole community. We
will now discuss the disadvantages of trade unions. They are as follows:
Unemployment: It is an irony to consider that trade unions cause

unemployment. In their quest to achieve their goals, unions bargain and
fight for higher wages, better working conditions and so on. Such
demands are either not accepted by the management of organisations
or does not help sustain the organisations. Organisations that do not
accept union demands could then opt for cheaper labour from
elsewhere. Organisations that accept these demands could end up
being bankrupt. Either way employees end up losing their jobs.
Ignore non-members: More often than not, unions tend to consider

only the needs of its members. They often overlook the issues of those
who are members of other unions or people who are associated with
any unions. This is one of the reasons workers are forced to join unions.
Lost productivity: In the rare circumstances where unions go on strikes

or organise a work-slowdown the production of the organisation is
affected. It can in turn result in low or no sales.
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Wage inflation: If unions become too influential, they can negotiate for
higher salary. This can cause price rise of essential goods and services.
For example, union workers of the oil industry of India wanted a rise in
their wages. So they decided to boycott work and stop functioning in
every aspect of oil and gas refining and production. Once their demand
was accepted by their employers, the price of fuel increased. This in turn
led to an increase in the price of essential commodities.
Exhibit 9.2: The Dispute at Maruti Udyog Manesar Plant-- the Problem,
the Impact
Workers at three factories of two different companies of Suzuki went on an
indefinite strike in Sept 2012 at Maruti Suzuki India's (MSI) Manesar plant.
Workers of Suzuki Powertrain India Ltd and Suzuki Motorcycle India Pvt Ltd,
located in the Gurgaon-Manesar industrial belt, declared a strike. Workers
from Suzuki Castings a part of Suzuki Powertrain India Ltd affiliated to
the Suzuki Powertrain India Employees' Union also joined the strike.
Suzuki Powertrain employs over 3,000 workers at its Manesar plant, where
it manufactures diesel engines and transmissions for supply to MSI. Suzuki
Castings has nearly 1,000 workers. Suzuki Motorcycles India has 2,000
workers at its plant near Manesar.
Trouble began when the Maruti management wanted the workers to sign a
good conduct bond', which was not acceptable for the workers and the
unions. Suzuki Motorcycle India Workers' Union sought the regularisation of
casual workers who have worked for more than four years and increments.
Though the strike, which began as a 13-day protest followed by 33-day
lockout, was called off in a month, experts say that production has been
affected at the plant, leading to a production loss of at least 50,000 units and
a revenue loss of at least Rs 1,750 crore.
Whether connected to this event or not, Maruti, which at present has six
plants in Gurgaon and Manesar, is set to move out of north India for the first
time since it started operations in 1983. Talks are on with the Gujarat
government in this regard.
In the next section we will learn the history and growth of trade unions in
India.
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9.7 Trade Unions in India

Industrial Revolution brought about profound changes in the social structure
in the 18th and 19th century. While capitalists reaped the fruits of machinebased fast-paced industrial production, the working class bore its brunt. The
social and economic conditions of the working class, which were already
harsh, became worse. The dirty living conditions, the long and strenuous
work hours, and insufficient wages immensely affected the psychology of
the working class. Even though the growth of trade unions in India was slow,
the working class found relief in the form of child labour abolishment and
regulated working hours for all. The trade union movement in India can be
divided roughly into three phases, namely:
Beginning of unions, when they first established in India
Development of organised trade unions
Rise of trade unions post-independence.
Now, let us look at the growth and evolution of the Indian trade union
movement in detail. In 1881, the Indian Factory Act was enacted to regulate
the working hours and other issues of the Indian textile labourers. Even
though, there were no proper unions to guide them, workers organised
strikes in the following two decades in all industrial cities. They started
realising the importance of combined action and that coordinated and united
efforts resulted in bettering their circumstances. Bombay Mill-Hands
Association which is a small association was established during this period.
In the 1900s, Indian industry saw the growth of organised trade unions.
Madras Labour Union was the first organised union in India. This was
followed by the creation of a large number of unions in all the industrial hubs
during 1918 and 1923. Occupational unions were formed under the
guidance of Mahatma Gandhi in Ahmedabad. These were later united to
form an industrial union known as the Textile Labour Association in 1920.
The All India Trade Union Congress (AITUC) was also formed in 1920.
Many of the leaders in AITUC were leaders of the Indian freedom fighting
movement. The working class also started getting involved in political
activities, mainly in connection with the countrys ongoing struggle for
independence.
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The Trade Union Act was formed in 1926. The Act legalised registered trade
unions in India which until then was considered illegal bodies. It also
protected unions from civil and criminal cases.
By the time India gained independence, there were four central trade union
organisations. They were the following:
All India Trade Union Congress
Indian National Trade Union Congress
Hind Mazdoor Sangh
United Trade Union Congress
Post-independent India saw the growth of unions. Many trade unions that
have come into existence after 1947 have political affiliation. For example,
AITUC is the trade union arm of the Communist Party of India, while INTUC
is affiliated to the Congress Party. At present there are twelve central trade
union organisations recognised by the ministry of labour:
All India Trade Union Congress (AITUC)
Bharatiya Mazdoor Sangh (BMS)
Centre of Indian Trade Unions (CITU)
Hind Mazdoor Kisan Panchayat (HMKP)
Hind Mazdoor Sabha (HMS)
Indian Federation of Free Trade Unions (IFFTU)
Indian National Trade Union Congress (INTUC)
National Front of Indian Trade Unions (NFITU)
National Labour Organisation (NLO)
Trade Unions Co-ordination Centre (TUCC)
United Trade Union Congress (UTUC) and
United Trade Union Congress - Lenin Sarani (UTUC - LS)
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The growth of trade unions and memberships in India between 1991 and
2002 is tabulated in Table 9.1.
Table 9.1: Membership in Indian Trade Unions
At present, the Indian workforce consists of 430 million workers, growing 2%

annually.
14. The Trade Union Act was formed in _______.
15. The __________was enacted to regulate the working hours and other
issues of the Indian textile labourers.
16. One of the disadvantages of trade unions is that they ignore
_________.
Activity 3:
Visit a few organisations and conduct a survey on the trade union
affiliation of their employees and the factors that affect their choice.
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9.8 Summary
Trade Union Act of India defines trade unions as an organisation formed
primarily to regulate the relations between workers and employers. Before
trade unions came into existence, the labour force worked in harsh
conditions with low wages. Unions lent a voice to the plight of workers. The
main aim of trade unions is to represent its members at work and protect
their rights and interests.
Unions achieve their goals through activities like representation, where
unions represent workers at their workplace, and negotiations over issues
like pay, working hours, work practices. Union representatives hold
discussions with employers and reach an agreement on worker issues
through the process called collective bargaining. Under extreme
circumstances, unions conduct strikes to attain their goals.
Trade unions activities are classified into two categories. Through their
militant functions, trade unions achieve their goals of protecting workers
interest by means of force. Through their fraternal functions trade unions
use peaceful and cooperative methods to attain goals of helping members in
times of need and to promote healthy industrial relations.
Workers join unions for reasons like unions having better bargaining power
than an individual worker. Unions regulate discrimination at the work place,
and provide a medium for workers to voice their grievances. Unions provide
members with basic facilities like training, education, legal advice and other
welfare and monetary benefits.
Trade unions are divided into four types, namely, craft or skills union,
industrial unions, general unions and white-collar unions.
The trade union movement slowly began in India around 1880s when the
Indian Factory Act was formed to regulate working hours of textile workers.
Between 1918 and 1923, many organised trade unions were formed. All
India Trade Union Congress was formed in 1920 and it was led by leaders
of the national freedom-fighting movement. The Trade Union Act of India
was passed in 1926, which legalised trade unions. After gaining
independence, many more trade unions were formed. There are 12 central
trade union organisations that are recognised by the labour ministry of India.
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9.9 Glossary
Term
Description
Collective
bargaining
A method of negotiation between the workers representatives

and the management of an organisation. The representatives
are usually trade union leaders.
Employment
A person in the service of another under any contract of hire,

express or implied, oral or written where the employer has the
power or right to control and direct the employee in the
material details of how the work is to be performed.
Industrial
Relations
It is a multi-disciplinary field that studies the employment

relationship. Industrial Relations is increasingly being called
employment relations because of the importance of nonindustrial employment relationships.
Industrial
Revolution
A rapid change in the economy starting in the 18th century.

This was due to the introduction of machinery in industrial
production.
Leadership
The process of social influence in which one person can enlist

the aid and support of others in the accomplishment of a
common task. It includes using their expertise as a starting
point to encourage dialogue between all levels of decision
making.
Negotiation
It is a conversation intended to resolve disputes, to produce a

contract upon courses of action, to bargain for individual or
group advantage.
Rank and file
The ordinary members of an organisation. They represent the

majority of the organisations workforce.
Strike
Work stoppage caused by the mass refusal of employees to

perform work. A strike usually takes place in response to
employee grievances. Strikes are sometimes used to put
pressure on governments to change policies.

1.
2.
3.
4.
5.
Explain the two types of trade union functions.

Name the 12 trade unions recognised by the labour ministry of India.
What are the reasons for joining trade unions?
List the advantages and disadvantages of trade unions.
What are the different types of trade unions?
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9.11 Answers
1. Trade unions
2. Industrial
3. Crises
4. True
5. Indian National Trade Union Congress
6. Unions
7. Bargaining
8. Trade unions
9. Fraternal functions
10. Education and training
11. Militant functions
12. General union
13. White-collar workers
14. 1926
15. Indian Factory Act
16. Non-members
9.12 Case Study

Futsu Motor Cycle Ltd (FMCL) is a motorcycle manufacturing
organisation. FMCL faced a few human resource problems. There was a
rise in the number of clashes between the employees and the
management, which were often guided by external factors such as trade
unions and political parties. The Noida plant of FMCL had peaceful
labour relations for the first few years after it was set up in March 2003. In
March 2005, the workers started challenging the management by stating
that the management increase their wages proportionate to the growth of
the organisation in the market. The demands made by the employees
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were rejected by the management; hence they tried to form a trade

union, which resulted in a dispute with the management.
Many other employee issues, which the FMCL management did not
heed, led to constant arguments between the management and
employees. This, in turn, led to the workers calling for a strike at the
company. Many of the workers were severely beaten up by the police
during the strike. Labour conflict and incapability of the management to
deal with it effectively resulted in huge losses for the company. This was
due to a fall in production levels at the plant coupled by the fact that the
company faced a lot of negative publicity as a result of wide coverage by
the print as well as electronic media of the issues that plagued the
organisation.
The protests by the workers, which included work slow-down after their
demand for hike in wages were rejected, that started in March 2005,
carried on for six months. Finally, FMCL management entered into labour
contracts with individual labourers, which covered the basic wages
structure and detailed parameters specifying the work conditions for
workers.
Questions:
1. What role should have the FMCL management adopted to avoid
strikes and labour conflicts in the company?
2. Discuss the steps which the workers should have taken to avoid
conflicts with the management and imposing strikes.
3. What steps should be implemented to have a healthy relationship
between employers and their employees?
References:
http://industrialrelations.naukrihub.com/objectives-of-trade-unions.html
http://en.wikipedia.org/wiki/Trade_union
tutor2u.net/business/gcse/people_trade_unions.htm
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Unit 10
Unit 10
Collective Bargaining and Negotiation
Structure:
10.1 Introduction
Objectives
10.2 Collective Bargaining
Collective Bargaining Process
Collective Bargaining Issues
10.3 Phases of Collective Bargaining and Negotiation
10.4 Collective Bargaining Advantages
10.5 Negotiation
Approaches
Conditions for Negotiation
10.6 Summary
10.7 Glossary
10.9 Answers
10.10 Case Study
10.1 Introduction
In the previous unit we learnt about trade unions and their role in
representing workers. We know that one of the activities trade unions
engage in is collective bargaining. Collective bargaining is a method of
negotiation between representatives of employees and employers to reach
an agreement on the rights and duties of workers. Usually union leaders
represent employees in this negotiation process. In this unit you will learn
about collective bargaining and the various stages involved in the process.
Bargaining is a term that is widely used to arrive at a collective agreement
that usually handles issues such as wages, working hours, training, health,
safety of the employees and the authority to participate in the affairs of the
organisation.
In this unit, we will discuss the importance of collective bargaining.
Thereafter, we will understand the process involved in negotiation.
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Unit 10
Objectives:
After studying this unit you will be able to:
explain the concept of collective bargaining.
describe the process involved in collective bargaining.
explain the different phases of collective bargaining.
describe the process of negotiation.
analyse the various negotiation approaches.
10.2 Collective Bargaining

International Labour Organisation (ILO) defines collective bargaining as
negotiations on various terms and conditions of employment between
employer and employees to arrive at an agreement. Collective bargaining
serves a dual purpose; it provides an approach to determine the wages and
conditions of work for a group of workers covered by the agreement,
through free and voluntary negotiations between the two independent
parties concerned in the organisation. It also facilitates the employers and
workers to define by agreement the rules governing their relationship.
According to Boone and Kurtz1, collective bargaining is a process of
negotiation between management and union representatives for the
purpose of arriving at mutually acceptable wages and working conditions of
employees. Collective bargaining can be beneficial to both the workers and
the employers. For workers, collective bargaining ensures that employees
are provided with adequate wages and good working conditions. It helps
employers stabilise Industrial Relations by maintaining industrial peace that
otherwise may be disrupted by labour unrest.
Collective bargaining is a discussion process between employers and
employees. It is termed collective because both the employer and the
employees behave as a group rather than individuals. It is known as
bargaining because it involves methods of arriving at an agreement that
involves various proposals and offers.
Contemporary Business, by Louis Boone and David Kurtz
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Unit 10
Exhibit 10.1: Essential Prerequisites of Successful Collective

Bargaining
The following pre-requisites are essential for collective bargaining to be
successful:
1. Existence of a strong representative trade union in the industry that
believes in constitutional means for settling disputes.
2. Existence of a strong and enlightened management which can
integrate the different parties, i.e., employees, owners, consumers and
society or government.
3. Agreement on basic objectives of the organisation between the
employer and the employees and on mutual rights and liabilities should
be there.
4. Existence of a fact-finding approach and willingness to use new
methods and tools to find the solution of industrial problems.
5. Negotiations should be based on facts and figures and both the parties
should adopt constructive approach.
6. Proper records for the problem should be maintained.
7. Collective bargaining should be best conducted at plant level. It means
if there are more than one plant of the firm, the local management
should be delegated proper authority to negotiate with the local trade
union.
8. For collective bargaining. to function properly, unfair labour practices
must be avoided by both the parties.
9. There must be a change in the attitude of employers and employees.
They should realise that differences can be resolved peacefully on a
negotiating table without the assistance of a third party.
10. No party should adopt a rigid attitude. They should enter into
negotiations with a view to reach an agreement.
11. When agreement is reached after negotiations, it must be in writing
incorporating all terms of the contract.
12. Once an agreement is reached, it must be honoured and fairly
implemented.
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10.2.1 Collective Bargaining Process

Having understood what collective bargaining is, let us now discuss the
general process involved in collective bargaining and negotiation towards
resolving employee issues. The process includes negotiations between an
employer and a group of employees to determine the conditions of the
employment. The result of the collective bargaining process is called the
Collective Bargaining Agreement (CBA). It is a type of negotiation that is
used by the employees to work with their employers. During the process,
the employees representatives approach the employer and then attempt to
negotiate a contract that both sides can agree upon. Once both the parties
have reached a contract that they find agreeable, it is signed and kept in
place for a specified period of time. This final contract is called the CBA.
Figure 10.1 illustrates the various steps of the collective bargaining process.
The process comprises of the following steps2:
Figure 10.1: Process of Collective Bargaining
1. Prepare: This phase facilitates the formation of a negotiation team. The

team is selected in such a way that the representatives of both the
parties have necessary skills that are required for negotiation. It is
essential that the representatives of both the employers and the union
examine the situation in order to prepare a basis on which the
negotiation takes place. It is also vital to analyse whether there is
actually any reason to negotiate at all. It is important to intimate
2
www.conceptspace.london.edu/textview.asp?id=GF&term=Collective+bargaining
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information regarding various operations, working conditions and other

relevant norms to the members participating in the process of bargaining
and negotiation.
2. Discuss: Both the parties are responsible for deciding the rules that
support the negotiations. It is important to create an environment of trust
and understanding. This ensures that the discussion progresses towards
reaching an agreement.
3. Propose: This phase can also be termed as brain storming. It is a
technique to solve any queries in a creative manner. It facilitates in
opening up of various and options to resolve any issues. This ensures
that the opinions of both the parties are sought.
4. Bargain: The process of negotiation becomes easy if a problem-solving
attitude is adopted. This stage comprises the time when what ifs and
supposes are set forth and the drafting of agreements take place.
5. Settlement: Once both the parties agree on all the issues discussed, an
agreement is reached.
The process of negotiating a union contract may take long a time. Once the
management and the members of the union of the negotiation team arrive
upon an agreement, the members of the union then accept or reject the
agreement by a majority vote. If the agreement is accepted, the contract is
approved and sanctioned. On the other hand, if the agreement is rejected by
the members of the union, the labour and management negotiation teams
continue bargaining and negotiating.
It is important that the both the parties of the organisation agree upon a
proposal on a voluntary basis. This avoids the need to have an impartial
third party listening to both the parties. However, in case of any dispute, the
dispute is referred to a third party called the mediator. It is the responsibility
of the mediator to get both the parties of the organisation to reach a
common settlement. It is necessary for the mediator to understand the views
of both the parties. This ensures that impartial recommendations are made
by the mediator for settling the differences. However, the mediator can
make only suggestions and advise the parties to compromise to reach a
common solution. The mediator has no authority to force either of the
parties to settle the contract to a common agreement.
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If mediation fails to bring about an understanding between both the parties,

the next step deployed is arbitration. Here, both the sides agree to get
involved in the process of arbitration. You already know that the difference
between a mediator and an arbitrator is that the mediator is an impartial
third person who facilitates the meetings between the two parties, while the
arbitrator acts as a judge and listens to both the parties of the organisation
and then makes a final decision. Once a decision is made by the arbitrator,
it is legally binding on both the disputing parties.
10.2.2 Collective bargaining issues
From the previous sections we have learnt that labour issues are negotiated
during the collective bargaining process. Some of them are illustrated in
Table 10.1.
Table 10.1: Collective Bargaining Issues
Wages
Hours
Working
Conditions
Job Security
Regular
Compensation
Regular Work
Hours
Rest Periods
Seniority
Overtime
Compensation
Overtime Work
Hours
Grievance
Procedures
Evaluation
Incentives
Vacations
Union Membership
Promotion
Insurance
Holidays
Dues Collections
Layoffs
Now let us familiarise ourselves with the scope of discussions involved in

collective bargaining. They are varied. Apart from labour force issues, other
factors that affect the functioning of an organisation are also considered.
The scope of the issues discussed includes the following:
Union and Management Cooperation and Communication: It is very

essential to have cooperation and effective communication between the
union organisation that represents the workforce and the management.
This includes various activities such as the responsibilities of the
employers in making decisions by cooperating with the union. This also
includes the extent of support given by the employer to the activities of
trade unions.
Employment and Working Conditions: This includes various factors

such as contracts of the employees, employee termination, redundancy
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principles, working time and schedules of the employees, holiday and

paid leaves of the employees.
Wages and Remuneration: This includes various activities such as

wages, minimum wage tariffs, overtime payment, extra payment for risky
working conditions and payment for working on holidays.
Occupational Safety and Health: This includes safety and health

measures for employees. This ensures that preventive and corrective
measures are taken that facilitates improved working conditions in the
organisation. This allows reduction of risks at work place.
Human Resource Development: This includes various activities such

as training and human resources development activities, creation and
utilisation of various social funds in the organisation for employees.
Management and Union Conflict Resolution: This includes various

procedures like mediation and arbitration that can be applied in situation
such as serious disagreements between the management and the
unions that represent the employees of the organisation.
Thus, collective bargaining ensures an effective means for the employees to

attain their objectives such as wages, hours and working conditions and for
the employers to maintain a peaceful work environment.
1. Expand CBA.
2. The process of negotiating a union contract may take long duration of
time. (True/ False).
3. Collective bargaining ensures healthy industrial relations. (True/ False).
4. ______________ ensures that preventive and corrective measures are
taken that facilitates improved working conditions in the organisation.
5. Issues discussed in collective bargaining include wages, hours,
______________ and ______________ of the employees.
Activity 1:
Visit a small organisation and find out how employee issues are dealt
with. Note down the issues discussed in collective bargaining and how
these issues are resolved.
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10.3 Phases of Collective Bargaining and Negotiation

Now that we are familiar with the general process involved in collective
bargaining, let us get an insight into the phases of collective bargaining.
Before starting the process of negotiation, a decision has to be made on the
representation of employees. You are familiar that typically unions represent
employees. Once worker representation is determined, the issues to be
discussed with the employer are considered. A proposal of these issues is
submitted to the employer. This proposal forms the agenda for the
negotiation. The next step towards the preparation process is to select a
negotiating team.
The management team may be led by the human resource manager if the
issues of discussion involve working conditions and employee benefits. A
financial officer becomes part of the negotiating team if issues like employee
wages and pensions are the topics of discussion.
Union negotiating teams include the union representatives and negotiation
specialists. Participating members generally have the skills in drafting
agreements along with negotiating skills. On submitting the proposal and
selection of the team, the negotiator of the team recognises various phases
of negotiation. Since, it includes eight phases for collective bargaining and
negotiation, it is termed as an Eight Approach to Collective Bargaining or
Negotiation. They are the following phases:
1. Preparing: It is important to examine various factors that are concerned
with the negotiations that are both internal and external to the
organisation.
Examining internal factors: It is very essential to examine the

performance of the organisation. It is critical for the unions to be
aware of the various profits and loss statements, notes, balance
sheets and other information concerned with the financial reports of
the organisation. It is also important that the union negotiating team
knows about the organisation budgets and strategic plans. Factors
such as profitability, liquidity, leverage and activity ratios help in
examining the performance of the organisation.
This information along with the intelligence provided by the
workforce ensures that the expansions, purchases, investments and
other details about the organisation are clearly analysed.
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Examining external factors: It is very essential to examine various

factors that are external to the organisation. The factors include
various levels of management, rate of inflation, investments, rate of
interests and growth in the economy.
2. Arguing effectively: It is important for the negotiators to argue

effectively. However, it is necessary to negotiate rationally and
reasonably. The negotiation process involves diplomacy and negotiators
are expected to use a blend of logic as well as emotional appeal while
negotiating. When arguments become heated, it is important for a
negotiator to take a break from the discussion.
3. Signalling: Since negotiation is an interactive and dynamic process, it is
important for negotiators to develop active listening skills. It is necessary
for the negotiators to convey appropriate body signals along with the
words they speak. These signals help negotiators assess the following
cases:
Proposals that will meet little resistance.
Proposals that can be accepted with some modification.
Proposals that have low chances of success in the current round of

negotiations.
4. Proposing (Exploring): Once, the negotiator is clear with the signals

received, the team is able to prioritise the proposals that are considered.
5. Packaging: The proposals are then presented in an appealing manner
where strong proposals are clubbed with the ones that have lower
chances of acceptance. This ensures that an agreement is ready that
contains all the elements that are crucial for the settlement between the
negotiating parties.
6. Bargaining: This is the actual process of meeting demands. Both
parties present their demands and discuss which of them can be
approved. This is a painstaking and lengthy process. It finally results in a
collective agreement of the proposals and disputes.
7. Closing: This is a critical step in the process of bargaining. Closing of
the process too early or too late results in various disputes. Thus, it is
necessary to assess the best time to close by considering various
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factors such as mood of the negotiating parties and the economic

factors. All ambiguities have to be cleared in this stage. The participants
are briefed about the decisions taken and issues that are withdrawn.
8. Agreeing: This is the final stage of the bargaining and negotiation
process. This phase ensures that the negotiators draft an agreement
and produce it in a formal form. Decisions are then taken regarding
various issues such as the date for the payment of the revised wages,
timing of introduction of new benefits in the organisation and so on.
Table 10.2 shows a summary of the negotiation process.
Table 10.2: Negotiation Process
Process
Function
Prepare
Know what you want. Understand them
Open
Put your case. Hear theirs
Argue
Support your case. Expose theirs
Explore (Propose)
Seek understanding and possibility
Signal
Indicate your readiness to work together
Package
Assemble potential trades
Close
Reach final agreement
Sustain
Make sure what is agreed happens
In the next section we will learn about negotiation and the various
approaches employed in negotiation.
6. ______________ activity defines extra payment for risky working
conditions and payment for working on holidays.
7. What is the function of signalling phase in the process of negotiation?
8. ______________ activity defines that all the elements that are crucial
for the settlement between both the parties of the organisation are
available.
9. It is not necessary to negotiate rationally and reasonably to win over
the process of negotiation. (True/ False).
10. The function of the proposing process is ______________.
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10.4 Collective Bargaining Advantages

Bargaining could relate to many factors such as the payment of the
employees, holiday, overtime, bonus, shift arrangements and so on. There
are many benefits of collective bargaining. Some of them are as follows:
It facilitates settlement of any disputes without any conflict.

It ensures that there is peace between both the parties through
dialogues.
It facilitates participation from both the parties.
It ensures mutual trust and understanding between the trade union and
the management of the organisation.
It facilitates stabilised union membership in societies that have multiple
unions.
It ensures healthy Industrial Relations.
It makes the employees feel more involved and wanted in the
organisation.
It ensures that individual stress and employee insecurities are
discussed.
It establishes the employee and the management rights in the
organisation.
It develops a sense of responsibility among the employees.
It ensures that the strength of workforce is increased. It in turn increases
the overall bargaining capacity of the workforce.
It ensures that the morale and productivity of the employees are
increased.
Effective collective bargaining ensures that the trade union movement is
efficient.
It facilitates in securing a prompt and fair settlement of grievances.
It provides a flexible means for the adjustment of the wages and
employment conditions.
It facilitates the management to resolve issues at the bargaining level
rather than taking up complaints of the individual workers.
It ensures a sense of job security among the employees.
It ensures that a channel of communication is open between the workers
and the management. This further increases worker participation in
decision making.
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It plays an essential role in settling and preventing industrial disputes.

It ensures that a harmonious industrial climate is established. This
contributes in the nations efforts towards economic and social
development.
It encompasses fluidity and ample scope for a compromise, for a mutual
give-and-take before the final agreement is arrived at.
10.5 Negotiation
The term negotiation is derived from the Latin word negotiatus, which
means to carry on business. Negotiation is a process that involves
resolving disputes between two disputing parties. The process of negotiation
can occur in business, non-profit organisations, various branches of
government, legal proceedings and in everyday life. Although negotiations
can be done by everyone, there are professionals such as union
negotiators, leverage negotiators, peace negotiators, hostage negotiators,
diplomats, brokers and legislators3 who are best suited for negotiations.
Exhibit 10.2: Google Vs. Oracle - Soviet Style Negotiation?
There are two kinds of negotiation: Win-win or win-at-any-cost. The latter is
also called Soviet style of negotiations. This style of negotiation is
characterised by the following features:
Extreme initial positions
Limited authority
Stingy in their concessions
Deadlines are ignored.
In recent times, a most unlikely firm has been accused of indulging in this
type of negotiation. Google Inc, founded by Larry Page and Sergey Brin in
1996 always had the unofficial motto, Dont be evil. But a judge on April
2012 accused the firm of indulging in Soviet style negotiations.
In June 2011, Oracle, the largest maker of database software, filed a lawsuit
against Google Inc, accusing it of infringing seven Java patents and its Java
copyrights. The crux of the problem between Oracle and Google seems to
be Google's Android-related revenue, which is based on Java. Oracle is
now the owner of Sun, the Java expert. A court filing revealed that Oracle
3
http://www.laynetworks.com/TYPES-OF-NEGOTIATION-IN-ORGANISATIONS.html
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sought between $1.4 billion and $6.1 billion in damages. A judge ruled that
Oracle "overreached" with its damages estimate and asked it to recalculate.
Googles opening bid to the judge was that since the company had rejected
a request early on for roughly $100 million to license Java there should be a
cap on damages. The judge described Googles position as a Soviet-style
negotiation. He commented that Google was saying that Whats mine is
mine and whats yours is negotiable.
In terms of an organisation, bargaining is a process that always takes place
between the labour and the management of the organisation. However,
negotiation is a process that can include more than one group of workers
and more than one employer.
There are various ways of structuring the process of negotiation to gain a
better understanding of the process. The following are two views of
negotiation that can be employed by the parties who wants to negotiate. The
first view involves the following three elements:
Process: It refers to how the parties negotiate. It includes the context,

the parties involved, the various tactics used by the parties and the
stages involved in negotiation.
Behaviour: It includes the relationships among various negotiating

parties. It refers to the communication between the parties and the
various styles adopted by them.
Substance: It refers to the information that the parties are ready to

negotiate upon. It includes information such as the agenda, the issues
and various other options for the issues and the concluding agreement.
The second view towards structuring negotiation involves four elements.

They are the following:
Strategy: It includes various top level goals and objectives such as final
outcome of the process.
Process and tools: Both the elements include various steps that have
to be followed in negotiation. It also refers to the roles and
responsibilities that have to be taken in both preparing and negotiating
with the participating parties.
Tactics: It includes various statements and actions employed for

negotiation. Negotiators who are skilled and experienced adopt various
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tactics that range from direct presentation of demands or taking up more

deceptive methods.
There are various kinds of people involved in the process of negotiation.
Some of these as identified by Shell include the following:
Accommodating: Accommodators are the people who are sensitive to

the emotional states, body language and the verbal signals of the other
party involved in the negotiation.
Avoiding: When avoiders feel that the negotiation is unnecessary, they

simply tend to avoid and defer the various aspects of negotiation. This
can be viewed as a process dealt with skills and diplomacy.
Collaborating: Collaborators are the people who are skilled and

perceive various tactics of negotiation. This ensures understanding the
concerns and interests of the other party involved in the process of
negotiation.
Competing: Negotiators who are competitive usually have instincts for

process of negotiation. Their strategic style of negotiation can dominate
the process of bargaining. Competitive negotiators tend to neglect the
importance of relationships.
Compromising: The art of compromising is useful when the time is

limited to complete a deal. However, when time constraint is taken into
account, the compromisers tend to rush the process of negotiation and
make concessions quickly.
10.5.1 Approaches
Let us now look at the methods of negotiation. Many different negotiation
styles can be used when different parties sit down for negotiations. The two
basic types of bargaining are traditional bargaining and partnership
bargaining. There are many variations of each style. Each approach is listed
and explained below.
Traditional Approach: Each side proposes its demands and the other
side responds with counter-proposals. Neither party considers the needs
and demands of the other party. The process is negative as it involves a
struggle of give-and-take on most issues. This approach is referred to as
win-lose policy. This means that one party gains and the other party
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losses. However, this is true only when a single issue needs to be

resolved.
Partnership Approach: This is a new approach to negotiation. Both

parties take into consideration the needs and demands of the other
party. This approach is also known as interest-based bargaining as
emphasis is given to the interests of both parties. The union and
management list and explain their needs. The discussion that follows
involves ways to meet all needs that are not only acceptable but also
beneficial to both parties. This approach is positive as it imparts a cordial
approach to negotiations.
Advocates Approach: In this approach, a skilled negotiator plays the

role of an advocate for one party. The negotiator tries to understand the
very basic requirements that the other party would be willing to accept.
The negotiator then alters their demands accordingly. A negotiation is
said to be successful in the advocacy approach when the negotiator is
able to obtain all the objectives that the party decides.
Creative Approach: This approach ensures that negotiating parties get

a fair share of their demands. It allows creative negotiation. The
following example best illustrates this approach. For its new airplane,
787 Dream Liner, Boeing buys composite plastic wings designed and
manufactured by Japanese suppliers. Boeing then sells the completed
787s back to Japanese airlines, with a nice subsidy from the Japanese
government. This is the result of being creative in negotiations.
10.5.2 Conditions for negotiations

We have discussed the different styles of negotiations. There are various
conditions that can affect the success or failure of a negotiation process.
Some of the factors are listed below:
Willing participants: It is essential to identify the people or the groups

that are willing to negotiate on disputing issues.
Interdependence: For any negotiation process to be productive,

participants of the process have to be dependent upon each other so
that mutual needs and interests are met.
Readiness to negotiate: It is important for the participants to be ready

to negotiate for any dialogue to begin. It requires adequate planning and
preparation with various strategies in mind to negotiate efficiently.
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Means of influence or leverage: It is important to have some means to

influence the attitude of negotiators. Leverage or influence can help
change the point of view of negotiators and it helps to reach
agreements.
Agreement on common issues: It is important for the participants to

agree upon some common issues and interests. It helps in progressing
the negotiations and move on to other issues.
Readiness to settle: For any negotiation to succeed, the participants

need to be willing to settle issues. If participants do not reach any
agreement, negotiations are prolonged and ultimately result in failure.
Unpredictability of outcome: Negotiations are made because the

outcome of not negotiating is unpredictable. For example, by going to
court a person has half a chance of winning. That person may decide to
negotiate rather than take the risk of losing as a result of a judicial
decision. Thus, negotiation is more predictable than a court decision
because if the negotiation is successful, the party will at least win
something.
Sense of urgency: Generally, negotiations occur when there is

pressure or it is urgent to reach a decision. Urgency may be imposed by
either or by potential negative or positive consequences to a negotiation
outcome. Some of the external constraints that affect the negotiation
process are the court dates, imminent executive or administrative
decisions and any predictable changes in the environment. Internal
constraints that affect the process include the artificial deadlines
selected by a negotiator to enhance the motivation of another to settle.
Thus, for any negotiation to be successful, the participants must jointly
feel a sense of urgency and be aware that they are vulnerable to
adverse action or loss of benefits if a timely decision is not reached.
Psychological elements: It is vital to ensure that any strong expressed

or unexpressed feelings about the other party do not affect a person's
psychological readiness to bargain. Thus, psychological barriers that
affect the settlement process have to be set aside if successful
negotiations are to occur.
Practical agreement: Sometimes, some settlements may be

substantively acceptable but may be impossible to implement. Thus,
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participants in negotiations have to be able to establish a realistic and

workable plan to carry out their agreement if the final settlement is to be
acceptable and hold over time.
Resources to negotiate: It is necessary for the participants in

negotiations to have the interpersonal skills necessary for bargaining
and, where appropriate, the money and time to engage completely in
dialogue procedures. Thus, inadequate or unequal resources may block
the initiation of negotiations or hinder settlement.

11. The psychological barriers that affect the settlement process have to be
set aside if successful negotiations are to occur. (True/ False).
12. The word negotiation is derived from the Latin word ______________.
13. Partnership Approach is also called ______________.
14. The Traditional Approach is also termed as ______________.
Activity 2:
Assume that you are an employee in an organisation. You have an issue
regarding your salary hike as you have been performing well. How will
you negotiate with the management of the organisation? Analyse which
approach you will adopt in achieving your objective.
10.6 Summary
Collective bargaining is a discussion process between employers and
employees to attain certain conditions. It allows the two parties to take joint
decisions. This ensures a democratic way of work in the organisation. It
allows representatives of both the management as well as the employees
participate in the affairs of the organisation. It ensures building stable
relationships between the parties involved. It facilitates in achieving
discipline in the organisation. It allows understanding between two parties to
arrive at a common approach. Collective bargaining is a method of
negotiation in which employees use authorised union representatives to
assist them.
Collective bargaining process starts with choosing a representative of the
employees followed by submitting a proposal to the management of the
organisation and selecting the negotiating team. The negotiator of the team
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recognises the eight phases of negotiation, namely, preparing, arguing,

signalling, proposing, packaging, bargaining, closing and agreeing.
Negotiation is a process by which involved parties resolve matters of dispute
by holding discussions and coming to an agreement, which can be mutually
agreed by them. Many different negotiation styles can be used when
different parties sit down for negotiations. The common approaches adopted
are traditional, partnership, advocacy and creative approach. There are
many variations of each style.
10.7 Glossary
Term
Description
Arbitrator
The arbitrator acts as a judge and listens to the feuding parties

of the organisation and then takes a final decision. Once a
decision is made in the process of arbitration, it serves as a
legal bond on labour and management.
Bargaining
It is a process which ensures that an agreement is reached

between the employers and employees of an organisation,
regarding the rights and duties of people at work. It aims to
reach a collective agreement that settles various issues such
as employees pay, working hours, training, health and safety,
and rights to participate in workplace or company affairs.
Layoff
To dismiss employees due to financial constraints in an

organisation.
Liquidity
The ability of an asset to be sold without causing a significant

movement in the price and with minimum loss of value.
Money, or cash on hand, is the most liquid asset. It helps in
examining the performance of the organisation.
Mediator
A third party who facilitates the resolution process between

two disputing parties. Mediator suggests a resolution, but
cannot impose a resolution on the conflicting parties.
Overtime
Extra working time, apart from the regular working hours.
Profitability
Beneficial, advantageous.
Remuneration
Payment received in return of services availed, for instance,

salary.
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1. Analyse the various issues considered in the process of collective
bargaining.
2. List the various categories of people involved in the process of
negotiation.
3. Bring out the advantages of collective bargaining.
4. Describe the various approaches of negotiation.
5. Explain the phases of collective bargaining and negotiation.
10.9 Answers
1. Collective Bargaining Agreement
2. True
3. True
4. Occupational safety and health
5. Working conditions, job security
6. Wages and remuneration
7. Indicate your readiness to work together
8. Packaging
9. False
10. Prioritise the proposals that are considered
11. True
12. Negotiatus
13. Interest-based bargaining
14. Win-lose policy
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10.10 Case Study

Organisation: General Motors
This case provides a description of the process of bargaining agreement
that took place between one of the worlds leading automobile
manufacturers and its workers. The parties that were involved in the
process of bargaining and negotiation were General Motors (GM) and the
United Auto Workers (UAW) in late 2007. This agreement, which a
number of professionals termed as historic, was the outcome of a
bargaining process. GM dominated the U.S. auto market till 1980 and
had a market share of 46 percent. They observed that the market share
began to decline steadily after the entry of competitors from Japan. In
addition to this, the products and marketing of General Motors also got
affected with under-funded pension liabilities, rising employees and with
decreased shares in the U.S. automobile market. This pushed GM to
have a common agreement that put back the stability of their market
shares. The various issues that required to be resolved in the process of
bargaining included understanding the challenges faced by GM in the
U.S. automobile market, understanding the impact of the employee
healthcare of GM employees and also the legacy costs. Legacy costs are
the costs that are involved with an organisation paying increased
healthcare fees and other benefit-related costs for its current employees
and retired pensioners. This agreement with the UAW put an end to the
problems that GM faced regarding rising healthcare costs for its
employees. Thus, the bargaining process helped in resolving the dispute
between the parties and ensured that a common and collective
agreement was attained.
Questions:
1. Is it necessary to employ collective bargaining in resolving disputes?
2. How did the process of bargaining and negotiation help General
Motors stabilise its market share again?
References:
Boone, Louis; Kurtz, David; Contemporary Business.
http://www.laynetworks.com/Types-of-Negotiation-in-organisations.html
en.wikipedia.org/wiki/Negotiation
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Unit 11
Unit 11
Laws Related to Employee Relations
Structure:
11.1 Introduction
Objectives
11.2 Evolution of Employee Laws in India
11.3 Laws Relevant to Employee Relations
Standing Orders Act, 1946
Factories Act, 1948
Employment Exchanges Act, 1959
Apprentice Act, 1961
Contract Labour Act, 1970
11.4 Laws Relevant to Organisational Conflicts
Trade Union Act, 1926
Industrial Disputes Act, 1947
11.5 Laws Relevant to Employee Wages and Compensation
Workmens Compensation Act, 1923
Payment of Wages Act, 1936
Employee State Insurance Act, 1948
Minimum Wages Act, 1948
Employee Provident Fund Act, 1952
Maternity Benefits Act, 1961
Payment of Bonus Act, 1965
Payment of Gratuity Act, 1972
11.6 Summary
11.7 Glossary
11.9 Answers
11.10 Case Study
11.1 Introduction
In this unit we will discuss some of the Indian laws related to employee
relations.
The term employee relations refer to the relations between employers and
their employees. Every country has laws which regulate employee relations.
India is a country which complies with the International Labour Organisation
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(ILO) standards and has laws which ensure the welfare of employees. In
India the power is distributed between the Union government and the state
governments. Legislations regarding certain issues can be formed or
amended by both the Union government and the state government. Such
issues are called concurrent subjects. Labour is a concurrent subject. So
both Central and state governments enforce laws regulating labour.
We will also discuss the legislations of India which are related to employee
relations and industrial disputes and the year these laws came into effect.
Thereafter, you will also learn about the various laws related to employee
wages and compensation.
Objectives:
describe the evolution of employee relation laws in India.
identify the different labour laws related to employee relations.
describe the laws relevant to organisational conflicts.
describe the laws relevant to employee wages and compensation.
11.2 Evolution of Employee Laws in India

In this section, we will discuss about the evolution of employee laws in India.
Employee laws of the Indian government at Central and state level have
sought to ensure a high degree of protection for workers. For example, a
permanent worker can be terminated only for proven misconduct or for
habitual absence.
Legislations regulating employee relations play a major role in the overall
progress and economic development of the country. These legislations are
amended from time to time according to the changing circumstances and
environment.
The aftermath of the Industrial Revolution saw the rise of trade unions,
collective bargaining, formulation of various labour laws, and labour courts.
The colonial period did not see many industrial relation policies.
Government intervention was minimal. The first laws regulating the
conditions of miners and factory workers were introduced by the British. The
Factory Act of 1881 and the Mines Act of 1923 aimed to regulate child
labour, working hours, safety and sanitation conditions. The Trade Disputes
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Act of 1929 recognised trade unions and enabled the government to

intervene and settle disputes.
The Government of India Act of 1935 empowered provincial governments to
have their own labour legislations. But representatives of employees wanted
uniform labour legislation in all provinces. The government invited
representatives of employers and workers to participate in the India Labour
Conference of 1942. A Standing Labour Committee was set up to promote
uniform labour legislation, to settle industrial disputes and to discuss issues
which were significant to both employers and employees.
After independence, more than 55 Central labour laws and over 100 state
labour laws were introduced. In 1968, a board of arbitration was set up to
resolve differences between employers and employees. The government
plays a dominant role in employee relations by its labour legislations, labour
courts and administrative officers. Labour courts, industrial tribunals and
national tribunals have also been set up. Acts like the Essential Service
Maintenance Act have been introduced to maintain essential services and
curb strikes or lock-outs. The Industrial Disputes Act was introduced in 1947
to settle disputes. The Minimum Wages Act of 1948 ensures the setting and
revision of minimum rates of wages for certain scheduled industries
involving hard labour. The Employees State Insurance Act of 1948 ensures
sickness benefit, maternity benefit, disablement benefit and medical benefit.
The Employees Provident Fund Act of 1952 aims to provide security to the
industrial workers after retirement or in case of retrenchment, or for their
dependents in case of the early death of employees. The Bonus Act of 1965
aims to settle disputes arising from issues related to bonus payments. The
Shops and Commercial Establishment Act regulates the working conditions
and terms of employment of workers employed in shops, commercial
establishments, theatres, restaurants and so on.
Exhibit 11.1: Bullying at the Workplace
The bullying behaviour in the workplace could range from verbal abuse,
blame, humiliation, personal and professional denigration, manipulation of
job specifications, unrealistic workload, aggressive e-mails or notes, overt
threats, harassment, sabotage of career and financial status. It also includes
spreading malicious rumours, gossip, or innuendoes that are not true,
withholding necessary information or purposefully giving the wrong
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information, intruding on a person's privacy by pestering, spying or stalking.

Creating a feeling of uselessness, criticising a person persistently or
constantly belittling a person's opinion , unwarranted (or undeserved)
punishment, blocking applications for training, leave or promotion, tampering
with personal belongings or work equipment, overt aggression /violence,
etc., fall under bullying behaviour.
Comments that are objective and are intended to provide constructive
feedback are not usually considered bullying but strong management.
Currently there is no legislation in India that specifically deals with bullying in
the workplace. Some countries have legislation on workplace violence in
which bullying is included. But employers have a general duty to protect
employees from risks at work and many employers choose to address the
issue of bullying as both physical and mental harm can "cost" an
organisation.
What employers can do to improve the situation
Define bullying in precise, concrete language with clear examples of

unacceptable behaviour and working conditions.
Establish proper systems for investigating, recording and dealing with

bullying.
Investigate complaints quickly, while maintaining discretion

confidentiality, and protecting the rights of all individuals involved.
Take action swiftly.
Create an environment in the organisation where dignity and fairness is

the norm for all.
and
Now that you have understood the evolution of employee laws in India, let
us analyse some laws governing employment in detail.
1. The first laws regulating the conditions of miners and factory workers in
India were introduced by the ________.
2. The ______________ Act of 1935 empowered provincial governments
to have their own labour legislations.
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3. The __________ Act of 1948 ensures the setting and revision of

minimum rates of wages for certain scheduled industries involving hard
labour.
4. The _________________________ Act regulates the working
conditions and terms of employment of workers employed in shops,
commercial establishments, theatres, restaurants and so on.
11.3 Laws Relevant to Employee Relations

Labour is the most important resource of any industry and plays a vital role
in realising the goals of any organisation. In India, we have many laws which
deal with issues related to employee administration and employee welfare.
These laws regulate relations between the management and the
employees. It is essential to have complete knowledge of the laws, bye
laws, regulations and ordinances pertaining to the industry in general and to
the organisation in particular, to effectively and efficiently manage
employees of an industry or an organisation. Let us now analyse some of
these laws in detail.
11.3.1 Standing Orders Act, 1946
The Industrial Employment (Standing Orders) Act of 1946 is applicable
throughout India. It is enforced in every industrial establishment, which
employs or had employed 100 or more workmen on any day of the
preceding 12 months. This Act compels employers in industrial
establishments to accurately define the conditions of employment and also
to familiarise their employees with those conditions. This Act has been
amended by various state governments. For example, this Act has been
amended in Maharashtra by The Maharashtra Act 54 of 1974, in Mysore by
the Mysore Act 37 of 1975, in Madras by Madras Act 24 of 1960, and in
Andhra Pradesh by A. P. Act 9 of 1969.
Submission of Draft Standing Orders: The various rules governing the
submission of the draft standing orders are as follows.
Employers have to submit to the certifying officer five copies of the draft
standing orders proposed for adoption in their establishment within six
months from the date on which this Act becomes applicable to the
establishment.
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The draft has provision for every matter set out in the schedule, which is
applicable to the industrial establishment, and as far as practical,
conforms to the prescribed model standing orders.
The draft standing orders have to be accompanied by a statement giving

prescribed particulars of the employees in the industrial establishment,
including the name of the trade union, if any, to which they belong.
A group of employers in similar industrial establishments can submit a

joint draft of standing orders, subject to certain prescribed conditions.
Certification of Standing Orders: The following procedure is adopted for

certifying the draft of the standing order:
1. On receiving the draft of the standing order, the certifying officer
forwards a copy of it to the trade union of the workmen. If there are no
such trade unions, it is given to the workmen along with a notice in the
prescribed form. The workmen can raise objections, if any, to the draft
standing orders. This has to be submitted within fifteen days from the
receipt of the notice.
2. The certifying officer then decides whether any modification or addition
to the draft submitted by the employer is necessary to make the draft
standing orders certifiable.
3. The certifying officer then certifies the draft standing orders and sends
copies of the certified standing orders to the employer and to the trade
union or other prescribed representatives of the workmen within seven
days.
4. If not satisfied by the order of the certifying officer, the employer,
workman, trade union or other representatives of the workmen can
appeal to the appellate authority within 30 days from the date on which
copies are received. The appellate authority, whose decision is final,
confirms the standing orders, either in the form certified by the certifying
officer or after making any necessary modifications.
5. The copy of all standing orders is filed by the certifying officer in a
register in the prescribed form, and the certifying officer furnishes a copy
to any person applying for it on payment of the prescribed fee.
Let us now discuss the provisions of the Factories Act of 1948.
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11.3.2 Factories Act, 1948

The Factories Act regulates labour employed in factories. It applies to the
whole of India. This Act applies to all factories which use power and employ
10 or more workers, and applies to factories not using power and employing
20 or more workers, on any day of the preceding 12 months.
According to this Act, every factory has to be registered and needs to obtain
a licence for working, which has to be renewed at periodical intervals. The
plans, designs and specifications of any proposed construction or
extensions to the factory have to receive the prior approval of the state
government.
The main provisions of this Act are as follows:
Facilities: It specifies the minimum requirements regarding health

(cleanliness, ventilation and temperature, lighting and control of glare,
etc.) safety (protection of eyes, handling of explosive and inflammable
materials, etc.), and general welfare of workers (first-aid, canteens,
shelter rooms, crches, urinals, drinking water, etc.).
Safety: Fencing of machinery needs to be done. Adequate fire-fighting

facilities must be provided. Hoist and lifts have to be in good working
condition. Stairs and passages have to be free from obstruction. Safety
appliances to protect the eyes from dangerous dusts, gases, and fumes
have to be provided. Pressure plants have to be regularly checked.
Working hours: The working hours cannot be greater than 48 hours in

a week. Weekly holiday is mandatory. Compensatory holidays have to
be given if the worker works on weekly holidays. A worker cannot be
made to work for more than nine hours in a day. Half an hour rest is to
be provided after five hours of work. Overlapping of shifts is not allowed.
Overtime wages: A worker has to be paid overtime wages at double the

rate of regular wages if the worker works beyond nine hours a day or 48
hours a week.
Leave: A worker is permitted a leave of one day for every 20 days of

work performed in the previous calendar year provided that the worker
had worked for 240 days or more in the previous calendar year.
Child employment: Children below the age of 14 cannot be employed.

Children between 14 and 15 years of age can be employed only for
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4.5 hours per day or during the night. Adolescents cannot work between
7 pm and 6 am.
Obligation regarding hazardous processes and substances:

Provide Information about hazardous substances and processes and the
dangers and health hazards involved. Ensure safety measures and
make emergency plans. Appoint safety committees.
Now that you know the provisions of the Factory Act, let us next discuss the
Employment Exchange Act of1959.
11.3.3 Employment Exchanges Act, 1959
According to the Employment Exchanges Act, the employer has to notify to
the employment exchanges about all vacancies other than vacancies in
unskilled categories, temporary vacancies and vacancies proposed to be
filled through promotion. Vacancies which will be filled using the result of
any examination conducted or interview held by, or on recommendation of,
any independent agency such as Union or State Public Service Commission
and the like need not be notified. The vacancies need to be notified to the
Central Employment Exchange or Local Employment Exchange. The
Employment Exchanges Act does not compel an employer to recruit any
person through employment exchange to fill a vacancy. Employers also
have to update the employment exchanges about their staff strength at
regular intervals.
This Act is applicable to the whole of India and includes the employers in
both in public and private sectors. This Act applies to establishments which
perform non-agricultural activities and employ 25 or more workers.
Penalties are imposed if any employer fails to notify the Employment
Exchanges about any prescribed vacancies.
Let us now discuss the Apprentice Act, 1961.
11.3.4 Apprentice Act, 1961
The Apprentice Act of 1961 aims to provide practical training to technicallyqualified persons in different trades so as to promote skilled manpower. The
scheme is also applicable to engineers and diploma holders. The apprentice
has to enter into a contract of apprenticeship with the employer which has to
be registered with Apprenticeship Adviser.
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Obligation of employer: The duties of the employers according to this Act

are as follows:
Every employer has to provide training to the apprentice using the

services of a suitably qualified person.
Every employer has to provide sufficient instructional staff who possess

adequate qualifications and can impart practical and theoretical training,
and facilities for testing the apprentices.
Every employer has to take apprentices in proportion to the skilled

workers employed in different trades. But employers can engage a
higher number of apprentices than the prescribed minimum.
Every trade reserves places for scheduled castes and schedules tribes.
Employers have to pay stipends to the apprentices at prescribed rates.
Obligations of apprentices: Every trade apprentice undergoing

apprenticeship training has the following obligations:
Apprentices have to learn the trade conscientiously and diligently and try
to qualify as skilled workers before the training period gets expired.
Apprentices have to attend practical and instructional classes regularly.
Apprentices have to execute all lawful orders of their employers and
superiors in the establishment.
Apprentices have to carry out the obligations specified in the contract of
apprenticeship.
When training is completed, all trade apprentices appear for a test, which is
conducted by the National Council. Apprentices who pass the test get a
certificate of proficiency. It is not mandatory for the employer to offer any
employment to any apprentice who has completed the period of the
apprenticeship training, nor is it compulsory for the apprentice to continue to
work under the employer.
Let us now examine the Contract Labour Act of 1971.
11.3.5 Contract Labour Act, 1970
The Contract Labour Act of 1970 is applicable to the whole of India. It
applies to every organisation in which 20 or more workmen are employed or
were employed on any day of the preceding 12 months as contract
labourers. This Act does not apply to organisations in which work only of an
intermittent or casual nature is done.
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In order to administer this Act, a Central Advisory Contract Labour Board

advises the Central government and a State Advisory Contract Labour
Board advises the state government. The Central or state government can
also prohibit contract labour on the advice of these boards.
Any contractor can undertake or execute any work through contract labour
only after obtaining a licence from a licensing officer. This licence has to be
renewed regularly. Every principal employer and every contractor needs to
maintain registers and records, which give particulars of the contract labour
employed, the nature of work performed by the contract labour, and the
wages paid to the contract labour.
The various provisions of this Act which ensure the welfare of the contract
labourers are as follows:
Canteens: The contractor has to provide one or more canteens if more

than 100 contract labourers are employed.
Restrooms: The contractor has to provide well-lit and properly-ventilated

restrooms.
Other facilities: The contractor has to provide drinking water, toilets

washing facilities, and first-aid boxes, which are properly equipped and
easily accessible.
Payment of wages: A contractor will be responsible for timely payment of

wages to each contract labourer.
Contraventions to the provisions of this Act are punishable by imprisonment

or fines.
Exhibit 11.2: The Contract Labour Act -- Proposed Amendments
L.K. Choudhary, the CEO of the Indian subsidiary of auto components
manufacturer, Oerlikon-Graziano Transmissions, India, was lynched to
death in September 2008, when about 150 sacked contract labourers
barged into the factory demanding their reinstatement. This murder has
again brought into limelight the conditions faced by the contract labourers
and their exploitation. Most contract workers are paid just 40% of regular
wages with no social protection. Though there is no official statement on
how many of India's 450 million-odd workers is employed on contract, such
workers' exploitation is being seen as one of the reasons for rising industrial
unrest in recent times.
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With a vast part of the workforce employed on contract basis without any job
security, the government needs to amend the Contract Labour Act of 1971
to ensure a fair deal for such workers.
The proposed amendment will help workers get the same wages, facilities
and benefits as regular employees. So even if contract workers have no
security of tenure, they would get better salaries with health cover and social
security benefits under the Employees' State Insurance Corporation and
Employees' Provident Fund, respectively.
The government believes this would be a very effective instrument to
transfer wealth and achieve inclusive growth agenda.
The wage increase would reduce trade unions' resistance to hiring contract
workers and industry would get flexibility in hiring practices.
We have so far discussed the laws that govern employee relations. Let us
now discuss some laws which regulate industrial conflicts.
5. The _______________ Act compels employers in industrial
establishments to define accurately the conditions of employment
under them and to also to familiarise their employees with the said
conditions.
6. The _______________ Act compels employers to notify the
Employment Exchanges about all vacancies in their establishments.
7. The __________ Act regulates labour employed in factories in India.
8. The ______________ aims to provide practical training to technicallyqualified persons in different trades so as to promote skilled manpower.
9. The _____________ Act aims to ensure the welfare of the contract
labourers.
11.4 Laws Relevant to Organisational Conflicts

Clashes of interest, which occur within an organisation, cause
dissatisfaction among the parties involved. This leads to industrial disputes
or conflicts. Trade unions play an important role within an industry. The
legislation which regulates the trade unions is the Indian Trade Unions Act
of 1926. The Industrial Disputes Act of 1947 is an important legislation for
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investigation and settlement of all industrial disputes. Let us now discuss

these legislations.
11.4.1 Indian Trade Unions Act, 1926
The Indian Trade Unions Act was passed in 1926 and has been amended in
1928, 1960 and 1964 and 2001. The Indian Trade Union Act is applicable to
the whole of India.
The main activity of trade unions is collective bargaining. Trade unions
stand up for the rights of the workers and ensure better working conditions.
The Trade Union Act of 1926 recognises the rights of workers to form trade
unions and to resort to strikes to enforce their demands. For example, a civil
court granted permission to the workers to conduct strike in the trade
dispute between Ahmedabad Textile Research Association and ATIRA
Employees' Union in 1995. The Trade Union Act specifies the rights and
duties of the trade unions and also grants immunity to the leaders and
members of the trade union from civil and criminal proceedings for
legitimate trade union activities. This Act regulates the membership rates to
the unions and also specifies the refund procedure. This Act specifies that at
least half of the office bearers of the trade union must be engaged or
employed in the industry with which the trade union is connected.
According to this Act, the funds of the trade union can be spent only for the
following purposes:
For payment of salary, allowances and expenses of the office bearers of
the trade union.
For payment of expenses incurred for the administration of the trade
union.
For the legal expenses incurred for legitimate trade union activities for
any member of the trade union.
For compensating the loss of members at times of disputes.
For paying allowances to members or their dependants on account of
events like death, sickness, or injury.
For providing education or religious benefits (like funeral or religious
ceremonies) to members or their dependants.
For publishing of periodicals related to trade union activities.
Two or more registered trade unions can be amalgamated together as one
trade union with or without dissolution or division of their funds, provided
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that at least 60 percent of the members of the unions vote in favour of the
proposal.
We have discussed the Trade Union Act. Let us next analyse the Industrial
Disputes Act.
11.4.2 Industrial Disputes Act, 1947
Industrial dispute is defined as any dispute or difference between
employers and employers, or employers and workmen, or workmen and
workmen, which is connected with the employment or non-employment, or
the terms of employment, or with the conditions of labour of any person.1
The main aim of this Act is to settle industrial disputes and maintain peace
in the industrial sector. The following provisions are made for settling
disputes under this Act:
Works committee: If the establishment has employed more than 100
workers in the preceding 12 months, then a works committee consisting
of the representatives of the employers and the employees is formed.
The number of employee representatives will not be lesser than that of
the employers.
Conciliation officers: The duty of the conciliation officer is to settle
disputes amicably and fairly. The function of the conciliation officer is
mostly administrative.
Board of conciliation: This is constituted to settle complex and
important disputes. It is usually formed if the works committee is unable
to settle the disputes. It has equal representations from the employer
and the employees.
Court of enquiry: This investigates all matters referred to it and submits
its findings to the government within six months from the beginning of
the enquiry.
Labour court: This adjudicates industrial disputes. The state
government appoints one person who has served as any of the following
to enquire and give a verdict:
A former judge of the high court
A judge for three years in the district court
Indian Business Environment by T.R.Jain, Mukesh Trehan and Ranju Trehan; 2009
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A member of any tribunal for at least two years

A judge in any court of the country for seven years
A chairman for any provincial labour court for at least five years.
Industrial tribunal: This has only one person nominated in it to

adjudicate industrial disputes. Such a person must have served as any
of the following:
A judge of a high court
A district judge or an additional district judge for at least three years.
The government can also appoint two persons as assessors to assist the
tribunal.
National Tribunal: This is appointed by the Central government to settle
disputes of national importance or if the industrial establishments
involved function in more than one state of the country. One person who
has served as any one of the following is appointed to the tribunal:
A judge of a high court
A chairman of the Labour Appellate Court for at least two years.
Arbitration: Any dispute can be referred to arbitration with the consent

of the parties involved. The consent has to be obtained before the
dispute is referred to a tribunal or a court. The Board of Arbitration
needs to have equal representations from the parties involved and if the
parties decide so, one person can be elected to be the arbitrator to settle
the dispute.
The Industrial Disputes Act prohibits public utility services and other
establishments which are essential for maintaining public service from
indulging in strikes and lockouts. The Industrial Disputes Act also has
provisions which ensure that an employer does not illegally retrench or
refuse to employ workers. It also ensures that workers receive adequate
compensation in case of retrenchment or layoff. Both the employers and the
employees are bound by any agreement reached. Persons who breach the
agreement are punishable by fines or imprisonment.
This section has explained to you the various aspects of the Industrial
Disputes Act. Let us next analyse the laws relevant to employee wages and
compensation.
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10. The ___________ Act of 1926 recognises the rights of workers to form
trade unions and to resort to strikes to enforce their demands.
11. The main activity trade unions are involved in is ____________.
12. The main aim of the _______________ Act is to settle disputes and
maintain peace in the industrial sector.
Activity 1:
You are the owner of an industry which manufactures materials out of
recycled plastic. You employ 20 permanent staff and 10 contract
labourers. List the industrial laws which regulate the functioning of your
organisation.
11.5 Laws Relevant to Employee Wages and Compensation

Employee compensation laws ensure economic security of the employees.
Workers' compensation laws ensure compensation from employers for the
cost of injuries or occupational diseases, which the employees got in the
course of their work. Worker's compensation legislations ensure that
employers provide a reasonably safe place to work, suitable equipment,
rules and instructions. Table 11.1 gives information about the different laws
of India that regulate employee wages and compensation.
Table 11.1: Indian Laws Regulating Wages and Compensation
Laws
Workmens
Compensation Act
Payment of Wages
Act
Minimum Wages Act
Employees State
Insurance Act
Year
1923
Employees Provident
Fund Act
Maternity Benefits Act
1952
Payment of Bonus Act

Payment of Gratuity
Act
1965
1972
1936
1948
1948
1961
Purpose
Provides compensation for injuries, accidents
and occupational diseases.
Ensures prompt and regular payment of wages.
Fixes and revises minimum rates of wages.
Provides benefits to employees in case of
sickness, maternity and employment-related
injury.
Provides for the future of the worker after
retirement.
Provides benefits to women employees during
their pregnancy.
Regulates the bonus paid to employees.
Ensures there is a uniform payment of gratuity
throughout the country.
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Let us now examine the laws that regulate employee wages and
compensation in detail.
11.5.1 Workmens Compensation Act, 1923
The Workmens Compensation Act is applicable to the whole of India. This
Act covers workers of factories, mines, plantations, construction companies,
transport undertakings, railways, shipping companies and circuses. This Act
is applicable to all establishments which have 20 or more employees. Even
casual workers are covered by this Act.
Employers have to compensate workers for temporary, partial and
permanent disabilities and occupational diseases which occur in the course
of their employment. Employers also have to compensate the dependants of
the employees in the event of the death of an employee while on duty. The
rate of payment of compensation is as follows:
In the event of death,
Compensation = 50 % of the monthly wages of the deceased employee
x relevant factor or Rs 80,000, whichever is higher,
In the event of permanent or total disablement,
Compensation = 60 % of the monthly wages of the disabled employee x
relevant factor or Rs 90,000, whichever is higher,
The relevant factor depends on the age of the concerned employee and the
number of years the employee could have worked.
Employers need not pay compensation for the following events:
For disability which lasts only 3 days or lesser.
For disability which arises out of drinking alcohol, using drugs or

disregarding safety rules.
The benefit of this Act is that it ensures that employers use adequate safety
devices to minimise workplace accidents and injuries. Employers are also
encouraged to provide suitable medical treatment for injured employees in
order to mitigate the effect of their injuries.
Let us now discuss the features of the Payment of Wages Act.
11.5.2 Payment of Wages Act, 1936
The Payment of Wages Act ensures prompt and regular payment of wages
and also prevents employers from making arbitrary deductions in the wages.
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This Act ensures equal remuneration for men and women. This Act applies
to the whole of India. This Act is applicable to all government
establishments, factories, mines, plantations, transport services, oil fields,
and workshops.
Wages according to this Act includes all remuneration, bonus, or sums
payable for termination of service, but does not include house rent
allowance, medical expenses, travel allowance, etc.
The wage period can be weekly, fortnightly or monthly, but never more than
a month. Monthly wages have to be paid by the 7th of the following month or
the 10th of the month if the establishment has 1,000 or more employees.
Wages can be paid as currency notes, coins, cheques or it can be directly
credited to the bank account of the employee. Deductions are permitted for
absence of duty, for damage or loss of goods entrusted to the employee,
house accommodation if provided, recovery of advance, loans given,
income tax, provident fund, ESI contribution, insurance premium, amenities
provided, and deductions by order of a court. A maximum of 75% of the
salary is deductible if deductions are wholly or partly made for payments to
co-operative societies, else, only a maximum of 50% of the salary is
deductible. This Act also regulates the amount of fine an employer can
impose on an employee for acts of omission. An Inspector of Factories is
appointed to supervise the payment of wages to the employees. Employers
who violate the law can be fined or imprisoned.
Let us now discuss the benefits of the Employee State Insurance Act.
11.5.3 Employee State Insurance Act, 1948
The Employee State Insurance Act provides benefits to employees in case
of sickness, maternity and employment injury. An employee can avail
medical benefits, cash benefits, and disability benefits.
This Act extends to the whole of India. All factories and establishments that
have 20 or more employees are governed by this Act.
This Act ensures that no employer can dismiss, discharge or punish an
employee during the period the employee receives sickness or maternity
benefit. Employer also cannot take any disciplinary action against such
employees.
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According to this Act, the definition of employees do not include those

drawing wages over Rs 7,500 per month, members of the Army, Navy or Air
Force, partners of firms, persons employed in government establishments,
and construction workers employed to raise additional building after the
initial set up of factory.
Both employers and employees contribute to the Employee State Insurance
Corporation Fund in every wage period. Normally, the wage period is a
month. The employees contribution is 1.75% of wages and the employers
contribution is 4.75%. Employers cannot deduct their contribution from the
salaries of the employees.
The various benefits provided by the Employee State Insurance Corporation
(ESIC) under this act are as follows:
Medical benefits: Employees and their workers can avail medical

treatment from ESI hospitals and dispensaries.
Sickness benefits: An employee can avail a maximum of 91 days of

sickness benefits at a rate corresponding to the average wage rate,
provided the employee has made ESI contributions for at least 78 days.
Maternity benefits: A female employee can avail a maximum of 10

weeks paid maternity leave, provided she has made contributions for at
least 70 days. Six weeks of paid leave can be claimed for miscarriages.
Nominees can claim full cash benefits if a female employee dies during
delivery.
Disablement benefit: A worker can claim 40% of the standard benefit for
temporary disabilities lasting more than 3 days. A worker can claim cash
benefits corresponding to the loss of earning capacity for partial and
total disabilities.
Dependants benefit: The wife, minor children or the widowed mother of

an employee who dies in service are entitled to a pension.
Retirement benefit: Workers who have made contributions for five years
or more and who have retired from work can claim medical benefits for
themselves and their spouses.
We have so far analysed the provisions of the Employee State Insurance

Act. Let us next discuss the Minimum Wages Act.
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11.5.4 Minimum Wages Act, 1948

The Minimum Wages Act of 1948 fixes minimum rates of wages in certain
employments. The minimum rates of wages also include special allowance
(variable dearness allowance), which is linked to the Consumer Price Index
number. The special allowance is revised twice a year. This Act extends to
the whole of India. The minimum wages are reviewed at regular intervals,
but these intervals cannot exceed five years.
The minimum wages paid must provide for the basic needs of the
employees and their families and also maintain the working efficiency of the
employees. The Central government has enforced a national floor level
minimum wage and has fixed it at Rs 45 per day with effect from November
30, 1999.
Exhibit 11.3: NREGA
The Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) is a job guarantee scheme, enacted by the government on
August 25, 2005. The scheme provides a legal guarantee for one hundred
days of employment in every financial year to adult members of any rural
household willing to do public work-related unskilled manual work at the
statutory minimum wage of 120 (US$2.39) per day in 2009 prices that has
later been upgraded to 130 (US$2.59). The Central government outlay for
scheme is 40,000 crore (US$7.98 billion) in FY 201011.
This act was introduced with an aim to improve the purchasing power of the
rural people, by primarily providing semi or unskilled work to people living in
rural India, whether or not they are below the poverty line. Around one-third
of the stipulated work force is women. The law was initially called the
National Rural Employment Guarantee Act (NREGA) but was renamed on
October 2, 2009.
Next let us discuss the provisions of the Employee Provident Fund Act.
11.5.5 Employee Provident Fund Act, 1952
The Employee Provident Fund Act of 1952 extends to the whole of India
except the state of Jammu and Kashmir. It is applicable to every
establishment in which 20 or more workers are employed drawing a
maximum wage of Rs 6,500 per month.
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The employee contributes 12% of the wages to the provident fund and the
employer contributes an equal amount. But 8.33% of the employers
contribution goes to the Employee Pension Fund.
The various benefits provided by the different schemes of this Act are as
follows:
Employee Provident Fund Scheme: The worker can claim advances
from the provident fund for construction of houses, and for education or
marriage of children.
Employee Pension Scheme: The widow or children of a worker who dies
in service can claim pension from the fund.
Employee Deposit Linked Insurance Scheme: The legal heir or nominee
of a deceased employee can claim insurance benefits equal to the
balance in the fund up to a maximum of Rs 60,000.
Let us now discuss the features of the Maternity Benefits Act.
11.5.6 Maternity Benefits Act, 1961
The Maternity Benefits Act of 1961 provides for the full and healthy
maintenance of women and their children for a certain period before and
after childbirth. This Act applies to factories, plantations and mines, which
are not covered by the Employee State Insurance Act.
The provisions of the Maternity Benefits Act are as follows:
This Act entitles women employees who have worked for a minimum of
80 days to claim 12 weeks of maternity leave of which not more than six
weeks shall precede the date of expected delivery.
This Act ensures that women would not have to work for six weeks after
the day of delivery or miscarriage.
This Act ensures the payment of maternity benefit at the rate of average
daily wage for the period of the woman employees actual absence, and
the period immediately following the date of delivery and including the
actual day of delivery. When prenatal confinement and postnatal care is
not provided free of charge, women employees can claim a medical
bonus of Rs 250.
No employer can discharge or dismiss a woman for her absence from

work in the prenatal or postnatal period.
Next let us discuss the provisions of the Payment of Bonus Act.

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11.5.7 Payment of Bonus Act, 1965

The Payment of Bonus Act of 1965 is applicable to any factory employing 10
or more persons where powerless (without the use of power) processing is
carried on and in other establishments that employ 20 or more persons.
However, this Act is not applicable to government employees, municipal
corporation or municipality employees, railway employees, university and
other educational institutions employees, public sector insurance
employees, Reserve Bank of India and public sector financial institutions
employees, charitable hospitals, social welfare organisations and defence
employees. Once the Act is applied, it continues to be applicable even when
the number of employees is below 20.
The minimum bonus payable is 8.33% and the maximum is 20%. Bonus has
to be paid every year within eight months from close of accounting year.
Bonus has to be paid to all employees whose monthly salary does not
exceed Rs 3,500 per month provided they have worked for at least 30 days
in the accounting year. For employees earning between Rs 2,501 to Rs
3,500 only a salary of Rs 2,500 is considered for calculation of bonus.
According to this Act, the duties of the employers are as follows:
To compute and pay the annual bonus as specified by the Act.
To submit an annual return of bonus paid to employees during the year.
To produce the registers or records maintained and to co-operate with

the inspector who is appointed by the government by notification on the
official gazette.
To audit their account according to the directions of a labour court or

tribunal or any other authority.
The rights of the employers according to this Act are as follows:
Right to forfeit bonus of an employee who was dismissed from service

for fraud, riotous or violent behaviour, theft, or sabotage
Right to deduct from the bonus payable to an employee for any financial
loss caused by misconduct of the employee.
Right to refer any disputes regarding the application or interpretation of

any provision of the Act to the labour court or labour tribunal.
We have discussed the provisions of the Payment of Bonus Act. Let us next
discuss the Payment of Gratuity Act.
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11.5.8 Payment of Gratuity Act, 1972

A gratuity is a retirement benefit payable to a worker. Gratuity is a reward for
good, efficient and faithful service rendered for a considerable period.2 The
Payment of Gratuity Act aims to have a uniform payment of gratuity
throughout the country. This Act has been amended in 1984, 1987 and
1998. This Act is applicable to the whole of India except in the state of
Jammu and Kashmir.
The provisions of this Act are as follows:
It stipulates compulsory payment of gratuity by managements of

factories, plantations, oil fields, ports, railways, shops and other
establishments, which employ 10 or more persons, in the event of
superannuation, retirement, resignation or death of an employee.
The gratuity is calculated at the rate of 15 days salary for every year of
service completed, subject to a maximum of Rs 3,50,000.
The right of a worker to gratuity can be forfeited in certain cases.

13. The _______________ Act provides for the full and healthy
maintenance of women and their children for a certain period before
and after childbirth.
14. A ___________ is a retirement benefit payable to a worker.
15. According to the Employee Provident Fund Act of 1952, the employee
contributes _____ of the wages to the provident fund and the employer
contributes an equal amount.
International Labour Law Reports, Volume 14 by Zvi H Bar-Niv; 1996
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Activity 2:
Analyse if workers can claim compensation in the cases mentioned
below. Give reasons for your answers.
Case 1: Murthy works in a chemical factory and developed asthma due to
exposure to the fumes in the factory.
Case 2: Sunder who worked in an iron works factory injured his fingers
while cutting iron sheets. But Sunder was under the influence of alcohol.
Case 3: Raju, a sweeper in the municipal corporation, slipped from a
garbage truck when he was loading garbage in it and fractured his hand.
The doctor has advised him to take a months rest.
11.6 Summary
Employee laws of the Indian government at the Central and State level have
sought to ensure a high degree of protection for workers. The first laws
regulating the conditions of miners and factory workers were introduced by
the British. After independence more than 55 Central labour laws and over
100 state labour laws have been introduced.
India has many laws which regulate employee administration, employee
welfare, and relations between the management and the employees. The
Industrial Employment (Standing Orders) Act of 1946 compels employers in
industrial establishments to accurately define the conditions of employment
under them and to also to familiarise their employees with the said
conditions. The Factories Act of 1948 regulates labour employed in factories
in India. The Employment Exchanges Act of 1959 compels the employers to
notify the Employment Exchanges of all vacancies other than vacancies in
unskilled categories, temporary vacancies and vacancies proposed to be
filled through promotion. The Apprentice Act of 1961 aims to provide
practical training to technically-qualified persons in different trades so as to
promote skilled manpower. The Contract Labour Act of 1970 aims to ensure
the welfare of contract labourers.
Indian legislature has created laws which aim to resolve industrial disputes.
The Industrial Disputes Act of 1947 is an important legislation for
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investigation and settlement of all industrial disputes. The legislation which

regulates trade union is the Indian Trade Unions Act of 1926.
India also has laws which regulate employee wages and compensation. The
Workmens Compensation Act of 1923 provides for compensation for
injuries, accidents and occupational diseases. The Minimum Wages Act of
1948 ensures the fixation and revision of minimum rates of wages. The
Employees State Insurance Act of 1948 and other acts provide sickness
benefit, maternity benefit, disability benefit and medical benefit. The
Employees Provident Fund Act of 1952 provides for the future of the
industrial worker.
Thus, the legislations of the Indian government aim to ensure the welfare of
the workers.
11.7 Glossary
Term
Description
Adolescent
A young person who has attained puberty but who has not
reached full maturity; a teenager.
Adjudicate
Pass judgement.
Apprentice
A person who is bound by a legal agreement to work for an

employer for a specific period of time in return for practical
training in a trade, art, or business.
Bona fide
Done or executed in good faith; authentic.
Civil court
A court that handles non-criminal legal matters.
Employment
Exchange
An employment office which assists a job seeker in finding a

job or an employer in recruiting an employee.
Prenatal
Before the birth of a child; during pregnancy.
Postnatal
The period immediately after the birth of a child.

1. Discuss the evolution of employee laws in India.
2. What are the provisions of the Factories Act of 1948?
3. Explain the features of the law which regulates contract labour.
4. Explain the Trade Unions Act of 1926.
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5. How does the Industrial Disputes Act of 1947 help in settling industrial
disputes?
6. Discuss any two laws relevant to employee wages and compensation.
11.9 Answers
1. British
2. Government of India
3. Minimum wages
4. Shops and commercial establishment
5. Industrial Employment (Standing Orders) Act of 1946
6. Employment Exchanges
7. Factories
8. Apprentice Act of 1961
9. Contract labour
10. Trade union
11. Collective bargaining
12. Industrial disputes
13. Maternity benefits
14. Gratuity
15. 12%
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11.10 Case Study

Short case
The Murphy Electronics Company in Mumbai produced television and
radio equipment. It wanted to close down one of its plants. But it was not
sure that the government would grant permission for it. It decided to use
lockouts and promoted inter-union rivalries as a pressure tactic to make
workers quit. In the lockout period, the management continued
production of Murphy products by employing small sub-contractors and
stamping its own label on the products.
All these tactics reduced the workforce of the company. Of the 2,500
workers who were employed before the lockout only 497 remained. This
strategy enabled the management to get the plant declared a sick unit by
the Board of Industrial and Financial Reconstruction (BIFR) in 1988,
which eventually led to the closure of the plant.
Questions
1.
Do you think that the Indian labour laws helped the workers of the
Murphy Electronics Company? Give reasons.
2.
Explain how a strong trade union could have helped the workers of
the Murphy Electronics Company.
References:
Budhwar, Pawan S; Bhatnagar, Jyotsna; (2009); The Changing Face of

People Management in India.
Debroy, Bibek; Kaushik, P. D.; (2005); Reforming the Labour Market.
Bar-Niv, Zvi H. (1996); International Labour Law Reports, Vol. 14.
Kumar, A. (2003). Industrial Law
http://labour.delhigovt.nic.in/act/details_acts/trade_union_act_1926
http://labour.nic.in/annrep/files2k1/lab5.pdf
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Unit 12
Participation and Empowerment
Structure:
12.1 Introduction
Objectives
12.2 Employee Participation and Empowerment Objectives
12.3 Employee Participation
Employee Relations, Involvement and Participation
12.4 Advantages of Employee Participation
12.5 Employee Participation in India
12.6 Methods of Participation
Direct Methods of Employee Participation
Indirect Methods of Employee Participation
12.7 Employee Empowerment
Behavioural Effects of Employee Empowerment
Empowerment and Performance
Empowerment Management Practices
Reasons for Failure of Empowerment
12.8 Summary
12.9 Glossary
12.11 Answers
12.12 Case Study
12.1 Introduction
In this unit, we will learn about employee participation and employee
empowerment. The advantages of employee participation and the methods
to implement it are also discussed in this unit.
In the complicated field of employee management, the words
empowerment, participation and involvement are often used. However,
they are interpreted differently by people. This unit provides an insight into
these words. Let us differentiate between participation and involvement,
and analyse how the concept of empowerment falls within these
perceptions.
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According to the Chartered Institute of Personnel and Development1 (CIPD),

employee participation is described as a process of employee involvement
designed to provide employees with the opportunity to influence and where
appropriate, take part in decision making on matters which affect them.
Employee involvement is a structured process that encourages employee
participation with the objective of initiating work related changes.
Empowerment involves sharing decision-making and implies more authority
is delegated to employees.2
Objectives:
explain the objectives of employee participation and empowerment in an

organisation.
define employee participation.
assess the advantages of employee participation.
describe the state of employee participation in India.
define employee empowerment.
explain the methods of employee participation.
analyse the effects of empowerment on employees.
12.2 Employee Participation and Empowerment Objectives

Employee participation and empowerment have become popular
buzzwords. Employee participation involves employees in decision-making
and empowerment helps in delegation of authority. Let us first discuss the
objectives of employee participation and empowerment, and later analyse
each of them in detail.
The primary objectives of employee participation and empowerment are as
follows:
To increase efficiency of organisations: Enhancing productivity has

become one of the major objectives of all organisations and in some
cases, a corporate obsession. Several organisational psychologists, inhouse as well as professional consultants, are fully committed to
establishing employee contribution schemes. Many organisations have
en.wikipedia.org/wiki/Chartered_Institute_of_Personnel_and_Development
Empowerment: HR Strategies for Service Excellence by Conrad Lashley; 2001
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found that systematic implementation of employee participation and

empowerment schemes have helped in improving productivity.
To improve employee relations: Organisations seek to fully develop and

utilise the skills, knowledge and motivation of the workforce in order to
realise their goals. Employee participation and empowerment are crucial
for motivating employees. Since the 1980s, numerous employeeparticipation efforts and workplace committees have been implemented
in many establishments. These schemes include quality circles,
employee participation teams, total quality management teams, teambased work structures, safety and health committees, profit-sharing
plans, joint labour management training programs, information sharing
forums, joint task forces, employee-ownership programs and employee
representation on corporate boards of directors.
To enhance job satisfaction: Professional and technical employees

value the freedom to decide how to do their work without close
supervision. They also value timely information and communication
regarding things that affect their work and their organisation. Autonomy
and involvement in organisational activities contribute to job satisfaction
and thus decrease turnover.
To make entrepreneurs out of employees: Organisations want

employees to identify with their company better and align their goals with
that of the company. Employee shares, employee loans, stock options
or limited company shares and so on help increase a sense of
ownership. They enhance employee involvement and participation and
help in motivating them.
To improve the Quality of Work Life (QWL): Employee participation

allows workers to have a greater influence on their working environment.
They are able to participate in decisions on matters related to wages,
safety, health and work facilities. Thus they are able improve their QWL.
To secure mutual co-operation of employees and employers: Employee

participation helps in achieving industrial peace and avoiding conflicts.
Exhibit 12.1: Employee Empowerment at the Bank of New Zealand

The Bank of New Zealand (BNZ) is the 148-year old subsidiary of National
Australia Bank and has demonstrated the power of empowerment. In 2007,
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the managers of all the branches of BNZ were given the freedom to choose
when to open and close the branches for customers. The impact of the
changes was apparent immediately.
In Takapuna, a tiny Auckland suburb, BNZ became the first bank to open on
Sunday mornings. This allowed the branch to serve the thousands of
customers who flocked in to the local farmers market. In South Island ski
towns, branch managers opted to stay open until late in the evening, so
skiers could attend to their banking needs after a full day on the slopes.
Within city centres, many branch managers chose to synchronise their
schedules with nearby retailers rather than to keep bankers hours. Within 6
months, nearly 95% of BNZs 180 branches had altered their opening hours
in some way.
While branch managers were moving quickly to exploit their new found
freedom, there were many at head office who were fretting about the loss of
control. Within the banks HR function, there was a concern that the New
Zealand bankers union, Finsec, would raise a ruckus and object to any
changes that extended the work day or compelled employees to come in on
weekends. Others worried that store managers might choose to cut opening
hours - a move that would jeopardise customer satisfaction and the brand.
BNZs risk management experts had their own issues. Charged with
protecting the brand, senior staffers worried that a hodge-podge of opening
times might damage the banks carefully built reputation for consistency and
reliability.
While many of the objections were more political than practical, some were
grounded and soon led to policy adjustments. A software template was
developed that allowed store managers to print out a simple sign displaying
local opening hours. Team members were reminded they still had to abide
by the banks security policies and could do nothing that would jeopardise
employee safety. Further, store managers were expected to consult with
team members before making any changes to staff schedules - new
opening hours required the agreement of every store employee. This caveat
also helped neutralise objections from BNZs union.
You can now explain the objectives of employee participation and
empowerment. Let us next analyse employee participation and its benefits.
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1. Many organisations have found that the systematic implementation of
employee participation and empowerment schemes has helped in
improving ________________.
2. Autonomy and involvement in organisational activities contribute to
_______________ and thus decrease turnover.
3. Organisations want employees to ________ their goals with that of the
company.
12.3 Employee Participation

Employee participation is the process by which workers take part in the
decision-making processes and do not just blindly follow the instructions of
their supervisors. Employee participation is essential for their empowerment
in an organisation.
Empowerment implies decentralising authority in an organisation. Team
participation is essential for empowerment. Team members are motivated to
make decisions for themselves according to the guiding principles and
structures that are set up for self-management.
Quality initiatives within an organisation require employee participation.
Each employee is encouraged to take incorporate quality measures in all
activities, in order to satisfy the needs of customers. Employee participation
is also essential for the efficient management of human resources in
organisations. Employees feel motivated when organisations empower them
to take decisions. Employee participation is also known as Employee
Involvement (EI)
Examples of schemes that encourage employee participation include the
following:
Project management teams or quality teams: Workers perform tasks that

assign significant responsibilities to the team.
Suggestion schemes: Workers are provided with channels through

which they can convey new ideas to their supervisors. Frequently,
deserving suggestions are suitably rewarded.
Consultation exercises and meetings: Workers share their ideas and

experiences, which help to achieve the common tasks and goals.
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Delegation of responsibilities within the organisation: Employees who

deal with customers often have to be empowered to make their own
decisions and assigned more responsibilities.
Multi-channel decision-making techniques: Decisions are not only taken

in a descending flow. They also result from communications that are
upwards, sideways or various other ways within the organisation.
The concept of collective bargaining is also a form of employee

participation. It represents a process of negotiation about working conditions
and terms of employment whereby two or more parties (employers and
employees associations) come together and negotiate with a view of
reaching an agreement.3 Thus, it enables employees to take part in the
decision making process through the employee representatives of trade
unions.
Adoption of the Employee Stock Ownership Plan (ESOP) makes employees
stakeholders in the company and hence increases their participation and
feeling of ownership. For example, United Airlines of the USA gave 55% of
its equity stake to its employees in exchange of pay cuts and was able to
secure employee participation.
Exhibit 12.2: ESOP
ESOP is an option given to an employee in relation to the shares of the
employer company. There is a simple description of ESOP as a generic
term for a basket of instruments and incentive schemes that find favour with
the new, upwardly mobile, salaried class and which is used to motivate,
reward, remunerate and hold on to achievers. It takes place in many ways.
The company may directly allot its shares to employees at market price
or at a concessive rate.
The company may give its employees the option to acquire the shares
or debentures at an agreed price that may be attractive. The option
though, may be permitted at the end of a waiting period after which the
employee can exercise it. That may be followed by a lock-in period when
the employee cannot sell his shares.
Political Transformation, Structural Adjustment and Industrial Relations in Africa by International Labour
Organisation; 1994
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The third is to give stock appreciation rights shares are only

notionally allotted and at the end of the agreed period, the employee
is paid the difference in price.
Yet another is to offer staggered options that the employee can
exercise over a fixed period.
There is a noticeable difference in terms of coverage if one compares IT and

non-IT companies. While around 43% of IT companies have given ESOPs
to more than 90% of their employees, only 17% of non-IT companies have
done so. A related finding is that more than 75% of non-IT companies offer
ESOPs only to senior and middle management.
The phrase sweat equity share is used often in the context of an ESOP. It is
given to employees on favourable terms in recognition of their work. It
usually takes the form of an option to employees to buy company shares so
they become part owners and participate in the profits apart from earning a
salary.
India has accepted and adopted ESOP in a manner and to an extent that
was unimaginable just five years ago. Beginning with the IT sector, ESOP
has spread across the services and manufacturing sectors. Regulatory
development had kept pace with the speed of ESOP in India. Legislation
related to ESOP is now part of income tax and corporate laws. SEBI has
issued revised guidelines on the issue of ESOP in the light of continuous
evolution in India and abroad.
The occupational health and safety management systems of USA also
recommend total employee participation in decisions that affect their health
and safety. It suggests the use of safety representatives, joint labourmanagement committees, work groups and teams to support their
participation in implementing health and safety schemes. They can conduct
workplace inspections, analyse safety hazards, develop and revise safety
rules, and train new employees.
Let us next see how EI and participation influence employee relations.
12.3.1 Employee relations, involvement and participation
According to Farnham (1997), participation of employees is one of the four
strategy choices for the administration in an employment relationship.
Farnham states, An employee has the right to question and influence
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organisation decision making and this may involve representative workplace

democracy.4
In contrast, EI is more unique and individualistic. Involvement aligns
commitment with the various organisational goals and is influenced by
employee relations with management.
Employee involvement includes upward and downward communication
flows. Downward communication flows from higher management to line
staff. It involves written information like staff newsletters, notice boards, staff
handbooks and in-house journals. Downward communication also involves
other official channels such as team or cascade meetings and staff forums.
Upward communication can be formal or informal. It includes employee
suggestions, employee surveys and performance appraisals of the
superiors. It is sometimes correlated to quality management tools that
include quality circles, quality improvement groups, etc.
The participation of employees in organisational decision-making is now
being encouraged by everyone involved in the employment relationship.
These include employers, workers, trade unions, and the state. Blyton and
Turnbull have found that more attention is being given to EI and
participation. But there are different opinions on the degree of employee
participation in decision-making. Questions are being raised on the ability of
employees to meaningfully influence strategic decisions. The range of
matters in which employee decision-making has been enabled is also
debatable.
Blyton and Turnbull, in the year 2004, have proposed a gradual increase in
EI from the stage of no participation to the stage of employee control. In
reality, it may fall between the process of just receiving decisions to joint
consultation and decision-making. Enhancing employee participation
involves understanding the nature of employee relations and a change in
the notions of how employee relations is embodied in industrial relations.
Gaining EI and participation is a time consuming process and requires a lot
of support from top management. Joint consultation meetings, group
briefings and regular management walkabouts encourage these. Employees
4
www.heacademy.ac.uk/assets/hlst/documents/resource_guides/employee_empowerment_perception_
and_involvement.pdf
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have to be properly trained to enable them to effectively take part in the

decision-making process. EI and participation processes have to be
regularly monitored and reviewed so that employees can contribute to the
achievement of overall goals. Implementing these schemes helps in
improving employee relations within the organisation.
4. Employee participation is the method in which the workers take part in
the ___________ processes.
5. Employee participation is essential for _____________of employees in
an organisation.
6. Employee participation is also known as employee________.
7. Gaining employee involvement and participation is a time consuming
process and requires a lot of support from the _____________.
Activity 1:
Assume that you are the new project manager of an organisation. The
previous manager took all project decisions and hence team members
are not aware of what needs to be done. Previously, they just did what
their manager asked them to do. List the methods that you will employ to
increase their participation in project activities.
12.4 Advantages of Employee Participation

Having gained an understanding of what employee participation is, let us
discuss its advantages. It implies that the management of an organisation
advocates EI in execution and improvement of various business processes.
It is beneficial for the organisation in several ways. Companies like IBM,
General Foods, Texas Instruments, Procter & Gamble, Ford, Motorola,
Honeywell, 3M, and Hewlett-Packard have such programs. It benefits both,
employees and employers. The advantages are as follows:
Enhanced employee performance and productivity: Employees clearly

understand their tasks, as there is no ambiguity in their communications
with managers. This helps them perform in a better way. Employees are
better informed, and are able to identify and overcome hurdles to
productivity.
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Enhanced organisational excellence and efficiency: It reduces the

number of inconsistencies. Knowledge of tasks enables employees to
make intelligent decisions and this increases overall efficiency.
Enhanced employee commitment: Employees become more dedicated

and work toward achieving the objectives of the organisation.
Reduced absenteeism and employee turnover: When employees

suggestions are valued and rewarded, their job satisfaction increases.
This helps in retention of employees and reduces absenteeism.
Reduced labour Conflicts: It builds trust and mutual support. Employees

align their goals with that of the organisation and conflicts reduce.
Improved
communication
within
the
organisation:
Effective
communication is essential for building employee participation.
Managers develop their communication skills in order to inform their
subordinates of their intentions and perceptions. Employees too
communicate better with their superiors through suggestions and jointmeetings.
Reduced resistance to changes: It enables them to quickly adapt to

organisational changes as there is a clear understanding of employee
expectations.
Enhanced morale: An employees desire increases to be actively

involved in their work and make significant contribution to their
organisations. It satisfies many of the psychological needs of the
employee and thus increases morale.
Increased Innovation and Creativity: It enables employees to suggest

and implement novel ideas that help in decision-making and problem
solving.
You now know the advantages of employee participation. Let us next

discuss how employee participation is enabled in India.
8. Employee participation implies that management advocates employee
involvement in execution and improvement of various _____________.
9. _________________ is essential for building employee participation.
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10. Employee participation satisfies many of the ____________ needs of

the employee and thus increases their morale.
12.5 Employee Participation in India

The legal provisions and gazette notifications of the Indian government
enable indirect participation of workers through by their representatives.
These representatives are usually elected by workers.
Since independence, the Indian government has initiated many schemes
that provide for employee participation both at the enterprise and shop floor
level. They include the following:
Works committee: The Industrial Disputes Act of 1947 provides for

limited participation of workers representatives in the bipartite works
committee to ensure good relations between employers and employees.
Committees like the canteen committee and the safety committee are
statutory.
Joint Management Council (JMC): JMCs were introduced in 1958 to

administer employee welfare, training, changes in work practices,
formulation of standing orders, organisational productivity and so on.
Employee directors in nationalised nanks: Banks were nationalised in

1969. The Indian government made it mandatory for them to have
employee directors representing both workers and officers. The Board of
Hindustan Antibiotics (Pune), HMT (Bangalore), Tata and DCM have
also adopted this practice.
Amendment of the Indian Constitution: The Indian Constitution was

amended in 1976 and Section 43A was inserted in the Directive
Principles. This enabled workers participation in management at floor
and plant levels in manufacturing and mining industries that employ 500
workers or more. Councils were given powers to deal with issues
relating to production, waste management, absenteeism, safety and
resource utilisation.
Scheme for workers participation in management: This scheme was

introduced in 1977 and applicable to commercial and services
organisations that have 100 or more employees.
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Scheme of 1983: The 1983 scheme regulating employee participation

was applicable to all central public sector enterprises. It set up a
tripartite committee (for what?).
Workers Share in Equity: The Union Budget of 1985-1986 had

provisions for offering stock options up to five percent of the total shares
in order to increase workers participation in management.
Participation of workers in Management Bill of 1990: According to this

bill, every industrial enterprise needs to constitute one or more shopfloor council and establishment council. These councils must have
equal representation of employers and employees.
In India, the twin processes of globalisation and liberalisation began in 1990

and gathered momentum in 2000. Suddenly, there was a need for a flexible,
more qualified and versatile workforce. Employees realised the need for
encouraging employee participation. Most trade unions prefer it to be
implemented by using the union. They also want it to begin at the board
level. Employers prefer to bypass the union and establish direct contact and
communicate with employees. Employers prefer to have employee
participation at the floor level. Also, many export processing zones and IT
enterprises are union-free. Many white-collar workers prefer individual
treatment and do not appreciate the value of trade unions. The trade unions
too have realised the benefits of co-operating with the management.
Nowadays, managements have started using Japanese methods of direct
participation like two-way communication, kaizen, suggestion schemes,
quality circles, 5S and so on. BHEL, Mahindra and Mahindra, Godrej and
Boyce have implemented quality circle groups.
We have now discussed employee participation in India. We will next
analyse the different methods.
11. The legal provisions and gazette notifications of the Indian government
enable ____________ participation of workers by the representatives
of the workers.
12. The Indian government has made it mandatory for nationalised banks
to have _______________ representing both workers and officers.
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13. The Indian Constitution was amended in 1976 and Section 43A was
inserted in the _____________ to enable workers participation in
management.
14. Employers prefer to have employee participation at the ________level.
12.6 Methods of Participation

Employee participation mainly refers to the participation of employees in
decision-making. There are many ways to implement it. Employee
participation can take both direct and indirect form. However, direct methods
are more popular presently. Research has suggested that an integrated
approach to enhance employee participation is better than a non-integrated
one. The integrated approach tries to enhance organisational performance
and profitability by adopting effective communication methods and
enhancing employee consultation. Few methods like having suggestion
boxes are easy to implement. Others are more complicated. Irrespective of
the method adopted, the main purpose of employee participation is to
enhance efficiency by the effective use of human resources. Let us discuss
the direct methods of encouraging employee participation.
12.6.1 Direct methods of employee participation
Direct methods of employee participation are task oriented and focus on
enhancing individual performance. They are characterised by rewards and
performance appraisal systems. Direct participation is enabled by providing
opportunities to individual employees or small teams to influence the way
their jobs are organised. It is influenced by communication, information and
consultative channels provided by the employer, and is mostly management
driven.
The direct methods of employee participation include the following:
Newsletters: These communicate the latest happenings and events

within a company to employees and clients, both potential and existing,
of the company.
Employee reviews: These are conducted by the immediate supervisor to

review employee performance.
Self-managed teams: These require higher levels of autonomy,

satisfaction, job security and support from management.
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Team briefings: These are regular meetings between managers and

their teams to exchange information and ideas.
Team meetings: These provide a forum for problem solving and

decision-making. Managers also provide important information to the
team members in these meetings.
Suggestion schemes: These are informal ways of obtaining ideas from

employees.
Quality circles: These are mechanisms which develop and utilise the
potential of people in order to enhance product quality and productivity.
These require the development of skills, capabilities, confidence and
creativity of people through the combined process of training, on the job
experience and participation. The work conditions need to facilitate an
environment which creates and sustains employee motivation and
commitment towards work excellence.
Profit sharing: This is an arrangement by which the owner(s) of a

company shares a percentage of the profit earned with the employees.
Problem-solving groups: These focus on understanding issues,

considering all possible factors and finding a solution.
Employee surveys: These are formal mechanisms for collecting

employee opinions.
Now that you know the direct methods of employee participation let us next
analyse the indirect methods.
12.6.2 Indirect methods of employee participation
Indirect employee participation takes place when employees participate
through representatives at the workplace. Such representation provides a
mechanism for both employees and employers to express their opinions,
perceptions, interests and concerns about the functioning and the decisionmaking processes of the organisation. Collective bargaining is a traditional
method of indirect participation wherein the trade union negotiates on behalf
of the employees.
The different forms of indirect participation are as follows:
Joint Consultation Committee (JCC): These are commonly used in

public sector companies in India. Managers and employees value this as
a useful form of participation. The flexibility of the JCCs enables a
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consultative approach. They can be dominated either by the

management or enable employee representatives to influence
organisational decisions. JCCs are based on three principles:
A clear separation between consultation and negotiation issues.
Regular participation of managers and implementation of decisions.
Legitimate employee representation.
Work councils: These are used by the management to consult with

employee representatives on issues related to production and employee
relations. They provide a forum for discussing contentious issues. Work
councils are more formal than JCCs and often have some rules
regulating them. They appoint employee directors. The management
informs the work council about important issues. Employee
representatives can consult experts to get a better understanding of
issues.
Worker directors schemes: Worker directors represent the workers in

the board of the company. This enables workers to have a stake in
formulating long-term goals of the business. Workers become more
committed when they participate in setting the objectives of the
organisation.
12.7 Employee Empowerment

Empowerment is defined as the process of enabling or authorising an
individual to think, behave, take action and control work, and make
decisions in autonomous ways.5 Empowerment refers to the process of
assigning job responsibility to a worker and providing the worker with the
power of decision-making regarding the job without having to obtain the
sanction of a superior. It is thus influenced by the level of responsibility and
power offered to a worker. Employee empowerment involves the following
activities:
Redistribution of power and authority.
Increasing involvement of employees with the goal of achieving

organisational success.
Complete participation of employees in decision-making processes.
humanresources.about.com/od/glossarye/a/empowerment_def.htm
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Self-motivation.
Healthy interaction amongst teams and building of team spirit.
Emphasising co-operation among employees.
Making employees more proactive.
Empowerment happens when workers are sufficiently trained, provided with

appropriate information and excellent tools, completely involved in key
decisions, and are honestly remunerated. It involves finding out how much
responsibility and ability a worker can efficiently manage without becoming
pressurised or anxious. It implies managers and workers working
collectively to set up clear objectives and identify opportunities. Employee
empowerment workshops and books can assist an organisation in training
an employee in decision-making methods. It provides authority to the
workers and thus makes them happier.
Effective implementation requires the executive team to be completely
committed to the process of permitting workers to make resolutions. The
executive management might want to control the range of decisions made.
Creating decision-making teams is a process that enables employee
empowerment, since it enables supervisors and employees to put forward
their ideas for the progress of the organisation.
One of the simple methods to start employee empowerment in an
organisation is to set up a suggestion box in which employees can make
proposals without fear of penalty or revenge. But a suggestion box is
effective only if the employee suggestions are acted upon. Hence,
supervisors have to read and think over the suggestions. Suitable
suggestions have to be accepted so that the workers feel that they can
impact the working of their organisation. Failure to agree to or execute any
suggestions highlights that all the authority belongs to the supervisors and
none to the employees. Supervisors can conduct meetings where
employees can make queries or proposals and obtain answers.
Employee empowerment will be successful only when the management is
receptive to new ideas and approaches. Here are examples of two
companies which empower their employees in order to improve their
customer service. The Ritz Hotel has permitted its front desk employees to
spend up to a maximum of $2000 on the spot to resolve a customer
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complaint. Disney World has authorised its employees to replace lost

tickets, spilled food and damaged souvenirs, even if the fault lies with the
customer.
Let us analyse the effects of empowerment on employee behaviour.
12.7.1 Behavioural effects of employee empowerment
Employee empowerment is a significant factor of administrative and
organisational efficiency as well as the establishment of inventive and
quality performance. Empowerment enables employees to feel that they are
influencing their jobs and work environment in a positive way. The following
are the effects of empowerment on employee behaviour:
It enables employees to have more control over their job.
It makes them more proactive, creative and innovative.
It makes them independent and employees show more initiative.
It enables them to use their abilities and vision fully and accept
responsibility for their job.
It increases their competency.
It allows leaders to mobilise members in the face of challenges.
It enables leaders to set higher performance goals and helps employees

to accept these goals.
It is useful in motivating subordinates to persist in their endeavours

despite difficult organisational obstacles.
It enhances job satisfaction at an individual level.
It makes employees more self-determined.
It makes them more resilient in the face of adversity.
The software company Siebel empowered its employees to manage their

own personal data and career development. This increased job satisfaction
and reduced turnover. Let us next discuss the effects of employee
empowerment on their performance.
12.7.2 Empowerment and performance
In 1999, Kirkman and Rosen identified positive relationships between team
empowerment and team efficiency. According to the empowerment theory,
empowered individuals perform better than other individuals. The effects of
empowerment on employee performance are as follows:
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It makes employees responsible for performance outcomes.
It helps in maintaining consistent performances of teams.
It enables employees to identify and resolve obstacles and hence

achieve job performance.
It improves job efficiency.
It makes employees more knowledgeable about their work and hence

they are able to plan and schedule their activities in a better way.
It makes them work harder as they view themselves as able to influence

organisational outcomes.
It enables them to face difficult situations in a better way and thus

increases their performance.
It improves their feelings of self-worth and confidence which translates

into higher levels of performance.
Thus the four empowerment dimensions - meaningfulness, competence,

self-determination and impact affect employee performance.
Let us next discuss the management practices which encourage
empowerment.
12.7.3 Empowerment management practices
According to Conger and Kanungo (1988), The practice of empowering
subordinates is a principal component of managerial and organisational
effectiveness.6 It is generally found though that most managers resist
empowerment and feel threatened by the idea of delegating authority.
Managers have to view themselves as leaders in order to be able to
empower their subordinates.
For an organisation to carry out and promote employee empowerment, the
higher management has to trust and interact with workers. EI is one of the
significant signs of employee empowerment.
Sincere and repetitive
communication on all issues from essentials of the strategic plan, key
performance indicators, economic performance, down to day to day
decision-making are the main factors of empowerment management
practices. The management practices that encourage empowerment are as
follows:
6
http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_03_210.pdf
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Planning and selecting training methods that ensure technical and

linguistic efficiency.
Ensuring that the culture of the organisation encourages independence,

group effort over inconsistency and competition, superior performance
standards, non-discrimination and meritocracy.
Enabling open interaction and forming widespread networks.
Communication of performance expectations to team members and

generation of motivating and significant goals.
Promotion of opportunities for workers to take part in decision making

techniques.
Fostering employee independence.
Let us next discuss the reasons for empowerment failure.

12.7.4 Reasons for failure of empowerment
Employee empowerment can be effective only if it is properly implemented
and has the support of top management. Measures for employee
empowerment fail due to the following reasons:
Higher management does not believe in empowering employees or

makes only half-hearted attempts to empower them.
Managers do not know what empowerment means.
Managers do not establish boundaries for decision-making. Questions

like who will take decisions in the absence of the manager or who takes
day-to-day decisions have to be clearly answered.
Supervisors do not have a strategic framework for implementing

empowerment.
Supervisors do not provide the information and opportunities for learning

that is required for workers to equip themselves to take proper
decisions.
Workers misuse the authority offered to them.
Some managers are reluctant to delegate authority as they feel that they
might lose power in decision-making.
Managers do not trust the employees to make the correct decisions.
Sometimes managers undermine the decisions taken by employees and

change them.
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Managers do not publicly support employee decisions or stand behind

their employees.
Some employees fear empowerment and do not want take any

decisions by themselves.
Sometimes, employees are not given due credit for their decisions and
actions.
Thus, we see that the obstacles to empowerment have to be removed in

order to ensure its success.
15. Empowerment is defined as the process of enabling or authorising an
individual to think, behave, take action, control work and make
decisions in __________________ ways.
16. Empowerment happens when workers are sufficiently trained and
provided with appropriate ____________ and excellent ____________.
17. Empowerment implies managers and workers working ___________to
set up clear objectives and identify opportunities.
18. One of the simple methods to start employee empowerment in an
organisation is to set up a _______ box.
19. _________ is one of the significant signs of employee empowerment.
Activity 2:
You are owner of a computer networking company that helps set up
computer networks for small and medium-sized companies. List down the
ways in which you can empower your sales people and engineers in
order to achieve customer satisfaction.
12.8 Summary
Employee participation is the process by which workers take part in
decision-making processes. Empowerment implies decentralising authority
in an organisation.
The objectives of employee participation and empowerment are to increase
the efficiency of organisations, to improve employee relations, to enhance
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job satisfaction, to improve the QWL and to secure the mutual co-operation
of employees and employers.
Examples of schemes which encourage employee participation include
project management teams or quality teams, suggestion schemes,
consultation exercises and meetings, delegation of responsibilities within the
organisation, and multi-channel decision making techniques. EI aligns
commitment with the various organisational goals and is influenced by
employee relations management. Gaining EI and participation requires a lot
of support from the top management. Joint consultation meetings, group
briefings and regular management walkabouts encourage these. It
enhances employee performance, commitment, innovation, creativity,
morale and productivity. It also increases organisational excellence and
efficiency. It reduces absenteeism, employee turnover, labour conflicts and
resistance to change. Many schemes have been initiated by the Indian
government to increase employee participation.
Employee participation can take both direct and indirect forms. The direct
methods of employee participation include newsletters, employee reviews,
self-managed teams, team briefings, team meetings, suggestion schemes,
quality circles, profit sharing, problem-solving groups and employee
surveys. The different forms of indirect participation are collective
bargaining, joint consultation committees, work councils and worker
directors schemes.
Empowerment happens when workers are sufficiently trained, provided with
appropriate information and excellent tools, and are completely involved in
key decisions. The management also has to be committed to the process of
permitting workers to make resolutions. It enables employees to feel that
they are influencing their jobs and work environment in a positive way.
Empowered individuals perform better than the individuals who are not.
Sincere and repetitive communication on all issues from essentials of the
strategic plan, key performance indicators, economic performance, down to
day-to-day decision-making are the main factors of empowerment
management practices. Measures for employee empowerment fail if it does
not have the support of the management and the employees.
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12.9 Glossary
Term
Description
Bipartite
An agreement between two parties
Decentralising
Delegating decision making and assigning responsibilities

to sub-units
Directive Principles
Guidelines to the central and state governments of India

for formulation of laws and policies
Employee Stock
Ownership Plan
A scheme which gives employees stocks of the company

after a certain period of employment
Forum
An assembly for open discussion
Gazette
notifications
An announcement in an official publication
Globalisation
The process by which businesses expand their operations

throughout the world
Liberalisation
The relaxation of rules and controls governing trade and

commerce in a country
Statutory
Enacted or authorised by a legislation
Tripartite
An agreement executed between three parties
White-collar
workers
Salaried and educated workers who do not perform

manual labour

1. Explain the objectives of employee participation and empowerment.
2. Define employee participation. What are the schemes that encourage
employee participation?
3. What are the advantages of employee participation?
4. What are the measures introduced by the Indian government to enable
employee participation?
5. What are the different kinds of employee participation methods?
6. Explain what is employee empowerment. What are the effects of
employee empowerment?
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12.11 Answers
Answers for Self Assessment Questions
1. productivity
2. job satisfaction
3. align
4. decision-making
5. empowerment
6. involvement
7. top management
8. business processes
9. effective communication
10. psychological
11. indirect
12. employee directors
13. Directive Principles
14. floor
15. autonomous
16. information, tools
17. collectively
18. suggestion
19. employee interaction
Answers for Terminal Questions
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12.12 Case Study

Bertelsmann is an international media company whose success is due to
its corporate culture based on employee partnership. The company aims
to encourage innovation, creativity and entrepreneurial spirit. Employees
are given the greatest possible freedom along with a high degree of
responsibility in order to develop and utilise their capabilities for the
benefit of the company.
Employees are empowered to design their jobs and workplace, their local
company and the company as whole. The main tools used for
encouraging employee participation include staff surveys, one-on-one
performance reviews between supervisors and employees, in-house
suggestion schemes and elected employee representatives.
Employee participation at Bertelsmann is implemented in the immediate
work environment, at the developmental level and group level. At the
company level, employees of different departments work together in
focus groups and task forces. They analyse and find ways of establishing
healthier working conditions through health circles. Employees look for
ways to improve the quality and efficiency of processes or products
through quality circles. Employees use the complaints system to inform
the management about the reasons for dissatisfaction.
Managers and employees engage in constant dialogue to have a
successful partnership. The methods used to implement employee
participation are works councils, representative committees of executive
staff, committees representing employees with disabilities and the
Bertelsmann Management Representative Committee (BMRC). All of
these are governed by rules and standards and have elected empowered
representatives. The BMRC complements the representative committee
which is meant for executive staff in Germany. The employees have four
representatives on the Bertelsmann AG Supervisory Board: three
representatives from the works councils and the fourth from the BMRC.
The works council shares responsibility for running the business
operations and for managing the employees. It represents employee
interests but also takes into account the needs of the business as a
whole and conveys this to the workforce. At Bertelsmann, a style of
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consensus is adopted. Certain fixed procedures have been established.

At the Autumn Summit, an annual meeting between the Executive Board
and the Corporate Works Council, all critical issues are discussed by the
employee representatives and the executive board.
Escalation procedure is another method employed in the dialogue
between employee representatives and the company. Conflicts that are
not resolved locally between a companys works council and its
management are first escalated to the division level, then to group level
and from there on to the Executive Board and Corporate Works Council.
Thus, Bertelsmann encourages its employees to play an active role in the
company.
Questions:
1. Explain how employee participation is implemented at Bertelsmann.
2. What, according to you, are the benefits of employee participation for
Bertelsmann?
References:
1. Lashley, Conrad; 2001; Empowerment: HR Strategies for Service
Excellence.
2. Gennard, John; Judge, Graham; 2005; Employee Relations.
3. Budhwar, Pawan S; Bhatnagar, Jyotsna; 2009; The Changing Face of
People Management in India.
4. Farnham, David; 2000; Employee Relations in Context.
5. Hyman, Jeff; Mason, Bob; 1995; Managing Employee Involvement and
Participation.
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Unit 13
Unit 13
Employee Rewards
Structure:
13.1 Introduction
Objectives
13.2 Employee Rewards
Need for Employee Rewards
13.3 Formulating Employee Rewards
13.4 Types of Reward Systems
13.5 Recognition Programmes
Importance of Employee Recognition
Reward versus Recognition
13.6 Summary
13.7 Glossary
13.9 Answers
13.10 Case Study
13.1 Introduction
By now you must be familiar with the concept of employee participation and
empowerment, and its goals. We also know about the advantages of
employee participation and the methods to implement it. In this unit, we will
discuss another important aspect with reference to employee compensation
employee rewards.
The history of employee rewards is quite brief. It dates back to the early
20th century. As a distinct and formal management process used in the
evaluation of work performance, employee rewards dates back to the time
of World War II, that happened 65-70 years ago.
Employee rewards appear to be both inevitable and universal. In the
absence of a carefully-structured system of recognition, people will tend to
judge the work performance of others, including sub-ordinates.
This unit elaborates on the need of employee rewards, a description of the
types of reward systems and the importance of employee recognition.
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Objectives:
describe the concept of employee rewards.
explain the need for employee rewards.
identify the points to consider while formulating a reward system.
analyse different types of reward systems.
explain the importance of employee recognition.
13.2 Employee Rewards

An employee reward system consists of an organisations integrated
policies, processes, and practices for rewarding its employees. This is done
in accordance with their contribution, skill, competence, and their market
worth. It is developed within the framework of the organisations reward
philosophy, strategies, and policies. It contains arrangements in the form of
processes, practices, structures, and procedures. These arrangements will
provide and maintain appropriate types and levels of pay benefits and other
forms of reward.
The overall objective is to reward employees fairly, equitably, and
consistently, in accordance with their value to the organisation. This further
helps in the achievement of the organisations strategic goals.
It is not just about pay and employee benefits. A reward system consists of
financial rewards like fixed pay, variable pay, and employee benefits, which
together comprise total remuneration. The system also incorporates nonfinancial rewards like recognition, praise, achievement, responsibility, and
personal growth. The combination of financial rewards, employee benefits,
and non-financial compensation comprises the total employee reward
system.
Exhibit 13.1: Taking Employee Rewards to New Heights
Trained masseuse on call, tree house in the building, unlimited beer on tap
and a room dedicated to the game Dance Dance Revolution.
Are all these part of a new luxury hotel? Hardly.
These are the facilities offered by top companies like Google, Airbnb, Yelp,
and Dropbox to their employees. These firms are leading the way to
restructure management, so employees can streamline creative ideas that
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produce blockbuster new products. Other companies like Cisco are not far
behind. They are rewarding employees with perks like onsite swimming
pools, allowing employees to bring their pets to work, providing on-site child
care, and all the free food employees want. These companies provide
relaxed environments, where group thinking is elevated and teamwork is
central to invent the next product that could change the next generation.
And yet, despite their apparent financial recklessness, these companies
continue not only to survive, but to reign high over their competitors,
perched atop their towering mountains of revenue. Through some kind of
magic, their mindless pursuit of a bigger, better, cooler workplace almost
seems to resemble a kind of strategy.
13.2.1 Need for employee rewards
In a world where organisations like to boast about running "lean and mean",
it may seem nearly impossible to compensate employees, for doing good
work without breaking the budget. According to a survey by staffing firm
Accountemps1, (year) frequent recognition of accomplishments with
regular communication were the top non-monetary compensations wanted
by full and part-time office workers,. This can make your employees more
productive without shaving one millimetre off your bottom line. Therefore,
there is a need for employee rewards and their results are mentioned below:
Retention: A good employee reward programme is a positive impact on
employee retention. When the employee is content with the reward
programme then, it will be easy for the organisation to retain the
employee.
Health and Safety: Solid employee reward programmes also have
measurable positive effects both on safety and health of the workplace.
This reduces overall health-care costs for both employee and employer.
Motivation: A crucial outcome of a good employee reward programme
is enhanced motivation among personnel. This also includes helping the
employees to make connections between professional goals and
personal goals.
Engagement: A solid employee reward programme also increases
employee engagement in the workplace, a factor that converts into
improved performance and better customer experience.
1
http://www.accountemps.com/
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Return on Investment: Employee reward programmes provide a

concrete Return on Investment (ROI)2. Studies have shown that
employee recognition and non-monetary rewards show a greater return
on investment than do cash awards.
Bottom Line: Ultimately, from the employer's viewpoint, employee

reward programmes have a positive effect on the bottom line for reasons
such as, positive effect on health care costs, performance, and
workplace engagement.
According to many management consultants, human resource

professionals, career coaches, book authors and bosses belonging to
different industries, there are 15 best ways to reward employees without
spending too much company funds. They are:
1. Have flexible working hours: If there is one complimentary reward
that rises above the rest, it is flexible work schedules. It is commonly
suggested that flexible timing is a plus that offers the most with the
least pain. For example, give a little latitude in determining work
schedules or while deciding to take time for family or personal issues,
such as doctors appointment or banking errands. As long as the
employee deserves, and does not abuse the privilege, this can go a
long way in building trusting and mature relationships with key workers.
2. Send a handwritten note: Supervisors must ask people in the top
management team to write a personal note to employees who deserve
recognition.
3. Make work fun: Create some events to ensure fun in the workplace.
4. Help them connect: Introducing employees and staff to key suppliers,
customers or someone in the senior management team can help build
an employee's career.
5. Bring in the casualness: For example, implementing a non formal
day. It can make employees feel at home with each other, which
translates into increased productivity. It is great to work in an office
where employees are more concerned about doing quality work than
what they are wearing.
http://en.wikipedia.org/wiki/Rate_of_return
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6. Celebrate employees family special days: Every birth and wedding

deserves a celebration. Each employee must be allowed to leave office
early on special days, and food must be provided on the house. The
employee should be told that he/ she does not need to make up for the
lost time. Give memorable gifts to employees spouses or family
members and apologise for taking them away from their families on a
Sunday.
7. Reward effort as well as success: Even if an employees ideas
sometimes fail, you must encourage the employee to keep producing
new ideas. This stimulates innovation and positive behaviour, not
winning.
8. Give them free days: Give a certain number of free days to
employees to use, as they see fit. Employees can use these days as
they like. They do not have to pretend to be sick. They can go to the
beach, read a book, and play with their kids and so on.
9. Serve refreshments: During hectic times of the year, serving drinks
and refreshments to colleagues help to build a comfortable
environment. Small gestures will build great companies. As you serve,
you can encourage colleagues and hear about real consumer issues.
10. Celebrate employees birthday: Host a monthly, hour-long birthday
lunch for any employee whose birthday falls that month. Let it be an
open house where employees can ask him anything. They will feel that
their contribution is being recognised, and the employer will gain loyal
employees who share their ideas.
11. Applaud their efforts, literally: If an employee has done something
really worthwhile, get your entire staff to give him/her a standing
ovation at the next meeting.
12. Have a wall of fame: Dedicate a public space within the firm for your
employees who have achieved something. On a wall, you can place
photos of employees who have accomplished something truly special,
along with the details of what they did.
13. Create your own club: Set aside a space or unused room in the
office, where employees can meditate, chill out or nap.
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14. Invite their feedback and ideas: Great employees are not
mercenaries. They do not just want to enjoy the work; they want to be
passionate about it. If you want your employees to know they are
valued, you should inspire their passion and encourage them to make
their own decisions. You can have systems in place to monitor and
control the implementation of ideas. However, you must be certain not
to compromise on the enthusiasm, creativity, and hard work that make
the ideas possible in the first place.
15. Remember the secret words: While telling your staff or employees
that you appreciate them, be obvious. Employers usually do not do
enough or are not specific enough while appreciating employees. So,
when you share your feedback or appreciation, be specific about what
you really liked, so that they not only feel appreciated but think they can
do it again.
Activity 1:
Find out the employee rewards practices at Dell with the help of the
Internet.
Fill in the blanks.
1. An _____________ system consists of an organisations integrated
policies, processes and practices for rewarding its employees.
2. The combination of financial rewards, employee benefits and nonfinancial compensation _________ the total employee reward system.
3. During hectic times of the year, serving drinks and refreshments to
colleagues help to build a _________ ___________.
4. Giving out ___________ money that can be redeemed for gifts and
other goodies may not be strictly free.
13.3 Formulating Employee Rewards

As we have seen, it is very easy to reward an employee. However, the hard
part is to plan a reward system, which is suitable to the organisations
strength and capacity. An organisation has to see whether it can maintain its
reward system for all its employees at all times. The organisations
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motivation depends on the individual's ability to understand what is being

asked of him or her. Once this has been done, strengthen the original
communication with regular meetings or memos, promoting the programme.
Keep your communications simple but frequent, to ensure staff members
are kept abreast of changes to the system.
Reward systems are actually more than just bonus plans and stock options.
While they frequently include both of these incentives, they can also include
awards and other recognition, promotions, reassignment, non-monetary
bonuses like vacations, or a simple thank you.
Therefore, to overcome all these difficulties, a reward system is formulated.
Formulating a reward system includes the following points:
Decide on the type of tasks that will be rewarded. For instance, if you
have a big and important deadline coming up, perhaps you will give
awards to those who complete their tasks three days ahead of the
schedule. On the other hand, you would like to give rewards based on a
specific number of contracts that sales people are expected to sign.
Choose some items that could be used as rewards. They must be

desirable enough so that your employees will work harder to get them.
Avoid giving out money or bonuses as rewards, as employees might
expect it again and again.
Some good ideas for rewards are gift cards or certificates for local
restaurants, cinema, cruises or other travel-related rewards, tickets to
sporting events, and gift baskets.
Choose the variant levels of success that you wish to reward. For
instance, if a salesperson earns five new contracts, he receives one type
of reward, such as a gift basket. However, for 10 new contracts, he
receives tickets to an Indian Premier League (IPL) match. Rewards at all
levels, inspire all kinds of employees to work harder, and gives them
realistic goals.
Always keep your reward promises. If you had promised a reward but
had not given it when the target was met, then none of your employees
will trust your employee rewards programme, and you will not get
receive good results.
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13.4 Types of Reward Systems

There is a variety of reward programmes aimed at both individual and team
performances. These are discussed below.
Variable pay: Variable pay or pay-for-performance is a reward system
in which a portion of a person's pay is considered "at risk." Variable pay
can be linked to the performance of the company, the results of a
business unit, an individual's accomplishments, or any combination of
these. It can take many forms like bonus programmes, stock options,
and one-time awards for significant accomplishments. Some companies
and firms choose to pay their employees less than competitors, but
attempt to motivate and reward employees using a variable pay
programme instead. According to some experts, "The test of a good
pay-for-performance plan is simple. It must motivate managers to
produce more earnings growth that far exceeds the extra cost of the
programme. Though employees must be made to stretch or work on
weekends, the goals must be within reach."
Bonuses: Bonus programmes have been used in Indian business for

some time. They usually reward individual achievements and are
frequently used in sales organisations to encourage salespersons to
generate additional business or higher profits. They can also be used,
however, to recognise group achievements. Without a doubt, an
increasing number of businesses have switched from individual bonus
programmes to one that rewards contributions to corporate performance
at group, departmental, or company levels.
According to many experts, small businesses interested in long-term
benefits must probably consider another type of reward. Bonuses are
generally short-term motivators. Critics say that by rewarding an
employee's achievements for the previous year, they encourage a shortterm perspective rather than future-oriented accomplishments. In
addition, these reward systems need to be carefully structured, to
ensure they are rewarding achievements above and beyond an
individual or group's basic functions. Otherwise, they run the risk of
being professed as entitlements or regular merit pay, rather than a
reward for outstanding work. Proponents, however, argue that bonuses
are a perfectly legitimate means of rewarding outstanding performance.
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They also argue that such compensation can actually be a powerful tool
to encourage future top-level efforts.
Profit Sharing: Profit sharing refers to the policy of creating a pool of

money to be distributed to employees, by taking a stated percentage of
a company's profits. The amount given to an employee is, most of the
time, equal to a percentage of the employee's salary, and is distributed
once a business closes its books for the year. The benefits can be
provided either in cash, or via contributions to employer's 401(k) plans3.
It is a profit for a company which offers this type of reward because it
can keep fixed costs low.
The idea behind profit sharing is to reward employees for their works
and contributions to a company's achieved profit goal. It encourages
employees to stay put because most of the time it is structured to reward
employees who stay with the company. Most profit-sharing systems
require an employee to be vested in the programme over a number of
years before receiving any monies. Unfortunately, since it is rewarded to
all employees, it tends to dilute individual contributions. In addition, while
profit is vital, it is only one of many the goals a company may have.
According to Jack Stack 4 (1994) profit sharing is "an accumulation of
everything that happens in the business over a given period of time".
Therefore, it is difficult for most employees to connect their actions to the
reward. Stack argued that "employees should be able to see the
connection between their actions, decisions, and participation, and
changes in a company's goals. Like bonuses, profit sharing can, in the
long run, be viewed as an entitlement programme if the connection
between an employee's actions and his or her reward becomes gloomy.
3
4
Stock Options: Stock options have become increasingly popular among

top management and large companies. This reward system started in
recent years for middle management and other employees in both
mature companies and start-ups. Employee stock-option programmes or
systems, give employees the right to buy a specified number of a
company's shares at a fixed price for a specified period of time (usually
around ten years). They are generally authorised by an organisations
http://www.karvy.com/articles/pensionplans.htm
http://www.inc.com/magazine/20040401/25stack.html
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board of directors, and approved by its shareholders. The number of

options an organisation can award to employees is usually equal to a
certain percentage of the company's shares outstanding.
Like profit-sharing plans, stock options habitually reward employees for
sticking around, serving as a long-term motivator. Once an employee
has been with an organisation for a certain period of time, usually
around four years, he or she is fully vested in the programme. If the
employee leaves the organisation prior to being fully vested, those
options are cancelled. After an employee becomes fully vested in the
system, he or she can purchase from the company an allotted number of
shares at the strike price, or the fixed price originally agreed to. This
purchase is known as "exercising" stock options. Once the stock is
purchased, the employee can either retain it or sell it, in the open market
with the difference in strike price and market price being the employee's
gain in the value of the shares.
Offering additional stock in this way presents risks for both the
organisation and the employee. If the option's strike price is much higher
than the market price of the stock, the employee's option is worthless.
When an employee exercises an option, the organisation is required to
issue a new share of stock that can be publicly traded. The
organisations market capitalisation grows by the market price of the
share, rather than the strike price that the employee purchases the stock
for. The possibility of reduction of organisation earnings (impacting both
the company and shareholders) arises when the organisation has a
greater number of shares outstanding. To keep ahead of this likelihood,
earnings must increase at a rate equal to the rate at which outstanding
shares increase. Otherwise, the organisation must repurchase shares
from the open market to reduce the number of outstanding shares.
One benefit of offering a stock option to an employee is that the
organisation gets to avail of a tax deduction for compensation expense,
when it provides shares to employees who exercise their options.
Another benefit in offering options is that while organisations could be
considered a portion of compensation, current accounting methods do
not require businesses to show options as an expense on their books.
This tends to inflate the value of an organisation. Organisations should
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think carefully about this as a benefit. However, if accounting rules were

to become more conventional, corporate earnings could be impacted
because of it.
Group-based Reward System: As more small businesses use team

structures to reach their objectives, many entrepreneurs look for ways to
reward co-operation between departments and individuals. Bonuses,
stock options, and profit sharing can all be used to reward team and
group achievements. An entrepreneur can opt to reward individual or
group contributions or a combination of the two. Group-based reward
systems are reviewed on a measurement of team performance, and with
individual rewards received on the basis of this performance. While
these systems encourage individual works towards common business
goals, they also tend to reward underperforming employees along with
average and above average employees. A reward system, which
recognises individual achievements in addition to team performance,
can provide extra incentive for employees.
Exhibit 13.2: Sabbatical A Novel Reward System

Want to take a career break without losing your job in the current company?
Want to go globetrotting, explore your creative skills, upgrade your technical
skills, teach or go for higher studies. If you have been waiting to fulfil any of
your personal goals for long, then a sabbatical could be your answer.
Sabbatical is a voluntary arrangement whereby employers might give
employees time away from work paid or unpaid over and above their
usual leave allowance. Sabbatical is a prolonged hiatus, generally ranging
from six months to a year. Globally, sabbatical, paid or unpaid, is a very
popular concept.
In India, too, the concept is slowly becoming popular among IT
professionals. While some IT companies like IBM, Infosys and Accenture
offer sabbatical leave ranging from one to two years, other companies
provide sabbatical leave on a case-to-case basis. In India, sabbatical leave
boils down to higher studies as against global practices where people take
sabbatical for various reasons such as pursuing a hobby, for travelling, for
doing research or for teaching in a university.
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Women employees in India take sabbatical leave to relocate with their

husbands. Also, companies give the sabbatical option to employees who
have been with the company for five to seven years at least. And the reason
for taking paid sabbatical leave should in some way lead to value addition to
the current job profile.
Activity 2:
Visit any multinational companys website and research on the types of
rewards system which are incorporated by them.
State whether the following are True or False.
5. Reward systems are actually more than just bonus plans and stock
options.
6. An organisation may or may not fulfil the reward promises.
7. Organisations should avoid giving out money or bonuses as rewards.
8. Variable pay can take many forms like bonus programmes, stock
options, and one-time awards for significant accomplishments.
9. The idea behind profit sharing is to reward employees for their works
and contributions to a company's achieved loss.
10. Stock options habitually reward employees for sticking around, serving
as a long-term motivator.
11. An entrepreneur should only opt to reward individual contributors.
13.5 Recognition Programmes

For small business entrepreneur and other managers, a recognition
programme may appear to be merely extra effort on their part with few
tangible returns in terms of employee performance. While most employees
certainly appreciate financial awards for a job that is done well, many people
merely seek recognition of their hard work. This presents an opportunity to
motivate employees smartly rather than spending cash.
In order to develop an effective recognition system, a small business
entrepreneur must be sure to separate it from the company's reward
programme. This ensures a focus on recognising the efforts of employees.
To this end, although the recognition may be monetary, such as a luncheon,
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gift certificates, or plaques, money itself is not given to recognise

performance. Glasscock and Gram (1995) noted in National Productivity
Review that, efficient recognition methods must be sincere, fair, consistent,
timely, flexible, appropriate, and specific. They go on to explain that it is
important that every action and tasks, which supports an organisation's goal
is recognised. It might be through informal feedback or formal companywide recognition. Likewise, each and every employee must have the same
opportunity to receive recognition for their work.
Recognition must be done in a timely fashion and on frequently. This must
be done so that an employee's action will not go unnoticed, and also to
reinforce the fact that additional high performance is encouraged. Like
rewards, the method of recognition needs to be suitable for the
achievement. This also ensures that extreme actions which support
corporate goals receive the most attention. However, an entrepreneur must
remain flexible in the systems of recognition, as employees are motivated by
different types of recognition. Finally, employees need to clearly
comprehend the behaviour or action being recognised. A small business
entrepreneur can ensure this, by being specific in what actions will be
recognised. Then the actions are reinforced by communicating with an
employee for what exactly he is being recognised.
Recognition can take a variety of forms. Structured programmes can include
frequent recognition events, such as banquets or breakfasts, employee of
the month or year, an annual report, or yearbook. All these recognitions
feature the accomplishments of employees, and department or company
recognition boards. Informal or spontaneous recognition can be various, like
having the privilege of working at home, starting late or leaving early or long
lunch breaks. A job well done can also be recognised by providing additional
support or empowering the employee by giving him/ her greater choice of
assignments, increased authority, or naming the employee as an internal
consultant to other staff. Symbolic recognition such as plaques or coffee
mugs, with writings can also be effective, provided they reflect sincere
appreciation for hard work.
These expressions of thanks, however, are far more likely to be received in
a positive manner if the bestower is a small business entrepreneur with
limited financial resources. Employees will look less kindly on entrepreneur
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of thriving businesses who use such inexpensive items as centrepieces of

their reward programmes.
Both reward and recognition programmes have their own place in small
business. Small business entrepreneurs must first determine desired
employee behaviours, skills, and accomplishments that will support their
business goals. By rewarding and recognising outstanding performance,
entrepreneurs will have an edge in a competitive corporate climate.
Exhibit 13.3: Employee Recognition Programmes and Maslows
Hierarchy of Needs - An Unbeatable Combination
Almost all professionally-run companies in India have an employee
recognition programme in place; but these programmes are not aligned to
ROI (Return on Investment), recognition strategy and management
commitment.
According to experts, employee recognition programmes can be linked to
Maslows Hierarchy of Needs to determine whether they are effective
enough. Maslows Hierarchy of Needs may be described as given in Figure
13.1 below:
Figure 13.1: Maslows Hierarchy of Needs
Organisations routinely address levels 1, 2 and 3 of their employees.

Employers typically do a great job in taking care of the employees
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physiological needs and safety needs. The individuals social needs are
fulfilled by becoming a part of a group of colleagues at work.
The level 4 and 5 needs tend to be clubbed in a majority of organisations.
The same employees who are valued and recognised are the ones who are
promoted and climb up the corporate ladder. So employees tend to stay at
level 3 where their social needs are fulfilled or move 2 steps ahead towards
self-actualisation. Ideally there should a larger pool of employees at level 4.
It has been found that employees are happier and more engaged if their
chances of moving up the hierarchy of needs are higher.
A robust employee recognition programme that is directly linked to the
companys vision, mission and values, and has the commitment of
management, can effectively move a larger number of employees to level 4.
It can also motivate a larger number of employees at level 3 to work harder,
given that they now have a more realistic chance of moving to level 4.
Activity 3:
Assume you are an entrepreneur of a new retail firm. Using the types of
reward systems and recognition programme concept, list ideas that can be
used to satisfy your employees.
13.5.1 Importance of employee recognition
Employee recognition is a communication tool that strengthens and rewards
the most important outcomes people create for your business. When you
recognise people effectively, it will reinforce your chosen means of
recognition. These are the kinds of actions and behaviours you want to
repeatedly see in people. An effective employee recognition system is
simple, immediate, and powerfully reinforcing.
When you judge employee recognition processes, you need to develop
recognition that is equally powerful for both the organisation and the
employee. You must address the challenges or issues that may arise, if you
want the recognition you offer, to be viewed as motivating and rewarding by
your employees. These challenges are also important for the success of
your organisation.
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The most significant tips for effective recognition are:

All employees must be eligible for the recognition.
The recognition must convey the employer and employee with specific
information about what behaviours or actions are being rewarded and
recognised.
Anyone who then achieves or performs to the level or standard stated in
the criteria receives the reward.
The recognition must happen as close to the performance of the actions
as possible, so the recognition reinforces behaviour the employer wants
to encourage.
You do not want to invent a process in which managers "select" the
people to receive recognition. This type of process will be observed
forever as "favouritism" or talked about as "it is your turn to get
recognised this month." This is why processes that award an individual,
such as "Employee of the Month," are rarely effective.
Employees also like recognition that is random, and that provides an
element of surprise. If you show gratitude to a manufacturing group
every time they make customer deliveries on time with a lunch, then
gradually, the lunch becomes a certainty or an entitlement and is no
longer rewarding.
If you link recognition to real achievements as negotiated in a
performance-development planning meeting, you need to make sure the
recognition meets the above stated requirements. Supervisors must also
apply the criteria consistently, so some organisational oversight may be
necessary.
Exhibit 13.4: Group-based Reward System -- Some Thoughts
As more small businesses use team structures to reach their goals, many
entrepreneurs look for ways to reward co-operation between departments
and individuals. Bonuses, profit sharing, and stock options can all be used
to reward team and group accomplishments.
An entrepreneur can choose to reward individual or group contributions or a
combination of the two. Group-based reward systems are based on a
measurement of team performance, with individual rewards received on the
basis of this performance. While these systems encourage individual efforts
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toward common business goals, they also tend to reward under-performing

employees along with average and above-average employees.
A reward programme which recognises individual achievements, in addition
to team performance, can provide extra incentive to employees.
13.5.2 Reward versus recognition
Although these terms are time and again used interchangeably, reward and
recognition systems must be looked at separately. Employee reward
systems consist of programmes, set up by a company to reward
performance and motivate employees, on individual and/or group levels.
They are normally measured separately from salary, but may be monetary
in nature or otherwise have a cost to the company. While previously it was a
domain of large companies, small businesses have also begun employing
them as a tool to lure top employees in a competitive job market, as well as
to increase employee performance and retention.
As noted, even if employee recognition programmes are often combined
with reward programmes, they retain a different purpose altogether.
Recognition programmes are generally not monetary in nature, while they
may have a cost to the company. Sue Glasscock and Kimberly Gram in
Productivity Today distinguish the terms. They state that recognition elicits a
psychological benefit whereas reward indicates a financial or physical
benefit. Although many elements or components of designing and
maintaining reward and recognition systems are the same, it is useful to
keep this difference in mind. Recognition programmes are especially useful
for small business owners, who are interested in motivating staffs, while
keeping costs low.
Fill in the blanks.
12. Recognition must be done in a _______ fashion and on a ________
basis.
13. Recognition can take a ________ of forms.
14. Employee recognition is a ______________ tool that strengthens and
rewards the most important outcomes people create for your business.
15. Encompassing ______________ programmes are often combined with
___________ programmes retain a different purpose altogether.
16. Employee recognition has to be done for ______ _______ ______
interested in motivating staffs while keeping costs low.
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13.6 Summary
In this unit you have studied how an employee reward system consists of an
organisations integrated policies, processes, and practices for rewarding its
employees. In addition, you also now know the importance for a reward
system in any organisation, no matter how big or small it is.
Studying the types of reward systems and formulating a reward system is
crucial for any organisation. It is not only the reward system that helps an
organisation grow and achieve goals, but employee recognition is also a
crucial part. For small business entrepreneurs and other managers, a
recognition programme may appear to be merely an extra effort on their
part, with few tangible returns in terms of employee performance. Employee
recognition is a communication tool that strengthens and rewards the most
important outcomes people create for your business.
To have an effective employee, small business entrepreneurs and other
managers must focus on employee recognition programmes. Therefore,
having all the above aspects, will definitely help an organisation to keep its
employees satisfied and motivated.
13.7 Glossary
Term
Description
Professed
Perceived to the reward which an organisation is entitled to.
Proponent
One who argues in support of something, like in this unit it is

with reference to employee reward.
Entrepreneur
A person who organises, operates, and takes the risk for a

business venture.
Luncheon
An afternoon party at which a light meal is served for the

employees who achieve their goals.
Lure
Attracting. Here, it is about attracting employees for a specific

task.
Monetary
In money terms. Here, it is about bonus, etc., paid in the form

of money

1. Briefly explain employee rewards.
2. According to you, why do you think employee reward is a need?
3. Explain the points to be considered while formulating a reward system.
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4. Mention the types of reward systems.

5. Briefly explain the reward versus recognition study.
13.9 Answers
1. Employee reward.
2. Comprises.
3. Comfortable environment.
4. Monopoly.
5. True.
6. False.
7. True.
8. True.
9. False.
10. True.
11. False.
12. Timely, frequent.
13. Variety.
14. Communication.
15. Employee recognition, reward
16. Small business owners
1. Refer section 13.2.
2. Refer section 13.2.1.
5. Refer section 13.5.2.
13.10 Case Study

Mars Automobiles Limited is in the field of manufacturing two-wheelers. It
manufactures and markets mopeds. These are available in the brand
names 'Sharp' and 'Double Sharp where 'Sharp' is its original product
and 'Double Sharp' is the improved version.
The company was started about 30 years ago. Its product 'Sharp' enjoys
a reasonably good reputation and the brand was comfortably placed in
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the market. However, with the introduction of new-generation, fuelefficient mopeds, the company started losing its market share.
It immediately started developing the improved 'Double Sharp', but by the
time it came out with this new model, competitors had already
strengthened their position in the market.
The 'Sharp' model was still accepted by a segment of the market, as it
was the cheapest vehicle. 'Double Sharp' was a new-generation vehicle.
It was costlier, but its performance was much superior. It compared
favourably with the competitors' products. However, it was yet to gain a
foothold in the market.
The company had to rework its marketing activities to get back its market
share. It employed a young sales engineer to kick off a strong sales
drive. Mr. Maresh Tiwari, an MTech and a diploma holder in marketing
was selected, and he was put on the job.
Mr. Tiwari started well in his new job. He was allotted a province where
he had to contact prospective customers and book orders. The company
had introduced a new financial assistance system. Under this scheme,
buyers were given easy loans. It was especially beneficial for employees
working in the same organisation if they went for group booking.
Mr. Tiwari was able to contact people in different organisations, arrange
for group bookings and facilitate loans. His performance was excellent in
the first year, and also in the second year of his service.
The company had its own system of rewarding those who achieved good
results. It usually arranged a paid holiday trip for the achievers, along
with their spouses. Mr. Tiwari was accordingly informed by the marketing
manager to go to Chennai with his wife on company expense. Mr. Tiwari
asked him as to how much the trip would cost the company. The
marketing manager calculated and informed him that it would cost about
Rs 8,000. He quickly asked him whether he could get that Rs 8,000 in
cash instead of the trip, as he had other plans. The marketing manager
said that it might not be possible. It was against the norms. However, he
would check with the personnel manager.
After a couple of days, Mr. Tiwari was told that it would not be possible to
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give him a cash reward. Mr. Tiwari reluctantly went to Chennai. On his
return, he was heard complaining to his colleagues about the trip to
Chennai.
The marketing manager and the other team members observed a change
in him. He appeared a bit fussy about things and subsequently, Mr
Tiwari's performance was found to be unsatisfactory. He was also
lukewarm towards his job and his subordinates.
Questions:
1. Where did things go wrong?
2. Was Mr. Tiwari too money minded?
3. Was the company too bureaucratic?
4. Did the personnel manager handle the issue properly?
5. According to you, what is the best way to avoid such situations in the
future?
References:
Armstrong, Michael; Employee Reward.
Nelson, Bob; 1001 Ways to Reward Employees.
Armstrong, Michael; A Handbook of Employee Reward Management
and Practice.
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Unit 14
Unit 14
International Employee Relations Management
Structure:
14.1 Introduction
Objectives
14.2 Internationalisation
Dimensions of Internationalisation
Management of Overseas Branches
14.3 International Employees
Problems Associated with International Employees
Benefits for International Employees
14.4 International Employee Relations Management
14.5 Role of Human Resource Management
International Human Resource Management
14.6 Summary
14.7 Glossary
14.9 Answers
14.10 Case Study
14.1 Introduction
In the previous units, we learnt about employee relations within a single
country. In this unit, we will learn about the relevance of employee relations
management in an organisation that has a global presence.
At the end of the 20th century and the beginning of the 21st century,
companies started expanding their business. Ever since organisations
internationalised, there has been a considerable amount of increase in
employment opportunities in organisations that have either become or are a
part of multinational corporations (MNC). As a consequence, employee
relations within a national context is subject to a broader and international
range of influence. The major area of internationalisation has been in people
management.
In this unit we will first learn about internationalisation. It is necessary to
analyse why companies choose to internationalise and its significance, as
this century is the age of multinational employees. For the growth of any
organisation, the employer-employee relationship has to be good but as
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organisations broaden their range and function in the international scene,

they face problems in their employer-employee relations. We will discuss
these problems and its solutions in this unit. Finally, we will learn the role
played by HR in internationalisation and its significance.
Objectives:
describe concept of internationalization.
explain the different ways in which an organisation can expand its
presence across the globe.
assess the distinctions in Employee Relations Management (ERM) of
international employees.
describe the role of Human Resources Management (HRM) in the
international organisation.
14.2 Internationalisation
Organisations usually decide to go international because of two reasons.
Either because it faces competition from companies outside its national
borders or when the organisation finds cheaper resources and expanded
markets in other countries.
Initially, the choice of going international involves only export to foreign
customers in one country or the import of a few products from one country or
one supplier. At this stage, the impact of the international business activity is
less and the management does not pay too much attention to it. The
organisations choose to establish international divisions when the sales exceed
10 to 20 percent of the total revenue or global sourcing reaches expected
levels.
We have analysed why and when organisations go international. Now we
will discuss the various perspectives of international employees.
When we say international employees there are three perspectives to it.
Firstly, an employee who works in an overseas project for a specific period
of time (until the completion of the project) can be called an international
employee. For example, an employee working in Infosys in India sent to
work for an overseas project in Australia.
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Secondly, an employee working in a company who is sent to work in an

overseas branch of the same company is called an international employee.
For example, an employee working in Microsoft sent to work in the Indian
branch of Microsoft.
Thirdly, an employee who goes to a different country to accomplish a
specific task is called an international employee. This consumes very little
time when compared to the other perspectives. The task can take just about
a fortnight, a month or so.
So far we have discussed about internationalisation and international
employees. In the next section we will discuss the dimensions of
internationalisation.
14.2.1 Dimensions of internationalisation
Emergence of new technology and trends has made internationalisation
1
possible. Advancement in the area of information transfer and
communications has helped in internationalisation as the transfer of data
and information can take place within a short span of time. Free trade
agreements incorporating the free movement of capital that facilitates crossborder investment of all kinds has increased with internationalisation. It has
various dimensions to it. A few of them are listed below:
It is an expansion of international trade.
It favours trade across national borders by removing tariff barriers,
extends free trade agreements like the North American Free Trade
Agreement (NAFTA), European Union (EU) and the proposed free trade
area including China, Japan, South Korea and the Association of
Southeast Asian Nations (ASEAN).
It develops global markets and enhances the pressure of international
competition.
It favours cross-national integration of production within MNCs.
It expands the number and influence of MNCs through joint projects,
cross-national achievement and union of foreign direct investment (FDI).
It favours international distribution of labour.
14.2.2 Management of overseas branches
We have described internationalisation and analysed the various
dimensions of it. We will now discuss how the internationalised companies
1
http://www.businessteacher.org.uk/business-environments/globalisation-internationalisation/
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manage their overseas branch. International companies have a wide range

of choices to decide on how an overseas branch can be managed. The
deciding factors are the industry in which they function, the structural form,
and the stage of development of the company.
There are four major approaches to managing overseas branches. They
are:
Ethnocentric
Polycentric
Regiocentric
Geocentric
Let us look at each of these approaches in detail:
Ethnocentric: It is often seen that the decisions relating to value,

culture and strategies are determined by the parent company. Very little
power is vested in the subsidiaries. The subsidiaries of a company are
managed by an expatriate or a former staff of the parent company. The
locals have very little to do with the way things are carried out in a
company. Lines of communication are usually uni-directional as
commands are issued by the headquarters. The host country branch
has a diplomatic role to play but is dominated by the customs of the
parent company. It is believed that this is during the first stage of
development of companies intending to go international and the
management at the headquarters takes an alternative step only after a
specific period of time (when the company has made progress or
established itself internationally).
Many American and Japanese companies are seen as trying to
introduce employee relations policies and strategies which are suitable
to their home culture but incompatible with the host country tradition.
This strategy is followed in organisations as they believe that their
strategies are not only the best but also the only way to proceed.
The organisation runs the risk of not taking notice of the tradition and
culture of the host country thereby offending local employees. The local
employees in the subsidiary may not believe in the same values and
thoughts and hence do not adapt to the parent company regime.
McDonalds follows the ethnocentric approach.
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Polycentric: Here the local conditions, values and system are taken into
consideration in a company. The subsidiary is governed by staff from the
home country (the country in which the headquarters is located) and is
considered as a self-governing business unit. Major decisions, strategy
planning and financial investments are decided at the headquarters.
However, in this approach, the manager of the subsidiary belongs to the
host country and the manager-employee relationship is better. This
approach helps in implementing employee relations policies as it is
compatible with the culture and regime of the host country. Companies
like Lever Brothers and Unilever follow the polycentric approach.
Regiocentric and Geocentric: Here the subsidiaries are not limited to

boundaries such as home country or the region where an organisation
has presence. It is organised on a regional basis or geographic basis
such as worldwide or global. Control of staff and decision-making
responsibility is based on regional or geographic constraints. In case of
regiocentric, the managers are appointed from the host country and in
case of geocentric, the managers are from any part of the world, that is,
the most suited person is appointed for the job. Colgate-Palmolive is an
example of a company that follows the geocentric approach.
It is seen that companies which follow the polycentric, regiocentric or

geocentric approach are truly globalised. In such companies, we can
expect development of a region or a worldwide approach to employee
relations policies and practices.
Exhibit 14.1: Handling Internationalisation Need for a Different
Approach
Multinational Corporations (MNCs) adopt different approaches to manage
human resources depending upon the host country's work culture, political
policies, legal regulations, etc. The factors that affect these approaches can
be divided mainly into four types:
Political policies and legal regulations of the host country
Technology and the nature of the product
Organisational life cycle
Level of education and technological advancement of the host country.
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Political policies and legal regulations of the host country: MNCs have to
follow the rules and regulations of the host country when they start a
subsidiary. If an MNC adopts an ethnocentric approach to manage its
human resources, then it may try to recruit manpower from the parent
country but if the host country has restrictions on hiring people from its own
country, then they have to recruit host-country nationals or third-country
nationals. Host countries usually impose such restrictions so that the people
of their country get employment opportunities. Also, the training and
development provided by the MNC improves the quality of workforce in the
host country. These kind of legal restrictions are mostly seen in developing
countries because the governments view MNCs as vehicles for the country's
development.
Technology and nature of the product: The approach adopted by MNCs
differs depending upon the technological inputs needed by the product
during various stages of its development. In case the product is highly
technology dependent and requires a great degree of quality control, then it
adopts an ethnocentric approach. This approach is advisable because the
MNC can use the technical expertise which it has developed in its parent
country to maintain the quality and standards in the subsidiary. On the other
hand, products which are to be customised keeping in mind the taste of the
local people, needs a polycentric approach.
Organisational life cycle: The organisational life cycle consists of four
stages. An organisation adopts different approaches depending upon the
stage. In the initiation stage, organisations again opt for an ethnocentric
approach. There is a high degree of control over the subsidiary and all its
operations are closely monitored. The subsidiary limits its operations as the
focus is to establish itself in the host country's market. A polycentric
approach is adopted in the functional growth stage. The organisational
operations become extensive. The organisations open a number of
subsidiaries and the local headquarters is in-charge of the operations while
the home country headquarters assumes a more strategic role.
In the controlled growth stage, organisations adopt a regiocentric approach.
The focus is to cut costs and enhance productivity. The idea is to integrate
businesses at a regional and domestic level and to attain economies of
scale. The regiocentric approach is a step towards adopting a geocentric
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approach. In this stage an organisation becomes a global player as it has

established subsidiaries in a number of countries. It faces stiff competition
from domestic and international firms. To consolidate its position it
establishes joint ventures and strategic alliances. A geocentric approach is
adopted so that the domestic and international operations are integrated in
terms of product development, marketing and distribution.
Level of education and technological advancement of host country: When
an organisation plans to open a. subsidiary in a developing country, it has to
look at the availability of skilled and unskilled labour in that country and also
at the country's educational system and the technological advancement. It is
generally believed that the quality of education in a country is reflected in
the quality of its workforce. A good technical and management education
system helps in better planning of human resources. This, in turn, helps the
management to adopt the right approach to international human resource
management (IHRM). For example, an MNC opening a subsidiary in a
backward country needs to invest more in training and development as
nationals of the host country may not be highly skilled.
1. The number of free trade agreements incorporating free movement of
capital that facilitates cross-border investment of all kinds has increased
with _______________.
2. Internationalisation is an international distribution of _________.
3. Lines of communication are usually multi-directional in an ethnocentric
approach. (True/ False).
4. In polycentric approach, the subsidiary is governed by a _________ staff
and considered as a self-governing business unit.
5. In case of regiocentric, the managers are appointed from the _______.
14.3 International Employees

We have studied the approaches by which an organisation manages its
overseas branches. International employees face many issues due to
factors like difference in culture, legal system and language. In this section,
we will now analyse the problems associated with international employees.
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14.3.1 Problems associated with international employees

We will discuss some specific problems faced by international employees.
Employee working overseas

Problem
One of the major problems associated with employees working in
overseas branches is which law is to be followed by the employee. The
two choices are the laws of the home country and the laws of the host
country in which the employee is working. For example, when an
employee of an Indian company works in an American branch, there are
chances of confusion as to whether the employee should follow the Indian
laws or the American laws.
Solution
Judicial courts normally follow the legislations of their own country and
so do organisations. There are a few organisations that follow the laws
of the home country. The overseas branches of this company are forced
to follow the same law irrespective of the country in which they work.
However, a few companies are flexible. They follow the laws of the
country in which the branch is located.
International personal information flow, privacy, and ecurity

Problem
Employers have to consider the international privacy laws while
transferring the details of employees across national borders. These
laws are applicable even if the transfer of information happens within the
same company. Governments across the globe have imposed laws and
regulations to maintain privacy of employee information.
Solution
The Data Privacy Directive is a solution to the above problem. It states
that the personal information of employees has to be any one of the
following:
Collected for specific, legitimate reasons
Held only if it is relevant to the reasons
Precise and up-to-date
Legally processed
Stored only until required.
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Employee details can be transferred across nations only if the company

is authorised to do so.
International employee assistance programme
Problem
Often employees hesitate when assigned to work overseas. The major
reason is separation from their families. Difference in culture, tradition,
legal system, and language adds to the stress of the employee. The
consequences are: Complicated health problems, interrupted careers,
worries concerning dependent elderly parents and so on.
Solution
Research has suggested that support and adjustment from family
members help solve this problem to a great extent. Besides, an
organisation called Federal Occupational Health (FOH) is working
towards solving this problem. FOH provides round the clock service. The
services provided are counselling, stress management programmes, and
health and welfare seminars for the benefit of the international
employees.
Apart from the aforementioned issues, there are a few other issues that
affect international employees. They are as follows:
The first problem that an employer faces is deciding which employee to

select for a foreign project. The selection depends on the skills of the
employee. Employees who can adjust and adapt to different cultures,
who know about different cultures and who have the desire to work in
foreign projects are best suited.
A few organisations expect employees to analyse and achieve things on

their own. Newly relocated employees may find it difficult to start off
without guidance. In the beginning, they usually require guidance to
adapt to the new organisations culture as well as the new countrys
culture.
The salary package to be offered to the international employees can be

an issue of uncertainty. The purchasing power of different currencies
vary from each other. For example, consider employees from the
European branch working in the Indian branch of the same company. In
Europe, the employees will be paid in euros. The purchasing power of
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the euro and the rupee are definitely not the same, so the questions
arises whether to pay the employees working in the Indian branch in
euros or in rupees? If the employees are paid in rupees, the salary
would seem less. If the employees are paid in euros, the other
employees will think the company is being unfair by paying the
European employees more and paying less to the local employees.
The overseas branch and the home company have to establish

mentoring programmes for employees to avoid possible pitfalls. Usually,
a foreign mentor helps the employee in adjusting to the new regime.
Apart from this, a mentor keeps the employee informed about all the
events in the home company like the organisations progress, issues
and procedures.
The assignments given to employees have to be based on their

individual skills. An employee learns new tools and techniques while
working in overseas assignments. Once the employee returns from the
overseas assignment, organisations hesitate to provide opportunities to
the employees which utilises the newly developed skills. Organisations
have to give these employees with better opportunities and allow them
to develop their new skills.
14.3.2 Benefits for international employees

In the previous section you studied about the common problems
international employees face. Now you will learn about some of the benefits
employees enjoy while being part of the international organisation. They are
exposed to different cultures, legal systems and language. Hence, they
learn a lot more from their experience in an overseas branch. International
employees are exposed to various tools and techniques which are used in
the host country. This adds to the skill-sets of the employee. Let us look into
some of the benefits for international employees.
Multinational risk pooling: Many international organisations find it difficult
to provide their subsidiaries with risk benefits in terms of cost and resources.
Multinational risk pooling provides ways by which an organisation can
reduce the cost, time and resources to manage and administer risk benefits.
It is a profit-sharing system. It combines the premium paid to insure the risk
benefits worldwide into a single account that gives an experience rating
across borders. The main aim is to provide corporate governance, increase
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efficiencies of international companies and help in making use of the

opportunities offered in todays increasingly global business environment.
International expatriate medical insurance: International employees
cannot avail their medical insurance and schemes outside their home
country. Without medical insurance, the international employees have to
spend exorbitant prices for treatment when they require medical assistance
in a foreign country.. International expatriate medical insurance provides a
solution to this problem by providing facilities such as multinational
individual and group expatriate insurance, international expatriate employee
and dependent insurance, replication of home country benefit levels,
medical evacuation insurance and services, international business travel
accident insurance, etc., for the benefit of international employees.
Expatriate Insurance Service: Expatriate Insurance Service is an
international health insurance for expatriates of all nationalities working
around the world. This health insurance has a wide range of schemes to suit
the needs of the international employees. All the schemes offer an
exceptional value for money combined with a wide range of benefit
packages.
6. Employer-employee relations become even more difficult with an
international organisation as cultures differ across the globe, legal
systems change and languages used are different. (True/ False).
7. Employers must consider the ____________ while transferring the
details of employees across national borders.
8. FOH works for the benefit of _______________.
9. The overseas branch and the home company have to establish a
mentoring programme for employees to avoid possible pitfalls. (True/
False).
10. Courts do not follow the assumption that the legislation applies only to
conduct that occurred within the country. (True/ False).
11. ________ is a profit-sharing system.
12. Expatriate Insurance Service is an international health insurance for
expatriates of all nationalities and working only in India. (True/ False).
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Activity 1:
Imagine that you are the HR manager of ABC Company. You have to
choose an employee for an overseas assignment. The technology being
used for the project is new. What kind of an employee would you choose
for the project? Note down the reasons for your choice.
14.4 International Employee Relations Management

Having discussed the problems faced by international employees, let us
now discuss the measures taken by international organisations to develop a
better relationship with their employees.
Organisations have come up with various programmes to develop a better
relationship with their employees in the home branch and the overseas
branch. These measures basically provide benefits to the employees. When
employees benefit from the company in which they work, it reinforces
employee engagement and commitment. It also helps in building a better
rapport between the employers and employees. The measures taken by
organisations to ensure effective employee relations are as follows:
Trade union: Unions work towards accomplishing goals like increased
wages and better working condition for employees. A trade union has a
leader who represents the union members. The leader negotiates labour
contracts with employers on behalf of the union members. The attitude of
trade unions towards MNCs and responses to their impact on collective
bargaining vary.
In countries like the Netherlands and the UK, trade unions normally have
a positive view of MNCs and they welcome the inflow of foreign
investments. Trade unions in Poland have signed special deals like nostrike agreement to attract investments from countries like the US and
Japan.
Some MNCs do not keep their job guarantee commitments after
relocating to a foreign country. In such cases, trade unions of these
countries advise the local governments to withdraw their financial support
to such MNCs.
Grievance handling: For redressal of grievances, an aggrieved
employee can always approach higher officials to solve problems. In the
case of international employees a mechanism similar to domestic
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organisation grievance handling is created to handle employee grievance.

It not only solves the problems of the employee but also helps to build
better employer-employee relations.
Behavioural and organisational aspects: You already know that
employee engagement and commitment, motivation, empowerment are
important aspects of effective employee relations. In an international
organisation, the management of international employees has to consider
the local culture and morals when imbibing these values in the
employees.
The leadership and authority of the local management plays an important
role in implementing these values. With the guidance of the parent
company, the local manager can motivate and empower employees. For
example, McDonalds get ideas on how to launch new products in their
regional menu from its local employees. These employees are able to
better understand the markets than a global manager. This way, the
organisation gets valuable information while empowering employees.
Human Resource Information Systems (HRIS): You are familiar that
organisations use HRIS. They are online applications which enable
organisations to store, track and manipulate data according to the needs
of the HR, payroll and accounts, and other operations within an
organisation. Such employee relationship management tools establish a
centralised approach to managing employees distributed across the
globe. Information on employee management, career growth,
performance management, etc., are easier to track and, in turn, help in
managing international employees. Organisational communication
systems enable employees to be connected at anytime of the day,
anywhere in the world.
13. __________ work towards accomplishing goals like increased wages
and better working condition for employees.
14. To redress grievances, an __________ employee can always
approach higher officials to solve problems.
15. Expand HRIS.
16. The management of international employees has to consider the _____
culture and morals when empowering and motivating employees.
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14.5 Role of Human Resource Management

You will now learn about international human resource management. To
study international human resource management, first you have to be able
to analyse the role and significance of human resource management. Let us
now learn the role of HR management in an organisation.
Human Resource2 (HR) plays a major role in the development of an
organisation. HR management considers employees as assets or resources
and highlight the importance of teamwork and employee involvement in
decision making.
The management of HR can have a major impact on the basic functioning of
an organisation. Companies that have a productive HR are the ones which
are successful. They make the best use of the organisations workforce.
The efficiency and productivity of employees can be increased by providing
proper training, good leadership and work environment, and lucrative
incentives to the employees. It is the key factor for competitiveness in an
organisation. Employees who are trained prove to be efficient and have
better skills. Figure 14.1 shows the elements of good HR management (WF
in the figure stands for workforce).
Through
Figure 14.1: Elements of Good HR Management

2
http://humanresources.about.com/od/hrbasicsfaq/a/hr_role.htm
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Let us now discuss the role of a HR manager in an organisation in detail.

The role of a HR manager must be in line with the needs of the organisation.
Successful organisations have become more adaptive, flexible to change,
and customer-oriented. In this context, the HR manager is a strategic
partner, an employee advocate, and a change mentor. Let us look into these
roles played by a HR manager in detail:
Strategic partner: To prove their abilities to contribute to the
organisation, the HR managers play the role of a strategic partner. They
contribute and help in carrying out business plans and aims of the
organisation.
The HR business plans and aims are set up to attain the overall strategic
business plans and aims of the organisation. The influences of strategic
partnership on HR services are design of work positions, hiring services,
rewards, recognition and strategic pay, performance development and
appraisal systems, career and succession planning, and employee
development.
Employee advocate: In this role, the HR manager contributes
significantly to the success of an organisation by being the voice of the
employees and by supporting the employees. As an employee advocate,
the HR creates a work environment in which the employees would be
inspired and happy.
The HR managers help in establishing an organisational culture and
environment in which people have the skills, concern and commitment to
serve clients and customers well.
In this role, the HR manager provides opportunities for employee
development, employee assistance programmes, profit-sharing
strategies, approaches to solve problems and regularly scheduled
communication opportunities for the growth of an organisation.
Change mentor: To evaluate the effectiveness of an organisation, the
HR managers constantly monitor changes in the organisation. The
awareness of the change strategies and the knowledge to implement it
makes a HR manager worthy. The ability to link these strategies to the
needs of the organisation reduces the chance of employees being
discontented and reluctant to change.
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The HR manager recognises the vision, missions, and goals of an

organisation and gives the organisation a picture of how successful these
measures are by constantly monitoring the changes.
Figure 14.2 depicts the role of a HR manager.
Figure 14.2: Role of a HR Manager
14.5.1 International human resource management

You have learnt about the role of HR management in an organisation. You
can deduce that a good HR manager is critical to the organisation. Now you
will analyse International Human Resource Management (IHRM) in a MNC.
Figure 14.2 shows the role of a HR manager. A HR personnel who knows
multiple languages is preferred for the role of an international HR manager.
The international HR manager works worldwide in the following human
resource activities:
Placing staff returning from overseas assignments
Repatriation
Preparing staff to work in overseas assignments
Interpreting and explaining the cultural differences across the globe to

the global employees
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IHRM challenges
Let us discuss some of the problems that are faced by international HR
managers specifically. These are as follows: .
Difference in culture, levels of economic development, and legal

systems in different countries may require organisations to change their
hiring, firing, training, and compensation policies depending on the
country.
Organisations have to make a decision about the selection of managers.

That is, whether the manager must be from the home country, host
country or a third country.
Training and progress of an individual in an international organisation

may be more difficult than in a domestic organisation.
Compensation systems have to be adapted to meet the labour market

needs of the country.
International employee recruitment and selection

Now we will discuss the criteria for recruiting employees in an international
organisation. The skills and abilities that an international manager should
have can be categorised as the following:
One who can perform the task
One who can work in a foreign location

Figure14.3 shows the skills that an international manager must possess.
Figure 14.3: Skills of International Manager

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In the case of selecting functional employees in an international organisation,

the following points are noted:
As organisations go international, the market for executives is also
internationalised. Members in the top management teams are diverse.
College graduates are usually not hired for foreign positions. However,
most of the MNCs hire them with the intention of sending them abroad
later on.
17. An international HR manager has to select a manager from ________,
________ or a _________ country.
18. An international HR manager works towards preparing employees for
overseas assignments. (True/ False)
19. The efficiency and productivity of employees can be increased by
providing __________, good leadership and work environment, and
_________.
Activity 2:
Imagine that you are the HR manager in an MNC. The company is
recruiting a manager to work in an overseas branch. Analyse the skills
that you would look for while hiring a manager for this position.
14.6 Summary
Late 20th century and early 21st century saw organisations making their
presence in the international market. The reasons to internationalise was to
expand their market or because they faced competition from companies
outside their national border.
The most common form of international organisation is the multinational
company. There are many ways in which multinational companies decide to
manage overseas branches. They may use the Ethnocentric, Polycentric or
Regiocentric and Geocentric approach in managing their foreign operations.
The companies which follow Polycentric or Regiocentric and Geocentric
approach are more successful.
Employers face many challenges with their international employer-employee
relations. With international employees the problems are more complex as
factors like culture, language and legal systems affect the issues.
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International employees also enjoy certain benefits. They not only get to
learn new cultures, legal systems, and languages and travel to new places,
but are also eligible for certain insurance schemes and policies.
Organisations constantly work towards ensuring better international
employer-employee relations to succeed in the global scenario. Factors
such as trade unions, international industrial relations affect the policies
adopted by organisations.
The HR department of a company plays a major role in the development of
a company. The HR department recognises the changes required for the
development of a company and devises the plans to accomplish the same.
International human resource management plays an important role in
governing behavioural aspects like motivation, communication and decision
making capabilities of international employees. International employee
commitment and empowerment are just as important as employee
commitment and empowerment in any domestic organisation.
14.7 Glossary
Term
Description
Internationalisation
The growing importance of trade, relations, and alliances

between or among nations.
Tariff
A tax paid to the government of a country to import goods

into that country. The tariff increases the rate at which the
goods are sold in the importing country.
Tariff barrier
These barriers effectively prevent the exporter from selling

their goods in a foreign country. In other cases, it
represents an extra cost of exporting that can be included in
the export price.
North Atlantic Free

Trade Agreement
(NAFTA)
NAFTA is an agreement signed by the governments of

United States, Mexico and Canada to create a trilateral bloc
in North America. NAFTA eliminates barriers of trade and
investment between the USA, Canada and Mexico.
Association of
Southeast Asian
Nations (ASEAN)
ASEAN is an economic and geo-political organisation which

consists of 10 countries like Indonesia, Philippines,
Singapore and Thailand and so on. The aim is to stimulate
the economic growth, social progress, cultural development
among its members, the protection of the peace and
stability of the region, and to provide an opportunity for
member countries to peacefully discuss the differences.
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European Union
(EU)
It is an economical and political union that consists of

27 countries located in Europe. It maintains common
policies of trade among the member countries. EU has
developed a single market through a common system of
laws which is applicable to all member countries for the free
movement of goods, people, services, and capital.
Expatriates
Employees who leave their native country to work in a

foreign country.

1. Why did organisations choose to go international?
2. What are the approaches adopted by MNCs to manage their
international branches and employees?
3. What are the problems faced by international employees?
4. Explain the methods adopted by organisations for international
employee relations management.
5. Explain why a HR manager is a strategic partner, an employee advocate
and a change mentor.
14.9 Answers
1. Internationalisation
2. Labour
3. False
4. Home country
5. Host country
6. True
7. International privacy laws
8. International employees
9. True
10. False
11. Multinational risk pooling
12. False
13. Trade unions
14. Aggrieved
15. Human Resource Information System
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16.
17.
18.
19.
Unit 14
Local
Home, host or a third country
True
Proper training, lucrative incentives

14.10 Case Study

A unit of an MNC conducted a union election. The unit consisted of 150
employees. Even though complete employee participation was expected, not
all employees participated in the election. This was an indication that the
employer-employee relation was not smooth. The MNC decided to seek the
services of ABC Corporation for help with their employee relations.
The team from ABC Corporation analysed that the MNC had a number of
issues, such as a challenging relationship between the employees of the
company and its top level managers. One of the major tasks was to bring
about a change in employee relations. The first step towards improvement
was to elect a new leader to represent the employees of the MNC unit. A
union leader was then promptly elected.
The ABC team conducted a survey to analyse the problems of the
employees. The results showed that the employees were not satisfied
with their salary, benefits and supervisors. In turn, the growth of the MNC
was slow due to their ineffective employee relations and it was a task of
the MNC management to improve the overall growth within the next year.
The ABC team developed certain policies and procedures to ensure
consistency across departments as it was a major complaint. They gave
top priority to train supervisors to make them good communicators.
The MNC unit suddenly faced another problem. The company was forced
to pay nearly 50% more for employee health insurance. The company
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was able to pay only half the amount, and the employees had to pay the
rest of the amount. The ABC team used this negative development to test
how well the supervisors were prepared for their role as communicators.
Every supervisor personally spoke to the employees individually and
explained the situation of the organisation. They went over all the options
with employees. Employees were not entirely happy with the solution
proposed by the organisation management, but they were assured that
the company was doing everything it could. So the employees agreed to
pay the rest of the amount. The company saw tremendous improvement
over the year after the communication between the supervisors and
employees improved.
Questions:
1. What were the measures taken by supervisors to solve the health
insurance problem in the above scenario?
2. What was the problem that the company faced?
References:
Briscoe, D. R. and Schuler, R. S. International Human Resource
Management: Policy and Practice for the Global
http://www.uncg.edu/bae/people/woodley/Nov13.ppt#256,1,International
Human Resource Management (IHRM) and Labour Relations
http://gbci.net/human_resources.shtml
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Unit 15
Unit 15
Contemporary Issues in Employee

Relations
Structure:
15.1 Introduction
Objectives
15.2 Careerism
15.3 Stress and Employee Wellness in Organisations
15.4 Organisational Justice
Types of Organisational Justice
15.5 Organisational Misconduct
Basic Organisational Liability Standards
15.6 Issues with Contract Labour and Temporary Workforce
15.7 Managing Employee Relations through Organisational Change
Interpersonal Communications
Conflict Management
15.8 Employee Relations for a Diverse Workforce and Multinational
Companies (MNC)
15.9 Employee Relations During Crises Recession
15.10 Summary
15.11 Glossary
15.13 Answers
15.14 Case Study
15.1 Introduction
By now you are familiar with the factors taken into account for effective
employee relations. We have also discussed the importance of employee
relations management in an organisation that has a global presence. This
unit discusses contemporary issues like managing employee relations
during organisational changes or economic changes like recession. This unit
includes a section on careerism. It deals with individual orientation towards
career management for advancement through non-performance-based
means.
As we know, stress leads to chronic diseases; this unit explains the
significance of developing an employee wellness plan. It outlines the
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parameters for carefully developing and implementing wellness programmes

so as to reduce stress among employees.
An overview of organisational justice and organisational misconduct is also
included in this unit. Organisational justice is an important aspect that needs
to be considered in the workplace. This is due to the effects associated with
unfair treatment. It also includes some basic organisational liability to control
any misconduct.
Contract workers are considered as indirect employees working for definite
duration. This unit discusses some of the issues pertaining to appointing
contract workers.
As technology and information processing advances, the organisation must
undertake major changes to survive in the dynamic business arena. This
unit also discusses the interpersonal communications and conflict
management skills that managers must have to maintain good employee
relations during changes made in an organisation.
Employee relations during financial crises and ways to overcome stress
arising out of fears about the consequences of recession are also covered in
this unit.
Objectives:
After studying this unit you will be able:
describe the concept of careerism.
explain the effect of individual view of careerism on employee relations.
explain the importance of stress and employee wellness in an
organisation.
describe the negative influence of organisational misconduct in an
organisation.
explain the issues related to contract labour and temporary workforce.
explain how to manage employee relations for a diverse workforce/
multinational companies
describe the methods adopted to manage employee relations during
crises.
15.2 Careerism
Careerism is the desire to achieve professional advancement by any
possible means, usually at the expense of ones own integrity. It is the
desire of the careerist, who will stop at nothing to gain success.
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At the academic stage, a student desires for a career with the prospect of
financial stability. For example, students may aim to become a doctor
because they find life in this field more luxurious. This kind of act is referred
to as paying for/ buying a degree. Careerists in this case will not have any
interest beyond the financial gain in their chosen field.
Careerism is the attitude and activity that places one's career above
everything else. Careerism involves ambition to achieve one's goal;
however, a desire to develop oneself professionally is usually taken as
normal, healthy, and virtuous.
Long hours of hard work and a dedication towards work that even exclude
free time, results in quick promotion. However, there is always need of some
moral principles to advance one's career goals. Careerism involves
compromising on some moral rules in the pursuit of career advancement.
The two major causes of careerism are the promotion system and the
willingness of a company to portray promotion as the most important goal
for an employee.
Now that we have defined the meaning of careerism, let us look into the
meaning of extreme careerism.
Extreme Careerism
Over past two decades, extreme careerism has become common in many
organisations.
According to Bratton and Kacmar (2004) in their book, The Dark Side of
Impression Management, extreme careerism is the propensity to pursue
career advancement, power, and prestige through any positive or negative
non-performance-based activity that is deemed necessary.1
With this non-performance-based activity, an employee can influence any
person whom they wish to impress.
Extreme careerists believe that their personal goals do not align with
organisational or business goals. They focus on short-term strategies that
are aimed at personal advancement, rather than long-term success of an
organisation.
Reference: The Dark Side of Impression Management
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Over the past few years, there have been many cases of extreme careerism
in business, organisational, and political ethics. Extreme careerists walk on
the right path of career. Each individual needs to determine this right path
for themselves.
15.3 Stress and Employee Wellness in Organisations

Many companies have started workplace fitness and health promotion
programmes for their employees. These programmes help reduce the level
of stress and risk of developing coronary heart disease. Recent research
has found that implementation of health promotion programmes control
health care costs, absenteeism and turnover. Issues associated with
participation and implementation of these programmes is also taken into
consideration.
Now let us discuss the kind and level of stress an individual experiences in
an organisation.
Stress in Organisations
Stress is described as the impact caused by any pressure. As the speed at
which our society operates increases, the pressure to maintain that speed
also increases. The effect of pressure mainly depends on the kind of
position we have in an organisation. However, stress also enables an
individual to meet deadlines and the high level of efficiency a job demands.
Stress causes illness and produces several other conditions that have a
severe effect on an employee's performance. This, in turn, affects an
employer's workforce.
Leon Warshaw (1979), in his book on dealing with stress in the workplace,
states that: "Stress affects personality, modifying our perceptions, feelings,
attitudes and behaviour. And it reaches beyond its immediate victims to
affect the political, social and work organisations whose activities they direct
and carry out.2 This statement clearly indicates that increase in stress has a
wide-ranging effect on employees that includes absenteeism, decreased
efficiency, physical and mental illness, and tendency towards early
retirement.
Book: Managing Stress by Leon Warshaw
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Recent studies indicate that certain jobs have attributes that make them
more stressful than others. Some of the factors that increase stress in the
workplace are:
Level of decision-making
Dangerous physical or emotional conditions
Repeated exchange of words with others.
For example, police officers, firefighters and air traffic controllers are under
constant pressure. They need to have quick decision-making ability. Hence
their level of stress is higher when compared with that of medical record
keepers, technicians, librarians, and musical instrument repairers.
Employers can manage the stress levels in a workplace with early
reorganisation of the factors that cause stress.
The following section discusses how an organisation implements employee
wellness programmes. These programmes help employees overcome
stress and other related problems.
Employee Wellness
Employee wellness focuses on human resource management to reduce
health problems. These health problems are caused by improper lifestyle
choices such as smoking, obesity and lack of exercise.
Some of the health problems that are common among employees are
cancer, heart disease and respiratory illness. These diseases account for 61
percent of hospital claims. This, in turn, creates workplace problems such as
absenteeism, lost productivity, and increased medical costs.
For example, people with high blood pressure are likely to have medical
claims of more than Rs 2 lakh per year. Medical claims of smokers are
22 percent higher than non-smokers.
Many organisations offer wellness programmes to improve and maintain the
overall health of their employees. These programmes are effective as they
help employees to quit smoking, manage stress, and improve their diets.
Recent research indicates that taking part in wellness programmes reduces
absenteeism and increases productivity.
Employers must prioritise and enrol those who are in greatest need of these
wellness programmes. They must motivate these high-risk individuals to
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participate. Some companies offer incentives to the participants, while

others impose certain penalties on non-participants.
For example, some companies have started to increase insurance premium
contributions of non-participants, while others have started raising their
deductible levels.
Companies can take up effective healthcare risk management practices to
minimise job stress. With the help of an effective selection process and a
proper training procedure, companies can help employees meet the
demands of their jobs. With clear job descriptions, companies can select the
most suitable applicants for a job. This also helps the candidate have a clear
idea about the job responsibilities. The implementation of a pay-forperformance programme reduces uncertainty regarding rewards which, in
turn, reduces stress.
Some stresses are inherent and companies find it difficult to reduce such
types of job stress.
For example, fire fighting is a dangerous job where it is not possible to
eliminate stress. In this case, workers must learn to manage stress levels on
their own. Companies can only offer stress counselling to their employees.
Employee Assistance Programmes (EAPs) are intended to increase
productivity and help resolve any personal issues. EAPs, with their mentors
who are mental health professionals, provide confidential counselling to
workers who fuse their personal problems with the work productivity. These
counselling sessions are then documented to keep track of improvements in
the worker's health, productivity, and performance. This helps to
substantially reduce absenteeism rates, medical costs, and workplace
accidents.
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Figure 15.1 given below represents the Employee Wellness Plan Protocol
which will help you understand how an organisation can ensure employee
wellness.
Figure 15.1: Employee Wellness Plan Protocol
First a company develops a realistic picture of employee's health issues. It

then create an employee wellness plan to improve the lifestyle of its
employees. Later, the company promotes the wellness programmes by
offering health counselling. It also provides incentives to encourage
employees to choose health related events and programmes.
The company then implements the wellness programme and finally reviews
the results based on the improvement in the employees quality of life,
increase in productivity, reduction in absenteeism rate, and reductions in
healthcare costs. The feedback obtained from employees about this
programme helps maximise the return on investment.
Exhibit 15.1: Health and Wellness Programme at Johnson & Johnson
Johnson & Johnson (J&J) is a multinational company manufacturing
pharmaceutical, diagnostic, biotechnological as well as personal hygiene
products. It employs around 40,000 people in the US alone and its
operations are spread over 51 countries.
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J&J laid special emphasis on providing proper care to its employees and the
company policy is to hire medical professionals to provide services to its
employees, their spouses and children. This service is a part of its Health
Wellness Programme (HWP) which goes much beyond the health insurance
and cover provided by companies all over the world.
HWP incorporates health risk assessment that is carried out for all the
employees of J&J perceived to be under risk. The Employee Assistance
Programmes (EAP) in place at J&J are one of a kind where employees are
given a chance to decide on their work timings and, wherever possible, to
work from home.
The other significant aspect of HWP at J&J is the disability management
plan which not only provides accident insurance coverage, but also money
to the dependents in the event of death. The ergonomics injury prevention
programme is another aspect of HWP. It is a voluntary programme. The
JOBFIT programme helps employees maintain their fitness levels, and
includes personalised conditioning and stress management sessions.
The safe fleet programme helps develop safe driving practices among J&J
drivers.
1. _________ is the desire to achieve professional advancement by any
possible means, usually at the expense of their own integrity.
2. With ________ based activity, an employee can influence any person,
whom they wish to impress.
3. Stress is described as the impact caused by the pressure.(True/False)
4. _________ focuses on human resource management to remove
certain health related problems.
5. _________are intended to increase productivity and help resolve any
personal issues.
15.4 Organisational Justice

Now that you know the various factors that increase stress in the workplace
and the employee wellness programmes undertaken to reduce stress, let us
discuss the concept of organisational justice.
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Organisational justice is the main factor behind citizenship behaviour and its
related outcomes are satisfaction and commitment towards work. It also
focuses on employee equality in outcomes such as payment and the
procedures to determine those outcomes. Organisational justice builds trust
among employees, which in turn gets displayed in the form of citizenship
behaviour.
The concept of justice differs based on people's cultural values. People from
collectivistic cultures differ from people belonging to individualistic cultures
in terms of their perception of equity and equality.
With good organisational justice, you can have more positive outcomes from
an employee in the workplace. If employees are treated in a fair and just
manner, they will follow all the rules and regulations of an organisation.
They will be more committed towards work, have more trust in the
organisation and feel more satisfied with the justice they receive.
15.4.1 Types of organisational justice
Organisations focus on three specific forms of justice. They are:
Procedural Justice: Procedural justice is identified by the equality of

processes that helps determine the type of outcomes used, the way they
are distributed, and to whom the outcomes are given. Organisational
procedural justice includes freedom from bias, accuracy, consistency,
and correction of errors.
Distributive Justice: Distributive Justice is identified by the reasonable

employees in an organisation that recognise the actual outcomes they
obtain. Issues may arise if the employee experiences something
negative in the workplace that could have been prevented. Issues may
also arise if they do not get the outcome they expect or when the
outcomes are inadequate.
Interactional Justice: Interactional justice is identified by the

awareness of equality in the procedural treatment of others. Issues may
arise if employees are judged wrongly and denied respect or privacy.
Organisational scientists have claimed that organisational justice is an

essential requirement for effective organisational management. Perceived
justice in the organisation is predicted to influence employees attitudes
toward their job and workplace significantly. Perceived organisational justice
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is related to employees work-related attitudes including job satisfaction,

trust toward their supervisors and management, and intention to leave their
agency. Organisational justice often becomes a casualty along with
employees during critical situations like downsizing.
Downsizing has become a fact of working life as companies struggle to cut
costs and adapt to changing market demands. Downsizing can also be part
of a broader workforce strategy designed to align closely with the overall
strategy of the business. Layoffs become just one more tool in a portfolio of
alternatives to improve firm performance. The management may view this
as an opportunity to enhance the organisations medium- and long-term
agility through well-planned and targetted coaching, change and careermanagement interventions.
Exhibit 15.2: If You Must Downsize, Do It Right Organisational
Justice in Times of Downsizing
Cisco Systems, a company that has changed its workforce strategy in
recent years, had laid off 20 percent of its workforce in 2001 due to tough
times. In 2008, the firm implemented an employment downsizing
programme as the last resort, after deploying several other alternatives
which did not work. The new, measured approach was more consistent with
Ciscos long-term talent-management strategy of building internal talent
rather than buying it in the external labour market.
Like Cisco, businesses may adopt new strategies that require them to
pursue different products or services and new types of customers. The new
strategies may require firms to lay off employees with obsolete skill-sets and
hire new employees with the skills to implement the revised business
strategy. In such cases, downsizing makes sense.
A low level of interactional justice can be related to possibility of sexual
harassment. Recent studies have shown that differences in personality and
aggressive behaviour of an individual affects the way an individual reacts to
inequality in the organisation. Employees perception of procedural justice is
determined by re-organising their performance rating. With this rating
system, employees' view of organisational justice increases. Figure 15.2
below gives an overview of the three specific forms of organisational justice.
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Figure 15.2: Organisational Justice
Activity 1:
Interview an HR Manager of a nearby company and find out his/her
opinion about organisational justice. Also find out what are the measures
that the company adopts to ensure organisational justice for employees.
15.5 Organisational Misconduct

Organisational misconduct has now been recognised as a matter of serious
social and economic concern. It has also been estimated that the annual
cost of corporate crime is much greater than ordinary crime. Organisational
misconducts are typically hidden; hence their scope and nature are not very
clear. Thus, investigations remains limited to self-report surveys.
The following section discusses the basic organisational liability standards
to deal with organisational misconduct.
15.5.1 Basic organisational liability standards
There are three basic organisational liability standards to deal with agent
misconduct. These liabilities are called duty-based liability regimes that
identify the presence of internal work structure to determine if the
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organisation has met its duty of taking due care or not. The three basic
organisational liability standards are:
Strict vicarious liability
Negligence
Composite Regimes Compliance
Strict vicarious liability
This liability is imposed when an organisations staff commits a punishable
offence, despite several warnings by the organisation. The basic idea
behind strict vicarious liability is to incorporate all the costs associated with
their activities. This leads to appropriately priced organisations products
and delivery of the finest services.
Strict vicarious liability systems compel organisations to deploy stringent of
internal organisational enforcement and prevention technique. When an
organisation starts to cover all the costs of any damage it causes, this
technique helps reduce the occurrence of such incidents. The extent of the
harm is reduced to a point such that reduction equals the benefits.
Negligence
This liability is imposed when an employees conduct causes harm and the
organisation fails to provide standard of care. This clearly states that the
organisation was not able to prevent the incident. This, in turn, implies that,
it failed to observe industry standards with regards to various operating
methods.
Negligence-based organisational liability systems do not compel
organisations to implement level of organisational enforcement and
production. As this liability fails to cover the cost of their harmful conduct, it
is considered as inferior to strict liability regimes.
Composite regimes compliance
This liability regime is a combination of strict vicarious liability and
negligence. Composite liability regimes assign liability based on strict liability
standards. These, however, approve allocation of liability based on
negligence standards.
6. The concept of _______ differs based on people's cultural values.
7. Name the three specific forms of justice.
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8. __________ Organisational Liability Systems do not compel

organisations to implement level of organisational enforcement and
production.
You will now study about the various issues concerned with hiring contract
labour and temporary workforce.
15.6 Issues with Contract Labour and Temporary Workforce

Contract labour is an inappropriate name given to an employee working on
a contractual basis. This name is heard most in the corporate world.
Organisations refer to their workers as employees when they work on the
direction of the employer. For such workers there is a wide range of income
reporting. However, independent contract workers are self-employed; they
account for their own taxes and expenses, and are not under the employer's
direction and control.
Organisations appoint temporary workers for posts that require to
immediately filled up. Later, they incorporate these temporary employees
into their long-term planning efforts.
Temporary workers provide flexibility to organisations. There is also a
possibility that the organisation may offer full-time employment in the future
to such workers. As they are open to taking risks, companies take more
advantage of the flexibility they provide. However, temporary workers are
always on the lookout for companies that offer better salary packages.
Companies cover the temporary agency's administrative costs. The
temporary employee gets only a portion of what the company is charged for
his/ her services. The percentage of income paid to the temporary workers
depend on the type of service they are offered, experience in that particular
service, and other special skills required for that job, as set by the company.
The contract labour system does not provide the basic right of a secure job
with regular living income. Hence, the Contract Labour Act has been
enacted to regulate the contract labour system.
The following section discusses how to improve
communications and develop conflict management skills.
interpersonal
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15.7 Managing Employee Relations through Organisational

Change
Organisation must undergo major changes at various stages of their
development. Changes occur when organisations decide to change their
overall approach for success, make some changes in a major section or
practice, or intend to change the way in which it usually operates.
Owners and managers make efforts to achieve success in the major
changes they make in their operations. Some get very good results, while
others fail to attain success. It is necessary to identify the critical priorities of
an organisation and make appropriate changes to address those priorities.
There are a few important skills for managing employee relations. They are:
Interpersonal communication skills
Conflict management skills
15.7.1 Interpersonal communications
Interpersonal communication is a skill that allows the manager to build good
rapport/ relationship with all the members of the staff. Interpersonal
communication skills help to interact and work with diverse groups of
people. If interactions are in favour of the organisation, it helps build the
right workplace attitudes and behaviours. During interaction, managers must
have respect towards their employees. If there is no respect for an
employee in an organisation, then managers find it difficult to get work done,
as per their requirement.
There are four dimensions to optimise interpersonal communications. They
are:
Influence: Constant interaction provides people an opportunity to

extend their circle of interpersonal influence. This interaction skill offers
professional satisfaction. With the intention to enhance ideas, it gives
ability to influence, negotiate, and leverage valuable information. For
example, no matter what the situation is, good salesmanship skills tend
to influence people to buy the product.
Interpersonal facilitation: People with this skill are well aware of the
interpersonal aspects of work by constantly monitoring the workplace.
Those who are known as peoples person pose important questions to
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themselves about business strategy and employee relations issues.

They then try to develop the efficiency of the organisation.
Relational creativity: This dimension focuses on establishing good

relationship with diverse groups in the workplace. This interaction is
possible through visual and verbal imagery. For example, for
implementing a marketing strategy, a team lead can be designated for a
particular consumer segment.
Team leadership: This dimension benefits those who maintain a good

employee relation within the workforce. They feel good about the daily
interactions they have in the work environment. Those who follow this
dimension do not really care about the activities that do not allow them
to get engaged with others. For example, by maintaining good employee
relation within the workforce, team leaders can sort things out through
direct interactions with their employees.
Managers can have a profound interest in any or all the four dimensions.
These dimensions are very important when engaging diverse groups,
developing people, and creating employee relations strategies.
15.7.2 Conflict management
Conflict management is a skill that helps in resolving employee relations
issues more efficiently. It also creates satisfaction among the work group.
There are seven components to optimising conflict management. They are:
Speak your mind and heart: Managers must say what they think. Many
people find it difficult to express their needs, wants, and desires. This
results in conflicts because people get frustrated due to improper
communication. For example, when an employee is very distressed with
the manager's management style, he goes to the manager to discuss
the matter. However, instead of finding a solution, the manager brings
up some other issues. This makes an employee feel frustrated. The
proper solution is to speak up and address the problem instead of
avoiding it.
Listen well: Listening skills are an important aspect to manage conflicts

in an organisation. This skill focuses on what people say and not on the
response. Focus on only positive aspects of conversation and let the
other party know what you are doing. For example, active listening
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enables managers to demonstrate that they understand what their

employee is saying and how he/she is feeling about it.
Express strong feelings appropriately: Conflict creates a sudden rise

in emotions such as happiness, anger, and sorrow. Managers must
respect those emotions and examine the kind of stress the person is
experiencing. For example, consider an employee named Gracie. If
Gracie is experiencing some kind of distress, talk to her as, Gracie, I
understand your conviction on this matter, and I am willing to work
through it so that, we can bring closure to the issue," Never say, Gracie,
I am tired of your complaining and the poor attitude exhibited by you and
your co-workers. To me, this is a done issue."
Remain rational for as long as you can: Managers must focus on

solving the issues and stay connected to that person throughout the
conversation. Later, sum up the situation and ask questions. For
example, consider two employees named Gracie and Angel working for
the same organisation. When there is conflict between these two
employees in an organisation, meet each of them and say, "Gracie, I
heard you say that you and Angel are having issues communicating.
Allow me to meet Angel so that I can assist in addressing your
concerns."
Review what has been said: Managers should ensure that the issues
raised are clarified soon. If the issues still exist, they should ask
questions to get answers to solve the problem in a better way. For
example, when a problem pertaining to some racial insults is not yet
solved, say, "To get to the root of the issue, I need answers to my
questions. Why did Gracie hurl a racial insult at Angel?"
Learn to give and take: Managers must have a two-sided conversation

to have a short or long-term solution to the conflict. For example, allow
your employees to express their point of view pertaining to some topics.
Avoid all harmful statements: Managers must not verbally attack or

put individuals on the defensive. This reduces the chance of quickly
resolving any conflict or issues.
All the above seven components help improve the conflict-management

skills and develop positive employee relations in a workplace.
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9. Contract labour is an appropriate name given to the employee working
on contract basis.(True/False)
10. Companies cover the _______ agency's administrative costs.
11. _________ is a skill that allows the manager to build good relationship
with the staff.
12. Conflict management is a skill that helps in resolving ________ issues
more efficiently. (Choose from the following)
a) Employee relation
b) Conflict
c) Manager
d) Racial.
As you are now aware of the various ways to optimise interpersonal
communications and the components which enhance conflict management
skills, let us now study the importance of maintaining good employee
relations in global organisations.
15.8 Employee Relations for the Diverse Workforce and

Multinational Companies (MNC)
Multinational companies (MNCs) have several options for managing
employees and employee relations in their various foreign-based
subsidiaries. MNCs usually take either ethnocentric or polycentric approach
to manage employee relations. As there is major regulation in foreign labour
market and employment relationship, MNCs prefer to follow only the
polycentric approach. MNCs have employee relations practices based on
either the high-performance value-adding model or the least cost model.
Globalised shared service structure deals with a variety of linguistic and
cultural relationships. Hence, shared service stress exists between policies
of corporate structures, and legal parameters of local practices. It is difficult
and unavoidable to arrange these two different constructs such that there
are very little gaps between them.
Globalised shared services
relations find it very difficult
policies, and procedures in
employee relations as
that incorporate some aspects of employee

to identify the differences in employment law,
each country. It is a misgiving to look upon
something transactional that can be
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compartmentalised into a one size fits all solution. This does not take
account of the very fabric and relationships that make an organisation
work.3
Diversity in the workforce helps to increase the capability of the organisation
and its employees. Some of the points that must be considered for good
employee relations in a global organisation are:
Developing and maintaining the customer needs, and business
demands.
Maintaining a productive workforce that motivates employees.
Enhancing image and reputation, to easily partner with the diverse
customers and shareholders, aligned with the business strategy.
Promoting mutual accountability and ownership for diversity.
The following section discusses some of the guidelines that help managers
to remain positive during recession and motivate their employees.
15.9 Employee Relations during Crises Recession

Employee relation is concerned with maintaining employer-employee
relationships that result in satisfactory productivity, motivation, and morale.
These factors help in preventing and resolving all the problems that affects
the work environment.
Business owners must motivate the right people to keep up their
performance level, and bring these people on board. To ensure that the right
candidate is chosen, the company must impose standard hiring and training
processes as well as conduct various assessments. Management experts
believe that employees are the most important factor in ensuring the
success of any company. However, only a small percentage of companies
use a systematic process to select, manage and plan for the growth of
employees.
However, the economic crisis of 2008-2009 forced many companies and
employees to find ways to get through the hard times and ensure that their
jobs are safe. The fear of recession created confusion among employees as
well as employers. The only possible way to overcome this fear is to stop
reacting in a way that creates distrust and confusion.
3
Andy Cook of employee relations experts Marshall-James
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During crises, companies usually cut down on additional expenses such as

drop facility for employees working till late, outings and birthday cake. Nonperformers go through a tough time to secure their jobs. However,
organisations sometimes tend to be generous.
Recession is the time to identify the valuable employees in an organisation.
It is the time when an organisation gets the best work results from the
employee which, in turn, helps in securing the company a stable position in
the market.
A group of employees can be easily managed during good times. However,
managing a group of employees during downsizing is not so easy.
Recession has a profound effect on a worker's morale and productivity.
Some guidelines that help managers to stay positive and motivate
employees are:
Honest and frequent communication
Recognise signs of stress
Plan work tasks ahead to reduce stress.
Honest and frequent communication
Employees should be notified of the global economic situation and its effects
during crises and regular meetings should be organised to keep everyone
informed. Communication is the key to sharing all known and unknown
facts. This, in turn, helps prevent any kind of rumours from spreading.
Recognise signs of stress
Managers have to recognise the signs of stress in an employee. They have
to identify whether an employee is experiencing any kind of stress. Good
communication with employees on non-work topics helps to evaluate their
level of stress.
Plan work tasks ahead to reduce stress
Stress usually occurs when there are pay cuts or some bad news about the
economy. This, in turn, affects the morale and the productivity of an
employee. Managers should identify such high-risk employees and plan a
work task ahead. They should communicate with the employee to share
long-term milestones and provide weekly due dates.
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Activity 2:
List the companies affected by the recession or any other financial crises.
If the company was closed due to recession, do some research and find
out what measures the company could have taken to avoid closure.
13. MNCs usually take either _______ or polycentric approach to manage
employee relations.
14. ________ in the workforce helps to increase the capability of the
organisation and its employees.
15. Business owners should motivate the right people to keep up their
performance level and bring such people on board. (True/False).
16. ______ is the time to identify the valuable employees in an
organisation.
15.10 Summary
Careerism is defined as professional advancement at the expense of one's
own life. Extreme careerism has become common in many organisations.
Extreme careerists believe that their personal goals do not align with
organisational or business goals. Stress is described as the impact caused
by any pressure. Stress increases as the speed at which our society
operates increases and can be managed by the early reorganisation of the
factors that creates the stress.
Organisations offer employee wellness programmes to manage stress.
Organisational justice in the workplace helps to achieve favourable
outcomes and can help employees to obey organisational rules. The three
types of justice are procedural justice, distributive justice and interactional
justice.
Organisational misconduct is a serious issue in today's corporate world. The
three basic organisational liabilities to deal with agent misconduct are
strict vicarious liability, negligence and composite regimes compliance.
Contract labourer helps the organisation to fill the positions that need to be
filled up immediately. Organisational change is a major aspect in improving
the overall strategy to achieve success. Managers should posses
interpersonal communications and conflict management skills to maintain
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good employee relations. Employee relations should be maintained in

diverse culture of workplace. Recession is the time to identify valuable
employees in an organisation.
15.11 Glossary
Term
Description
Administrative costs
It refers to costs incurred on general management and

reporting on eligible activities. This also includes costs
of evaluation, record keeping and maintaining a
customer service line
Corporate crime
It is a crime committed either by a corporation or by

individuals identified with a corporation or other
business entity.
Ethnocentric approach
This approach evaluates people and culture according

to the standards of one's own culture.
Polycentric approach
It is an approach which is company-centred rather

than client-centred.
Vicarious liability
It is the liability imposed upon a person even though

that person may not have done anything wrong.

1.
2.
3.
4.
Explain the concept of employee wellness.

Describe the types of organisational justice.
Explain the three basic organisational liability standards.
What are the four dimensions to optimise interpersonal
communications?
5. Mention the guidelines that help managers to stay positive and motivate
employees during crises.
15.13 Answers
1. Careerism
2. Non-performance
3. True
4. Employee wellness
5. Employee Assistance Programmes (EAPs)
6. Justice
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7. The three specific forms of justice are:

Procedural justice
Distributive justice
Interactional justice
8. Negligence-based
9. False
10. Temporary
11. Interpersonal communication
12. a) Employee relation
13. Ethnocentric
14. Diversity
15. True
16. Recession
1. Refer to section 15.3
15.14 Case Study

International Umbrella Organisation deals with the development and
implementation of human rights and public health issues. Due to sudden
growth and in funding in niche market, this organisation has to make
major changes. The organisation decided to work on two levels:
Approach of the organisation to help them in the implementation of
programme in country.
Seek funding from partner countries for a specific project.
As a result there was division of task among three important work teams
technical team, support team and financial team. More talented staff
was needed to discuss with external partners and suppliers. The
organisation decided to combine cross-team working within UK-based
teams and geographically distributed teams.
This made the organisation identify the key issues that had the potential
Page No.: 354
Unit 15
to create conflict throughout the workplace. Some of the issues such as

inability to effectively negotiate, the inability to handle difficult
conversations and improvement in communications skills were identified
by the organisation.
The organisation was looking to provide practical solutions for these
issues. As it dealt with geographically diverse business partners,
developing effective communication was a very important aspect.
CEDR worked extensively with the organisation to provide solution to
these conflicts. The programmes they covered include:
Develop the ability to communicate with the teams and with external
partners and stakeholders.
Methods to improve individual negotiation skills.
Develop ability to work as a team.
To handle conflicts arising from the needs of the organisation and
fund partners and their potential expectations.
CEDR started training a medium-sized group consisting of team leaders.
Happy with the good and productive results from this training, the
organisation requested CEDR to train another medium-sized group later
in the year.
Questions:
1. How did International Umbrella Organisation deal with the issue of lack
of interpersonal communication within the organisation?
2. What made the organisation identify the key issues that had the
potential to create conflict throughout the workplace?
References :
Lewin, David; Contemporary Issues in Employment Relations.
Noon, Mike; Journal - Ethical Issues in Contemporary Human Resource
Management Journal: Employee Relations Vol.: 23.
www.cornellpress.cornell.edu/cup_detail.taf?ti_id=4626.
Employment Relations by Ed Rose; Edition: 2 - 2004.
Page No.: 355
ASSIGNMENT
DRIVE
PROGRAM
SUBJECT CODE &

NAME
BK ID
CREDIT & MARKS
Q.No
1
FALL 2014
MBADS (SEM 3/SEM 5)
MBAFLEX/ MBA (SEM 3)
PGDHRMN (SEM 1)
MU0012 Employee Relations Management
B1734
4 Credits, 60 marks
Questions
Marks
Total
Marks
Define Strategy. Describe the different strategy levels in an organization
Definition of Strategy
Explain the different strategy levels in an organization
2
8
What do you mean by Human Resource Information System (HRIS)? Describe the
various modules of HRIS. Discuss some of the HRIS software.
Definition of HRIS
Explain any five modules of HRIS
Describe any three examples of HRIS software
As an HR of a Company, you are asked to focus on the causes of Grievance and the
Grievance handling procedure. What according to you are the reasons of
Grievance? Explain the pre-requisites you will consider while addressing Grievance
handling procedure
Explain the causes of Grievance

Describe the essential pre-requisites of a Grievance
Handling procedure
2
5
3
3
7
10
10
10
Discuss the Collective Bargaining Process and its issues
Explaining the Collective Bargaining process

Explaining the Collective Bargaining issues
What is a Trade Union and What are its activities? Explain the functions of Trade
Unions.
Meaning of Trade Union

Describing the activities of Trade Unions
Explaining the Functions of Trade Unions
Write a brief note on the following:

a) Trait theory
b)ERG theory
Meaning and concept of Trait theory

Meaning and concept of ERG theory
5
5
10
2
4
4
10
5
5
10
*A-Answer
Note Answer all questions. Kindly note that answers for 10 marks questions should be
approximately of 400 words. Each question is followed by evaluation scheme.

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Employee Relations Management

Introduction to Employee Relations

Employee Relations Management

1.2 Overview of Employee Relations Management

Sikkim Manipal University

Employee Relations Management

employees efficiently is very important for any business organisation,

Communication: Communication channels among the employees, and

Management of the employment contract: The employment contract

Sikkim Manipal University

Employee Relations Management

Conflict management: Conflicts usually arise among employees or

Employee growth: Employees are encouraged to pursue career growth

Commitment: An organisation will be able to succeed only if its

Compliance with Employment Laws: Employment laws deal with

1.3 Importance of Employee Relations Management

It improves overall productivity by improving employee morale,

Sikkim Manipal University

Employee Relations Management

It improves job satisfaction and helps in retaining employees. Retaining

It improves the communication system within the organisation.

It enhances employee involvement and commitment, which are very

It assures customer satisfaction.

It positions the company as an employer of choice and thus attracts

It increases employee loyalty. Confidential information can be kept

Exhibit 1.1 New challenges for ERM in the modern workplace

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Employee Relations Management

It is well established that differences in skill-sets, work values, attitudes and

Sikkim Manipal University

Employee Relations Management

The psychological contract model, reinforced by the findings of different

1.4 Employee Relations Management Tools

HR Information Systems: Human Resource Information System

Performance Management Systems (PMS): PMS helps to monitor the

Sikkim Manipal University

Employee Relations Management

Work Flow Systems (WFM): These tools help in scheduling, organising

Knowledge Management Systems: These help employees identify,

Project Management Systems: These help in managing and

Employee Feedback Systems: Surveys enable employees to voice

Employee Self-service Systems: These systems enable employees to

Sikkim Manipal University

Employee Relations Management

Sikkim Manipal University

Employee Relations Management

1.5 Core issues of Employee Relations Management

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Employee Relations Management

Unresolved work place conflicts can have a negative impact on the

Figure 1.1: Causes of Workplace Conflicts

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Employee Relations Management

The following skill set help managers deal with conflicts:

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Employee Relations Management

managers in touch with the operations staff. In addition to team briefings,

Figure 1.2: Employee Engagement Indicators

The New Rules of Engagement,2004, CIPD publication

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Employee Relations Management

Short-term goals: These are goals to be achieved within the next 1 to 2

Intermediate goals: These are goals to be achieved in the next 3 to 5