Compensation and Rewards Management

INTRODUCTION
Organizations achieve their objectives through their employees. Employees expect to
be rewarded by the organization for their contribution. Compensation plays an
important role in the organization's ability to attract and retain high performing
employees; it is the key reason that an employee chooses to work for one organization
and not for another. Employee perception of the adequacy of organizational rewards
is an important determinant of their satisfaction and subsequent performance.
Compensation or rewards management is a key aspect of human resource
management !HKM .
This chapter begins with the definition and objectives of compensation and rewards
systems. It classifies compensation and rewards into two types: 'financial* and *non
finan* cial\ The components of financial compensation—base pay, variable pay* and
benefits—are discussed. The chapter discusses various individual, group, and team
incentives offered by organizations to reward employees. The types of benefits,
changes in the nature of benefit offerings, and the flexible benefit approach arc
highlighted- The role of rec ognttion in motivating employees toward high
performance is examined. The determinants—internal and external—of compensation
and rewards are examined- The chapter compares the traditional and contemporary
approaches to compensation. An overview of the different pay-for-perfor tuance
approaches is presented. The chapter examines in some detail the competency-based
and team based approaches to compensation and rewards. Compensation and rewards
trends for top management arc explored. The link-age between business strategy and
compensation strategy is
examined based on die typology of businrss strategy*, type of industry, and
organizational life cycle stage. In the end, the chapter dis< usses the importance of a
total compensation and rewards strategy.
COMPENSATION AND REWARDS
Compensation is ihe sum total of all forms of payments and rewards provided to
employees for performing tasks to achieve organizational objectives. Com pensation
and rewards management is a complex process (hat includes decisions regarding
benefits and variable pay and is one of the most significant and dynamic of H R
practices. Like am other H R practice, it involves the design, development,
implementation, communication, and evaluation of the reward strategy and processes
of the organization. It suggests an exchange relationship between the employee and
the organization. The compensation an employee receives determine* one's standard
of living and purchasing power. Employees seek to maximize their rewards to meet
their aspirations. They also expect to br compensated lairly unci rewarded for the
effort, skills, knowledge, etc. that they contribute towards the achievement of
organiza tional goals. For the organization, pay and rewards are important since these
affect its profitability Compensation constitutes the major cost of doing business,
since it determines the employee cost An Economic Timts survey (Economic Times
2005) of 200 large private sector organizations found that their wage bill went up by
23.5% in ihe first hall of 2005 over that of 2004. Organizations also view
compensation and rewards as a means to reinforce desirable employee behaviour.
Compensation and rewards offered by an organization is an important determinant of
an individual's j*erformance, decision to join a company, motivation to improve
performance, desire to undergo training, and desire to continue to work for the
organization. Thus, compensation and rewards serve several objectives for both the
employee mid the organization (Exhibit 8.1).
Classification of Compensation and Rewards
Compensation or rewards can be classified into two broad categories, financial or
non-financial. Financial compensation can be of two types—direct or indirect.
Financial Compensation and Rewards
Direct financial compensation and rewards These refer to monetary payments made to
employees in exchange for work. These include basic wage or salary, bonus,
incentives, merit increases, overtime payments, variable pay, and commission.
Indirect financial compensation and rewards These include benefits such as pensions,
insurance, paid time off work, etc. These rewards are received by all employees on
the basis of their membership in the organization. As part of indirect compensation,
employees do not receive actual cash; rather, they receive the tangible value of the
reward.
Both direct and indirect financial compensation are called extrinsic rewards.
Non-financial Compensation and Rewards
Non-financial compensation is the satisfaction that an individual derives from the job
or from the environment in which he/she performs the job. If the job provides an
individual variety, challenge, responsibility, etc. and allows h i m / h e r lo establish
close friendships with colleagues, i t provides n o n - financial compensation to the
employee. Praise and recognition for good performance or for completing a project
also constitute non financial compensation. These are also called intrinsic rewards.
The classification of rewards is depicted in Figure 8.1.
Financial Compensation: Components
The components of the financial aspect of a compensation and rewards programme
(figure 8.2) are as follows.
basic salary, or base pay. thai is adjusted for length of service and for cost of living;
variable pay or incentives, that take the form of pay-for-performance; incentives may
be individual or aggregate (group); and benefits, or employer-provided rewards, other
than wages, salaries, or incentives.
I f organizations wish to retain high performers, they will have to focus on
compensation strategics such as performance-based incentives. A competitive salary
is a hygiene factor, that is, it is essential to prevent dissatisfaction, but is unlikely to
motivate employees. Therefore, components such as bonuses, incentives, and variable
pay, are being structured into compensation packages.
Base pay is the direct financial compensation an individual receives based on the time
worked. The calculation of these payments may differ. Generally, organizations have
two base pay categories—hourly and salaried. When employee payments arc
calculated on the number of hours worked, that is, on an hourly basis, they are called
wages. When employees receive consistent payments at the end of a specified period
regardless of the number of hours worked, they are said to receive a salary. Salaries
have typically been associated with jobs higher in the hierarchy of the organization
compared to wages. Many organizations have moved towards an all-salaried approach
for all categories of employees. To attract and retain high quality personnel, the base
pay or salary must be market-driven. Market demand for different skills varies. When
the demand for certain managerial skills is higher than supply, employees having
these skills may be paid a higher base pay to attract the top candidates. Organizations
that operate in uncertain environments and face constant change need employees with
high competencies. Base salaries for these employees are more than the average. Job
evaluation, the process of determining the relative value of the job to assign a wage
rate to the job, is used to determine the base salary. The purpose of job evaluation is
to ensure that there is pay equity within the organization, that is, pay levels of jobs
reflect their relative worth. There are four methods of job evaluation: (1) ranking; (2)
classification; (3) point; and (4) factor comparison (see Tabic 8.1).
Incentives
Incentives are another form of direct financial compensation. The terms Variable pay*
and lpay-for-performance' are often used synonymously with ' i n c e n t i v e plan'.
Incentive, or variable pay, is defined as 'any plan that ties p a y to productivity o r
profitability u s u a l l y as a one-time payment'. It is the compensation linked to
individual, team, or organizational performance, not to time worked. Pay-for-
performance plans pay employees based on their performance; one such plan is merit
pay. The incentive component o f the compensation package is usually considered
most critical for the successful achievement of organizational goals and business
strategies. Bonuses, profit-sharing plans, variable pay, and stock options are examples
o f incentive pay I n t h e calendar year 2005, LG paid a n average bonus o f 1200%,
and 15% of the top performers received 2100%. Call centres such as WNS, Progeon,
and Wipro BPO offer cash and non-cash incentives to employees. The c a s h com-
ponent is part of the variable pay a n d is performance-linked for all levels o f
employees. This ranges from 10% at t h e agent level to beyond 20% for higher levels.
There are three types of incentives. These include individual incentive plans, group
incentive plans, and organizational incentive plans. Individual incentives arc given to
reward the effort and performance of individuals. For sales personnel, individual
incentives form a large part o f the salary. Incentives are also used by organizations as
a tool for employee retention. For example, Infosys has evolved a new incentive tool
for executives in 2006. It is called the 'deferred compensation/bonus scheme'. The
company plans t o create a compensation fund and use it to reward employees for
their performance. The reward will be staggered over a period of time. The objective
of this scheme is to communicate to employees that the longer they slay with the firm
the better their rewards will be. However, this scheme is likely to be limited to senior
management, and cover only a small percentage o f Infosys's over 50,000 employees.
Retail majors a n d IT firms are offering retention bonuses to employees. For example,
Wipro asks fresh campus recruits lo make a bank deposit o f Rs 75,000 on signing t h e
employment contract. I f the
employee leaves before 15 months, the money is paid to Wipro by the bank and the employee
loses the whole amount. However, if the employee stays for 15 months, the employee gets back
the principal amount with interest as well as Rs 6,000 as retention bonus. Fearing high attrition
levels, BPO firms also introduced loyalty bonuses for employees in 2004 in the form of white
goods, PCs, and free study packages. With growth in the outsourcing business resulting in fast-
paced hiring and poaching in BPO firms, employees get a loyalty bonus for every quarter they
spend with the company. For example, HCL offered loans for PCs to its employees that were to
be partly written off every year the employee spent with the organization. Organizations are
increasingly moving toward use of work teams to accomplish objectives. Therefore,
group/team incentive plans are being designed to encourage team collaboration and co-
operation. Team members' compensation includes rewards based on team performance in
addition to individual salaries. Organizational incentives compensate all employees for the
organization's performance that year. The objective of organization-wide incentives is to
enhance organizational performance by rewarding co-operation. Stock options and profit-
sharing plans are common forms of organization-wide incentives. A brief description of some
common types of individual, team, and organizational incentives is presented in Table 8.2.
Benefits
Benefits are employer-provided rewards other than wages, salaries, or incentives.
These make up the indirect financial compensation component of the total
compensation plan. Benefits differ from incentive plans since benefits and services
are not contingent on performance of individual, team, or organization. Benefits and
services accrue to all employees of an organization by virtue of their membership in
the organization. Employees continue to avail of benefits as long as they work for the
organization, regardless of seniority or performance. Benefits are of two types: (1)
mandatory; and (2) voluntary.
Mandatory benefits These benefits are legally binding on the employer. Provident
funds, gratuity schemes, health plans, maternity leave, medical leave, etc. arc
examples of mandatory benefits. All employers to whom the Employees' Provident
Fund and Miscellaneous Provisions Act 1952 applies are statutorily liable to subscribe
to the Employees' Deposit Linked Insurance Scheme 1976 to provide life insurance to
all their employees. MetLife India has launched a group term life insurance product
called Met Group Life in lieu of the EDLI that insures employees and their families as
well. The cover amount is fully tax-free in the hands of the beneficiary and the
coverage starts from the first day irrespective of the PF balance. For the employer, the
premium paid is treated as business expense for income tax purposes. All employees
who are members of the employee provident fund scheme of the employer are eligible
for Met Group Life.
Voluntary benefits These are discretionary and are provided by the employer
voluntarily. These include compensation for time not worked, for example, paid
holidays, family-friendly benefits, retirement benefits, etc. Organizations today offer
their employees benefits such as paid sabbaticals, childcare centres, the option to
work from home—especially for expectant mothers, a job search facility for spouses
of employees, language courses, etc. Call centres offer benefits such as company-
sponsored education policy, health/life/accident insurance, free transport, subsidized
meals, and free concierge services where employees can pay their telephone,
electricity bills and policy payments. The majority of call centres also offer night shift
and overtime allowances. The biggest reason for attrition in BPO firms is that young
employees leave for further studies. To retain these employees, BPO firms offer to
refund the course fee of employees who pursue studies, if the employee slays with the
organization. Many private sector organizations offer career breaks and sabbaticals
today; these were earlier limited to government jobs. Previously, such H R practices
and benefits were seen as welfare measures, but now these are considered essential
retention tools. Table 8.3 provides examples of voluntary benefits that organizations
offer their employees today.
Structuring benefits The changes in the work environment have brought about
significant changes in the employer-employee relationship. A job for life is no longer
a reality. Hence, the nature of benefits offered by the organization should match the
expectations of employees. Traditionally, organizations have adopted a 'one-size-fits-
all' approach to rewards in which individuals have little choice about the benefits they
receive. This approach works well with a homogeneous workforce. However, for a
diverse workforce, this approach does not work. This is because the traditional
approach runs the risk of giving rewards to individuals that are not valued by them,
and often fails to reward employees with what they value. It is important to find out
how employees perceive their benefits and whether they value them. Benefits need to
be relevant if they are to be valued. A young workforce may expect and value benefits
such as childcare, paid holiday for the whole family, maternity leave, etc. For the
older workforce, health-related benefits, pension plans, etc. are more relevant.
Flexible benefits, or a cafeteria approach, gives choice to individuals. A flexible
benefit plan allows employees to choose the benefits they value most from a basket of
benefit offerings of the firm. For example, a firm may have the following benefits in
its basket—healthcare, life insurance, cash reimbursement for some purchases, paid
holidays, and childcare. Each benefit in the basket has a money value attached to it.
The employee may be given the option to choose any two or three benefits from the
package such that the total money value of the chosen benefits does not exceed a
specified amount. As a variant, the organization may extend one or two benefits to all
employees and allow flexibility in choice for a certain number of additional benefits.
Organizations arc also modifying their leave policies for the purpose of using holidays
as a differentiator. Instead of increasing the number of holidays, the private sector is
thinking innovatively and giving the employees greater flexibility in structuring their
leave. Traditionally, most organizations divided annual leaves into three categories—
paid, casual, and medical. An increasing number of firms are adopting the bouquet
approach. For example, Genpact and cbookers offer a consolidated leave basket to
employees. Employees of ebookers arc offered 30 days of leave annually and may
divide it the way they prefer.
Benefits and perquisites are benefits over and above the salary received by an
employee and are major components of an employee reward strategy. Traditionally
they were viewed as aspects of compensation that could facilitate the employee in
effective lax planning. Fringe benefits include gifts, car allowance, use ot club fa-
cilities, reimbursements of credit card expenses, etc. Perquisites include
accommodation, cars, interest on loans, educational facilities, use of
laptops, computers entertainment expenses,
personal attendants, electricity and water, concessional education, gift vouchors, etc.
However, with the fringe benefit tax (FBT) introduced under the Income Tax Act
1961 as amended by the Finance Act 2005, benefits and perquisites have become
taxable and have lost their tax advantage to a great extent. The FBT is to he paid by
the employer on the value of fringe benefits and expenses like training and develop
ment, free medical samples, conferences, and travel between two different offices.
Free holidays given to employees and their families or airline tickets for a weekend
getaway, whether as a reward for high performance or as an incentive extended to
select or senior level employees to stay with the organization, are also covered.
Earlier, such privileges did not attract any tax either for the employee or for the
employer. Organizations usually booked the tost incurred on such employee benefits
under conveyance and travel or tour expense. The FBT will now apply to such LTA
that is over and above the salary package. Employers will have to pay FBT on all
expenses incurred to provide facilities to employees. These include facilities such as
garden, library, TV sol, school, cable connection.
reimbursement of expenses on books and periodicals to employees. These affect
employees at all levels.
The FBT has led organizations to rethink and rework the new costs of benefits and
design the compensation package/salary structure so that its impact is minimized in
both monetary and administrative terms. Organizations need to analyse the manner in
which the employer calculates the cost-To-company (CTCJ figure. This is important
because the compensation figure quoted to employees is the CTC while the gross
salary figure is different, resulting in a different inflow for employees. If the CTC
figure includes the FBT element, then, in effect, the employee bears the expense, as
the tax liability on the employee goes up. Though the FBT is to be paid by the
employer, there is thus likely to be an indirect impact on the employees.
Organizations might structure employee salaries to avoid paying FBT and. so, to
reduce tax liability. Flexible compensation packages, which are seen as providing
flexibility to the employees to structure their own salaries as well as to optimize their
tax liabilily, could see a major rationalization in the items of pay allowed in the
package. It is likely that employers shall consolidate salary heads to avoid FBT. Until
now, the consolidated pay packet under one broad head was restricted to the top
management of an organization as they got more perquisites thai were taxable under
the FBT. Any change from a reimbursement to an income in the structuring of salary
will lead to an increased tax burden for the employee. If reimbursements are
converted into a direct payment, then the tax on the employee will increase.
Benefits and perquisites are benefits over and above the salary received by an
employee and are major components of an employee reward strategy. Traditionally
they were viewed as aspects of compensation that could facilitate the employee in
effective lax planning. Fringe benefits include gifts, car allowance, use of club fa-
cilities, reimbursements of credit card expenses, etc. Perquisites include
accommodation, cars, interest on loans, educational facilities, use of
laptops, computers entertainment expenses,
personal attendants, electricity and water, concessional education, gift vouchors, etc.
However, with the fringe benefit tax (FBT) introduced under the Income Tax Act
1961 as amended by the Finance Act 2005, benefits and perquisites have become
taxable and have lost their tax advantage to a great extent. The FBT is to he paid by
the employer on the value of fringe benefits and expenses like training and develop
ment, free medical samples, conferences, and travel between two different offices.
Free holidays given to employees and Iheir families or airline tickets tor a weekend
getaway, whether as a reward for high performance or as an incentive extended lo
select or senior level employees to stay with the organization, are also covered.
Earlier, such privileges did not attract any tax either for the employee or for the
employer. Organizations usually booked the cost incurred on such employee benefits
under conveyance and travel or tour expense. The FBT will now apply to such LTA
that is over and above the salary package. Employers will have to pay FBT on all
expenses incurred to provide facilities to employees. These include facilities such as
garden, library, TV set. school, cable connection.
reimbursement of expenses on books and periodicals to employees. These affect
employees at all levels.
The FBT has led organizations to rethink and rework the new costs of benefits and
design the compensation package/salary structure so that its impact is minimized in
both monetary and administrative terms. Organizations need to analyse the manner in
which the employer calculates the cost-To-company (CTCJ figure. This is important
because the compensation figure quoted to employees is the CTC while the gross
salary figure is different, resulting in a different inflow for employees. If the CTC
figure includes the FBT element, then, in effect, ihe employee bears the expense, as
the tax liability on the employee goes up. Though the FBT is lobe paid by the
employer, there is thus likely to be an indirect impact on the employees.
Organizations might structure employee salaries to avoid paying FBT and. so, lo
reduce tax liability. Flexible compensation packages, which are seen as providing
flexibility to the employees to structure their own salaries as well as to optimize Iheir
tax liabilily, could see a major rationalization in the items of pay allowed in the
package. It is likely that employers shall consolidate salary heads to avoid FBT. Until
now, Ihe consolidated pay packet under one broad head was restricted to the top
management of an organization as they got more perquisites that were taxable under
the FBT. Any change from a reimbursement to an income in the structuring of salary
will lead to an increased tax burden for the employee. If reimbursements are
converted into a direct payment, then the tax on the employee will increase.
ever) executive at the same level in the organization received the same salary.
This type of compensation structure has undergone a change. Reimburse ments under
different heads have virtually ended. The variable component has increased*
sometimes being as high as 35% of the tola! compensation. However, in a BPO firm,
the salary is uniformly structured, and consists of a basic salary and a bouquet of
allowances—house rent (HRA), leave travel assistance (ITA), and medical—that
employees have the flexibility to allocate. Toe fringe benefit tax has affected the
structuring of benefits.
Segmentation This is a new approach to designing or structuring employee benefits.
Organizations are beginning to recognize that different employees have different
preferences, work for different reasons, and are motivated by different things. It is,
therefore, important to customize not only the benefits but also the compensation
packages. Organizations segment the employees into categories and customize the
compensation package based on what employees of that category want. A 25-year-old
employee may be open to risk in salary and prefer stock options; a 45-year-old may
prefer a more stable income and hence avoid stock options. Young employees want
work-life balance, and would not like to wait for retirement to go on an adventure
vacation. In mid-career, employees prefer training and education. Retired employees,
if they continue, prefer to work part-time. It is important that organizations adjust
their compensation and benefits to these realities, A Boston-based consulting firm
proposed six categories of employees and identified their characteristics and reward
preferences (see Table 8.4}. The six categories of employees being: Innovators,
Traditionalists, Contributors, Morphcrs, Survivors and Disconnects.
All these employee categories exist in every organization in almost equal proportion.
Generally, traditionalists form the largest proportion. Human resource departments of
organizations cannot create benefit packages for each of these six categories,
especially because they are scattered across the organization, and therefore should
customize packages for different functions and business units, where one or the other
of these employee categories dominates. For example, in BPO 'stalled survivors*
dominate- Hence, the benefit package of BPO firms should be high on flexibility and
low on security. The organization may want a certain type of individual in sales and
another in R&D. The compensation and benefit packages should be designed to suit
each one of them.
Non-financial Compensation: Components
The non-financial component of the compensation package is an important aspect;
financial compensation is no longer the only differentiator. Intrinsic motivators, such
as getting a challenging assignment, chance to do something worthwhile, etc. are as
important as the financial package. These are the psychological rewards that
employees get when they feel that others have recognized their skills and
contributions. For example, employees at the middle and senior levels want control
over shaping the organization and making a difference to it. Top-level executives
desire empowerment and clarity in the organization's vision. Information technology
professionals prefer to work on high-end technology since their worst fear is to
stagnate at a point in the learning curve and become redundant. Hence, the design of
rewards for these employees should build in these factors. A major factor of employee
retention is the quality of work that is being done by an organization. Technology
companies
that focus on R&D can of lei their employees an opportunity to work on cutting edge
technology, which serves as an intrinsic motivator. This is one of the reasons that
employee attrition in R&D firms is very low- Other than the quality of work* which
serves the important objective of attracting and retaining scarce talent, it is also
important to provide opportunities to develop careers. Intel is an example of a firm
that provides such career development opportunities*
Recognition is the most reliable of all rewards. Recognition schemes are significant
because they arc a symbolic way of reinforcing the 'new1 behaviour and performance
desired by the organization. Also called 'special incentive awards 1, they are usually
linked to the achievement of performance targets, and can be developed for groups, or
for entire organizations. Recognition schemes often focus on rewarding high-
performing employees- Organizations recognize employees by means of (1) awards;
(2) recognition awards; and (3) service awards. Awards
Awards may include cash merchandise, gift certificates, movie tickets, parties, dinner
coupons for the family, travel awards to popular destinations, plaques, etc. Awards
have a positive impact on performance on their own as well as when given in
conjunction with financial incentives. Non-financial incentives have a higher
motivational value than financial incentives. At NUT, rooms in office buildings are
named after employees chosen as high achievers.
Recognition Awards
Recognition award programmes recognize employees for their performance-For
example, several organizations have 'employee of the month 1 and 'employee of the
year* awards. In service industry enterprises such as hotels, restaurants, etc. guest
comment cards are used as the basis for giving recognition awards to hourly
employees. Recognition awards work best when the organization can demonstrate
clearly how an employee was selected for the award, and when recognition is given to
recognize specific performance that is important for the organization. Blur Dart
declares the star performer of the month from among the operations staff for their
monthly performance. *Bravo Blue Darter* is an on-the-spot award given by the
manager to his people for outstanding achievement in the course of their day-to-day
work.
These reward employees for length of service, not for performance. For example,
some organizations have long-service awards for which those employees who have
completed a specified number of years of service in the organization become eligible.
Organizations are devising a range of reward and recognition programmes for
employees. IBM has a global recognition programme called The Best of
IBM*. The programme rewards exploration, collaboration, and i isk taking
behaviours. The Best of IBM' focusses on recognizing these behaviours, which IBM
employees value most, and provides a way to reward, inspire, and motivate
individuals. IBM employees can recognize each other through a Thanks Award 1 or an
'Appreciation Card'. Ideas and achievements that have an impact on business lead to a
management reward, such as a 'Bravo Award* or an 'Ovation Award*. A few select
employees get a Corporate Award for exceptional technical accomplishments that
have value to IBM. Intel recognizes employees who have given their time to
community service. Employees get a token of appreciation, either a plaque or a
practical gift, at an event held in their honour. At Sasken, the recognition programme
is built around goal achievement at three levels: individual, team, and organization. If
an individual makes a contribution beyond the call of duty and if this contribution has
a significant impact on business, customer or employee, then the individual is chosen
as the 'achiever of the quarter'. A similar award is given lo the 'team of the quarter'.
Spot awards are also there for tasks that are appreciated by customers or peers.
COMPENSATION AND REWARDS—DETERMINANTS
The compensation received by an employee is proportional to the effort exerted by the
employee, the nature of the job, and the skills of the employee. However, these are
not the only factors that influence compensation. Several external and internal factors
determine pay levels, that is, the individual financial compensation (Figure 8.3). For
example, at Infosys, salary revisions are determined based on factors such as company
philosophy, internal parity, external equity, and market dynamics.
External Determinants of Pay Levels
There are six external determinants of pay levels: (1) labour market conditions; (2)
economic conditions; (3) area wage rates; (4) government controls; (5) cost of living;
and (6) union influences.
Labour market conditions The forces of demand and supply fur qualified people
within an area influence wage and salary rates. When demand for human resources is
high and supply is limited, wages and salaries arc higher in order to attract and retain
qualified employee*. Employees with skills that are rare and valuable are in a strong
bargaining position and command high compensation. A demand-supply mismatch in
the market for software developed in India, especially at the entry and the middle
level, has led to increase in salaries over the years. Salaries at the middle management
level have grown by 15 l*t%for the past two years since 2001. When supply of human
resources exceeds demand, organizations may lower wage rates or compensation
levels. However, the full impact of supply and demand of human resource! gets
reduced under certain conditions. For example, even though supplv of human
resources may be high in a region and there may be high unemployment, unions may
not allow employers to reduce compensation. Government regulations also ensure that
employers do not reduce pay levels below a certain established minimum.
Economic conditions The) are another external determinant of pay levels. For
example* the degree of competitiveness of the industry affects an organization's
ability to pay. The ability of the organization to pay reduces as the competitiveness of
the industry grows. An organization's ability to pay is also a consequence of (hi*
relative productivity of the organization anil of the industry. An organization that has
high productivity will be able to pay more. Advanced technology, higher operational
efficiency, a skilled workforce, or all of these can increase productivity.
Area wage rates The rate* being offered by other organizations for similar jobs in the
same geographical aiea influence an organization's wage rates, and therefore its ability
to attract, recruit, and retain competent employees. IBM is a firm that offers
competitive .salaries. Wage surveys- the means of obtaining duta about the wages and
salaries paid by other firms for a particular job in a given labour market—provide the
organization with the means to ensure that pay levels offered by it are equitable with
other organizations competing for the same HR in the surrounding labour market.
Wage surveys conducted by an organization ensure thai pay levels do not rise loo high
or drop too low in comparison with other organizations operating in the same region.
When an organization's pay level is higher than the existing level in the region, the
employee cost of the organization becomes excessive. When its pay level falls too far
below, it may find it difficult to recruit skilled employees. Wage surve)s should also
obtain data on benefits being offered by other organizations. Pepsi has historically
utilized market remuneration survey data for planning salary hikes. The organization
tracks market movement of salaries and decides to hike the salary of its employees
based on market survey data. The salaries of managers may be moved lo a higher
percentile to slay competitive.
Government controls These influence the rate of pay through legislation such as the
Minimum Wages Act 1948 and the Payment of Wages Act IJ>3fi thai establish
minimum wage rates for certain categories of employees and also prevent
discrimination. Taxation policies of the government with respect to executive
compensation also affect the level and structure of compensation by providing
guidelines. For example, organizations are offered allowances under different sub
heads to minimize (heir tax liability. However, several Indian linns use cost-to-
company (CTC) pay packets. This is partially driven by lowering of lax rates, removal
of tax exemption in many such allowances, and a rising interest among organizations
to turn good citizens. Due to changes in the fringe benefit tax (FBT) in 2006,
employers are looking at consolidating cash salary under one head rather than
breaking it under various heads such as HRA, conveyance, medical, LTA, etc. (see
Exhibit 8.2).
Cost of living Increases in the cost of living raise the cost of goods and services.
Compensation rales are revised upward periodically to help employees main-lain their
purchasing power. These changes in compensation rates are made on the basis of the
consumer price index [CPI). The CP1 measures average change in prices of some
fixed goods and services such as food, clothing, fuel, medical services, etc, over a
period of time. Changes in CPI affect pay levels. Firms in IT that differentiate pay
based on locations (though most IT firms do not have a high differentiation across
locations) align it to differences in the cost of living and to ihe challenges of attracting
employees to a particular location and retaining them there.
Union influences These are another determinant of pay levels. Union negotiations
tend to establish the wage patterns for ihe region. Unions bargain collectively over
working conditions and wage rates to obtain increases thai are larger and more
favourable than the established pattern in a geographic region. Wages are generally
higher in those areas where organized labour is strong. This has an escalating effect
on Ihe compensation of other segments of employees.
Organizations are seeking help from compensation analysts lo ensure thai their
compensation is at par with the external environment such as competition,
geography* and industry growth rale ;see Exhibit 8.3).
Internal Determinants of Pay Levels
There are four internal determinants of pay levels: (I) compensation policy of the
organization; (2) employer's ability to pay; {3) worth of a job; and (4) rela live worth
of an employee.
Globalization Globalization has ushered in an era of higher compensation levels,
restructuring of compensation packages, steep hike in annual salaries, and a trend
towards competitive salaries. As Indian business houses go global, they are reworking
their salary structures to make them comparable to those of MNCs. Examples include
Bharti. Pantaloon, etc. This is primarily because Indian companies are hiring
expatriates and also going global. Many of these firms arc also willing to pay more for
the same talent than MNCs.
There is a salary boom in almost all sectors, for example, retail, IT, and even
hospitality. Depending on the sector, the average annual wage earnings of workers
grew by 15-35% in 2005-06, and the aggregate salary bill of computer hardware
companies rose by 36%. Software firms witnessed a rise of more than 35% in their
salary bill in 2005-06 and the share of salaries in total expenditure was estimated at
56% in the same period. The rise in the salary bill ot software companies is also
because workers are better qualified than their counterparts in other industries. The IT
majors in India such as TCS and Infosys reported growth in revenues in 2006.
However, employee expenses also increased. The increase in staft costs have kept the
operating margins of the big IT firms stagnant between December 2004 and
December 2005, even though there has been a healthy increase in revenues. Salaries
are likely to go up by 10-15% in 2007 and raise labour cost to over 55% of an
organization's budget. Ii wage increases are not accompanied by productivity gains,
India will lose her cost advantage.
Cross-sector employee movement Executive movement is no longer restricted to
organizations within one sector. Competition for talent has gone beyond being sector-
specific to being cross-sector. Cross-sector movement has made salary benchmarking
more complicated. Earlier, a hotel benchmarked the salaries of its staff with other
hotels to avoid attrition. Now, hospitality sector employees are being hired by airlines,
BPO firms, healthcare companies, and even the telecommunications sector. Hence,
salary levels have begun to reflect this cross-sector movement of executives.
Benchmarking is being done across sectors to make the job offer financially lucrative.
In some sectors, such as IT, organizations are benchmarking globally to retain
talented employees because some MNCs with regional headquarters in India are
offering globally comparable salaries to their employees and because many top
managers being wooed for overseas postings have to be offered comparable salaries.
Characteristics of employees The changing profile of employees has also resulted in a
change in the salary structures of organizations. The average age of employees has
come down and hence organizations are searching for ways to structure salaries better
suited to the needs of the employees. Tor example, younger employees may prefer
cash in hand rather than retiree benefits. Organizations are factoring this aspect into
their design of salary structures.
An organization thai pays higher wages and .salaries than competing (inns is the pay
leader and uMructs better workers and so achieves lower cost per unit of labour Every
organization should have a compensation policy that takes into account its own
position relative to what the competition is paying and to the internal wage
iclalionship among jobs and skill levels. A firm may adopt the policy of paying the
market rate, which is the average pay that most employer* offer for the same job in a
specific market or region.
Employer's ability to pay An employer's ability to pay employees and provide them
benefits is an important determinant of pay levels- It is influenced by factors such as
the budget available, profit of ihe otganizalion, economic conditions competition
faced by employers, etc. Competition and recessions in the market result in cheaper
goods and services, which, in turn, result in reduced income and hence limit an
employer's ability to pay. Examples include the competition faced by internet service
providers, mobile phone companies, etc.
Worth of a job It continues to be an important determinant ot compensation levels in
some organizauons apart from market forces and internal companv policies. When the
job is the criterion for pay levels, organizations pay for the dudes, responsibilities,
working conditions, and effort required on the part of employees. The relative worth
of jobs is determined and jobs with higher worth are paid more. Organizations that
base their pay levels on the w-orth of the job rely on job evaluation. However, some
organizations do not have a formal compensation programme. These organization*
base job worth on the subjective opinion of people who are familiar with the jobs. In
such a case, the pay rate is influenced by the labour market or by collective
bargaining.
Employee's relative worth It determines pay levels and iullurn< t\s the notion of
equity In most organizations, merit raises are granted to all employees irrespective of
performance. In such cases, employees are rewarded for being present physically on
the job rather than for performance. However, many organization* have begun to link
employee pay to performance. When individual compensation and reward is linked to
employee performance, performance appraisal data provide the input for determining
employee pay levels. The appraisal system differentiates high performers from low
performer*. I Iigh performing employees are assigned higher worth relative to low
performing employees and are paid higher. An employee may be recognized and
rewarded thiough promotion or other incentive systems for good performance. Table
8.5 outlines the pros and cons of linking individual rewards tn employee performance.
Wr \hi\W discuss various pay-for performance approaches later in the chapter.
COMPENSATION AND REWARDS—APPROACHES
Compensation and rewards are used by organizations as an important tool for
attracting, recruiting, motivating, and retaining high-performing employees. Over the
years, compensation approaches have undergone tremendous change. Organizations
may choose one of two compensation approaches—traditional or contemporary—to
achieve these goals (Figure 8.4).
Traditional compensation approach This approach compensates employees through
job-based pay systems. These systems use job evaluation to determine the relative
worth of each job, which helps determine the salary for the job. The advantage of the
traditional compensation approach is that it is more defensible legally since
compensable factors of the job are scientifically determined. However, the traditional
compensation system has certain limitations. Employees are paid only for the
performance of a specific job. This tends to limit workforce flexibility, especially
when an employee is assigned some work outside of his or her job classification. The
traditional compensation has several components, such as base pay, merit pay,
market-based salary increases, incentives, and benefits. These programmes come to
be viewed by employees as their entitlement and not something they can influence by
their performance. The message conveyed is that pay has no connection with
organizational performance. This results in a workforce that lacks motivation.
With changes in the nature of the organization, work, employee skills, etc. and with
the interest of organizations in improving performance, the compensation approach
should move beyond the traditional. In a competitive market that places high
emphasis on productivity, traditional forms of compensation are no longer very
attractive. The competitive business environment presents HR challenges relating to
attracting, retaining, and motivating the workforce.
Contemporary compensation approach This approach attempts to place value on
individuals rather than on jobs. Compensation in this approach is skill-based or
competency-based. The need for the new approach is especially significant in the
knowledge economy, where competitive edge results from HR. There is a need to
compensate knowledge workers for their potential and for what they are capable of
rather than what they actually do. The new approach links performance to reward
strategies. The employees can influence their compensation through their
performance. Compensation is no longer seen as entitlement. Compensation and
reward systems have become less compli cated, more homogeneous, transparent, and
a lot more performance-driven.
PAY-FOR PERFORMANCE APPROACHES
There are four pay-for-performance approaches: (1) merit pay; (2) variable pay; (3)
skill-based pay; and (4) competency-based pay (see Figure 8.5). Merit pay and
variable pay arc the traditional approaches to compensation. Skill-based pay and
competency-based pay are examples of contemporary compensation approaches.
Merit Pay
Merit pay is the pay increase given in employees based on their petfoimance as
indicated in the appraisal, and is the most widely used approach to reward individual
performance. It is usually extended to reward an employee's performance over a
period. The best performing employee gels the highest merit pay. Rewarding the best
performer with the largest pay is highly motivating for the performer. In 2004,
Shriram Pistons and Rings rSPR; rewarded its top performers with salary increases of
25 l\i> ^besides cash pay-outs and bonuses. LG has linked performance to pay to
encourage a results driven culture.
However, the approach has certain disadvantages. If the performance appraisal is
perceived to be biased, merit pay will result in feelings- ot dissatisfaction and
inequity. Another major disadvantage i n merit pay increase is that it gels added to an
employee's base pay permanently. Even if the employee's subsequent performance
falls, he or she continues to receive the merit pay every year. Although several
companiei have merit pay, there is a movement toward variable pay.
Variable Pay
With high levels of competition confronted by organizations, it has become important
that organizations control labour costs and also maintain high levels of employee
performance. Variable pay meets these objectives by rewarding high perfoi mancc.
Rewards provided for good performance during a previous employment period are not
added to the base pay; instead, a lump sum amount is given. Thus, apart from offering
increases in basic salaries, organizations are offering cash incentives and year end
bonuses to high performers. Bonuses and incentive plans are a form of variable pay.
This amount is not automati cally earned over into subsequent performance periods.
Variable pa\. therefore, reduces the fixed cost related to employees* pay. Since many
benefits, such as life insurance, retirement, etc, are tied to the base salury, variable
pay also helps reduce the total cost of benefit*. At WNS, a call centre, the perfor-
mance bonus is paid on the basis of performance ratings for a period. The total payout
to high performers increased by about 40-50% in 2004 even in some traditional
companies.
The emergence of variable compensation packages has been the biggest trend in
compensation in the last few years. Variable pay is no longer restricted to top
management The variable component of the package depends on yearly, quarterly, or
monthly targets. At Philips India, the variable pa\ package has yearly targets. Pay
packets of die key performers in Philips are increased by about 30% Performance-
linked pay aligns rewards with those uf shareholders. Pantaloon Retail, Shoppers*
Stop, Pyramyd and other retail majors have increased performance-linked incentives
for their employees in 200ft
One problem associated with variable pay is that it places a percentage of an
employees' compensation at risk. If employee performance exceeds the standard,
variable rewards lead to significant increase. However, if performance is below
standard, an employee's rewards get reduced. This risk of losing significant rewards if
performance is below par leads to financial insecurity among employees and likely
affects employee morale Therefore, most organizations use variable pay as a
supplement to merit pay and nol exclusively.
Skill-based Pay
Skill based pay is premised on the belief (hut employees who possess more
knowledge and skills are more valuable lo the organization and therefore should be
rewarded accordingly; it compensates employees for job skills and knowledge and not
foi job titles. When skill-based pay is in place, employees performing several different
tyjies of jobs may receive the MOM pav rate or rewards. When they obtain additional
skills relevant to the job*, it results in an advantage for both the employee and the
organization. As employees acquire more skills, their compensation increases. Thus,
skill-based pay encourages employees to learn continuous!) and gain additional skills.
For the employee, acquiring nrw skills leads to both tangible and intangible rewards,
that is, pay increase, increase in employee worth, etc Employees can increase their
earnings as Uiey increase their skills repertory. Several factors in the changing
business environment have enhanced the importance of skill based pay. Rapid
technological changes and the need for flexible assignment of work require
employees lo have a broad range of skills. Moreover, downsizing and de-layering of
the organizational structure have severely limited the promotional opportunities.
Hence, it is important for organizations to provide growth opportunities within jobs
and to find ways to motivate employees in ways other than promotions. Several firms
have adopted this approach. These include both manufacturing and service companies
iuch as GE-, HP, Xerox* etc. Ai W\S. A call centre, skill allowance* range up to Rs
2,'I(K> per month. Often, skill-bused pay is implemented as part of the 'job
enrichment* programme. Job enrichments the process of making a job more
rewardng and satisfying by increasing the level of responsibility, promoting variety,
providing more autonomy, and giving opportunities for personal growth. Job rotation
—moving an employee from one job to another—is one approach used to ennch jobs
Employees are routed through different jobs to acquire a range of skills. After
employees master the skills in one team, they are rotated to jobs in another team and
acquire more skills. Skill-based pay
• increases employee flexibility;
a enables employees to do each other's work by requiring them to learn a range of
skills:
• provides task-variety to employees;

increases employee motivation for training; bases pay and promotion on skills instead
of seniority; and improves productivity and quality.
However, skill-based pay presents some challenges to the management.
• It requires an organization to have a well-designed training system to provide
employees opportunities to enhance their skills.
• It increases the average rate of payment (although higher employee uctivity
offsets higher wages and salaries).
• It raises the challenge of continued motivation of employees who have
reached their maximum level in a skill-based pay system.
Employees reach their maximum skill levels in about three years and begin to feel
dissatisfied. Organizations may motivate employees by providing incentives such as
gain-sharing, or passing on savings from cost reductions or increased productivity,
with them. Competency-based Pay
As discussed in earlier chapters, competencies include not only skills and knowledge,
but also factors such as motives, traits, attitudes, etc. Competency-based pay rewards
employees for the expertise they bring to the organization. While other pay-for-
performance plans focus on results, competency-based pay focusses on how the
objectives are accomplished. Competency-based pay is discussed in more detail later
in the chapter.
Apart from pay-for-performance plans, other employee-related factors determine pay
and rewards (see Exhibit 8.4). IT and ITES firms are adopting differentiated total
rewards based on specialized skills. Salary structures in these firms are a derivative of
factors like skill, complexity of job, experience, productivity goals, and special
domain or process expertise.
FOQUITY IN RKWARD DECISIONS
An organization that bases its compensation and rewards on employee performance or
job evaluation would expect that it would result in employee satisfaction. It also
appears logical to assume thai higher the pay, higher the satisfaction. This, however,
is far from the truth. The amount of pay is often lev* important than the perceived
fairness or 'equity1 of the pay or reward as a determinant of employee satisfaction.
Equity is the perception of an employee that he/she is being treated and compensated
fairly for what he/she doer A major determinant of an employee's productivity,
satisfaction, motivation, commitment, and performance on the job is the degree of
fairness (equity) and unfairness (inequity; that an employee perceives at work in
comparison lo others. Therefore, it is important that individuals responsible for
designing compensation and reward systems understand how perceptions of equity
and inequity are formed. J. Stacy Adam's Equity Theory helps understand the
formation of these perceptions. According to die Equity Theory, people form
perceptions based on two factors—inputs and outcomes. Inputs refer to the perception
that an individual has regarding what skills, knowledge, effort, and performance; he
or she contributes to the job. Oukomts refer to the perception that an individual has
regarding the returns he/she gels for the work he/she perform (pay, prestige, and
recognition). Perceptions of equity and inequity result from a comparison of an
employee's outcomes-to-inputs ratio (O/I) with another employee's O/I ratio. The
person with whom an individual compares his or her own O/I ratio is called the
'significant other*. ITie significant oilier is usually a peer holding a similar job in ihe
same organization, but sometimes also a perwm outside the organization; for
example, a former classmate working in another organization. Consider a film actor
who is dissatisfied with an offer of Rs 10 million for acting in a film, and demands
more, not out of need or greed, but out of a perception of inequity, because another
Him Mar, who is not as successful or as acclaimed (or whom the first actor does not
perceive to be as .successful or acclaimed), commands Rs '20 million per film.
A common grievance in organizations relates to the perception of inequity. Often, an
employee feels that he or she contributes the same effort compared lo Ihe significant
other or better, yet receives a lower salary, bonus, or reward.
It is important that employees feel that their compensation or rewards are fair relative
to their co-workers* who are in similar jobs in the organization as well as in other
organizations. This holds true for base pay, variable pa\.
benefits, etc. Since the performance of employees is often contingent on whether they
perceive their compensation or rewards to be fair, organizations must strive for equity
in compensation and reward. Equity in compensation and rewards exist when the O / I
ratios of the individual and the significant other arc perceived as equal. When the two
ratios are perceived as unequal, an employee experiences inequity (Figure H.G).
The key to understanding equity and inequity is perception. Comparisons of O / I
ratios are based on individual perceptions. They may not be based on facts or reality,
and are often based on incomplete or inaccurate information. Nonetheless, these
perceptions affect employee motivation and performance. When employees perceive
that their O / I ratios are less than that of their significant other, they feel underpaid.
This is called undercompensation inequity. When their O / I ratios are higher than that
of the significant other, they feel they arc being overpaid. This is called
overcompensation inequity. When an employee's O / I ratio is equal to that of the
significant other, there exists a state of balance or equity-Perceptions of inequity
result in feelings of discomfort on the part of the individuals concerned. This,
however, is true only of undercompensation inequity. Individuals who are overpaid
experience little discomfort, and feel no need to reduce the discomfort, if any; they
justify their outcomes by enhancing the symbolic value of their inputs. For example,
an individual may not be assigned any job by the organization but may get the same
bonus as other members of the organization. This individual may believe that the
organization is gaining a lot by having him as a member, thereby inflating his own
value.
When employees experience undercompensation inequity, they engage in certain
behaviours to restore equity (Adams 1!>63); they
decrease their inputs by reducing effort for performance; or
attempt to increase outcomes by seeking a raise in salary; or
distort their perceptions of their inputs and/or outcomes by persuading themselves that
their O / I ratio is equal to that of the significant other; or
attempt to change the inputs ami/or outcomes of the significant other; or
leave the organization.
Types of Equity
An equitable compensation and reward system must incorporate three types of equity:
( 1 ) internal; (2) external; and (3) individual (see Figure 8.7).
Internal Equity
It 'exists when employees arc paid according to the relative value of their jobs within
the same organization*. Employees should feel that differences in compensation
levels between jobs are fair given the differences in job responsibilities. Job
evaluation forms the basis for determining internal equity. If the sales manager feels
that his pay is fair when compared with that of the production manager, there exists
internal equity.
External Equity
It exists when I he employees of one organization leel that they are paid comparably
to employees who perform similar jobs in another organization. When a sales
manager in a firm feels that his salary compares well with that of a sales manager in
another organization, there exists external equity in another firm rates. To address
external equity, an organization needs to determine the market relative to the industry,
geographic region, or professional group. Market rates are determined by
compensation surveys. The surveys should focus not only on base pay, but also on
other forms of compensation such as bonus, benefits, and incentive plans. This
information on other forms of
compensation ii especially important for executive and managerial positions, though
more difficult to obtain.
Individual Equity
It exists when an employee perceives that his or her pay is fair when com pared with
what co-workers are earning for similar jobs within the company, based on each
individual's performance. Thus, individual equity is different from internal equity
Individual equity relates to performance differentials in job and is addressed through
perlormance appraisal and various types of incentive pay l*ay differentials among
employees in similar jobs can be based Oil several criteria. These may include
experience, etc. Employees performing the same job may draw different salaries
because of difference* in seniority or years of job experience or tenure within the
organization. Salary differentials may also be based on performance. Skill-based and
competency-based differ entials in pay are other ways to address individual equity
issues.
COMPENSATION AND REWARDS—NEW DEVELOPMENTS
Traditionally, compensation programmes were designed to reward employees for
performing a set of assigned tasks, duties, and responsibilities. The specific
requirements of the job determined the employees who would be paid more than the
others. Employees who performed jobs that require greater variety of tasks,
responsibility, more skills and knowledge, and more demanding work conditions
received higher pay. However, many organizations are moving awav from traditional
job-baser! compensation systems and considering the use of competency based pay
and reward systems. Organizations have increasingly begun to use work teams or self
managed teams for achieving their goals. It is logical to seek to develop compensation
plans thai centre on teams. We now discuss the developments in compensation and
rewards systems.
Competency-based Pay and Reward Programmes
A competency-based pay system is one in which employees are paid for the range of
skills, knowledge, motives, attitudes, etc. that they bring to the job rather than for the
job title they hold. Employees are paid for what they can do even if they do not have
tO do it now. It is people based, not job based. Competency-based system allows the
top performers of an organization to be distinguished from other employees. Pay
differentials are related to differences in level of competencies; they are not related to
hierarchical levels. Thus, a competency-basi^d system supjNirts a flatter and more
flexible organization.
A competency-based pay system is different from a knowledge-based or a skill-based
pay system. In knowledge -bated or skill based pay systems.
employees start at a certain base level of pay. As they gain more organization-ally-
relevant skills and become more valuable to the organization, they receive increases
in their base pay This approach requires the organization to place a high emphasis on
training and rotate employees through jobs.
The strategic goals nf an organization are achieved through the employees, more
specifically through the utilization of skills and competencies of employees. These
skills and competencies, thus, become very important. /VII HR practices (training,
appraisals, and rewards) should focus on nurturing these competencies in an
integrated fashion. Competency based pay is aligned with business goals. If an organ
fatten*! emphasis is on developing a particular type of product, then the organization
should reward employees based on the skills and competencies they develop for
meeting the organizational goal. Thus, an employee is not paid only on the basis of
the jobs to which they are assigned.
When an organization moves to a competency based pay system, it must identify the
required competencies for various jobs and then assign a value to various
competencies. The steps that are usually followed in setting up a competency-based
pay system are presented in Exhibit 8.5 and Figure 8.8.
Organizations still do not have a pure competency-development pay increase
programme. Progression through pay bands still relates to a mix of merit pay increase,
job promotion increase, and development pay increase. A competency system needs
to have a system to certify employees that they have acquired certain competencies,
and then to verify the maintenance of those competencies.
Competency-based pay has its detractors. The system is laborious and time
consuming. Identifying competencies, their proficiency levels, and assessing
employee competencies requires considerable invesunent of time and commitment on
the part of the management. Another problem relates to implementation of the system.
Competency-based pay results in higher HR cost since it involves paying employees
for knowledge and skills they have even if these skills are not used. A competency-
based pay system must communicate a clear link between n< n competenc) learning
and pa\ increases to motivate employees. Its success will also depend on the value
employees place on the increased pay associated with the new skills acquired. If
competency development seems to be unrelated to pay, employees may not feel
motivated to learn new competencies. Employees will do whatever they expect will
most influence their pay than emphasize on an HR learning experience (competency
development! that is difficult and seemingly unrelated to pay.

Team-based Pay and Rewards

Organizations have increasingly begun to use work teams or self-managed teams for
achieving their goals. It is logical to seek to develop compensation plans lhal centre
on teams. Changes in organization, such as lateral organizations, employee
involvement, etc., have led to greater popularity and prevalence of team-based pay-
for-performance or reward systems. These provide financial rewards lo individual
employees working within a formally estab lished team. Team objectives or goals are
specified and payments to each team member are linked to team performance. Thus,
each team member gets a reward if the team achieves or exceeds its goals. The
rewards may be in the form of cash, such as bonuses, or in the form of indirect
compensation such as vacation, time off from work, slock ownership, etc. Team-
based pay-for-performance plays an important role in motivating team performance.
Team-based cash bonuses can also motivate individual performance. Compensation
plans centred on teams serve as an incentive for team members to co-operate with
each other and to be more adaptable when working with others in the pursuit of group
and organizational objectives.
However, a leam-bascd reward system may adversely affect group dynamics, lead to
intra-group conflict, and dampen enthusiasm if certain team members feel that certain
other members are not doing their share of the work. Therefore, it is important to
design and implement a team-based reward system carefully. When everyone in the
team is paid the same amount, even though they possess different levels and types of
competencies and demonstrate different levels of performance, many employees feel
concerned about equity. It becomes important lo determine how to compensate the
individual team member for his or her personal contribution as well as the team's
achievement. The three elements that constitute a team-based rewfard system are die
individual, that is the basic pay that is linked to individual performance or
skills/competencies; team, that is linked to the achievement of team objectives; and
organization, that is related to business performance measured as profit, or such
criteria.
Many organizations use team rewards as a variable pay above the base pay. To
determine base pay, individual compensation is based on skills or competencies.
Hence, base pay will differ for different team members. Variable pay rewards for
teams are linked to the achievement of team objectives and are paid annually. These
are fixed amounts and not a percentage of base pay. To design a successful team-
based reward system, base pay should be determined on the basis of skill or
competencies of the individual employee, and variable pay should be based on the
business performance of the organization, distributed among team members, and be of
a fixed amount
A leam-based rewards system should focus on rewarding team performance beyond
the satisfactory level, be constituted of add-on incentives, and should not substitute
for base pay programmes. Some organizations couple individual
and team incentives. A team-based rewards system may be implemented in an
organization that values sharing, collaboration, cooperation, and open communication.
It does not fit into hierarchical structures. Team culture cannot evolve if individual
members of the team concentrate on promotions. Table 8.6 presents the advantages
and disadvantages of team-based rewards.
A team based rewards system requires the organization to determine the relative
weightages of team, individual, and organizational performance in the calculation of
overall individual compensation. A combination of individual, team, and organization
pay-for-performance plans works well when
individual performance can be measured;
individuals are part of a team;
team performance is measured well; and
the organization encourages individuals to participate in decisions affecting the entire
organization.
If individual performance is difficult to measure, such as in situations where teams are
highly interdependent, the focus should be on team and organizational performance.
There have been marked changes over the years in the way executive compensation is
structured. Demand for executives, competition, increase in performance-based
compensation, ownership ideas, etc. have contributed to these new trends in executive
compensation.
TRENDS IN TOP-LEVEL EXECUTIVE COMPENSATION
Compensation for lop executives has increased to unbelievable levels in the past few
years. The compensation of chief executive officers (CEO) in India has touched
global levels* There has also been a big shift in die way senior executives and CEOs
arc paid. There has been much innovation in structuring CEO compensation. It is also
being bench marked against other firms in the industry.
Ilie employment contract between the organization and top-level executives is
becoming complex and lengthy. Earlier, the contract did not look beyond comjK-
nsation and standard working conditions. However, with increasing risks, both the
organization and the employee are building in safeguards for themselves. For
example, an organization introduced a penalty clause in the employment contract
i l i . i t required the candidate to pay Rs 1 million if he/ she did not join the firm after
basing committed. Senior executives today demand that a 'golden parachute' clause be
included in the contract when they believe that the project is too risky, or involves
serious regulatory issue* beyond the control of management, or when there U a risk
that the company may change its business plan mid-way. Organizations are also using
several techniques to retain executives. There is tin* 'retention bonus', which is worth
approximately Rs 4 50,000 W0,000. It is paid in advance and is for a 2-i year period.
If the employee leaves before that time, he/she has to return the allowance. Chief
executive* officers have begun to negotiate hefty severance pay packages when
accepting a job offer from an organization. Severance pay is the compensation that tin
organization contracts to pay the CEO if it asks him/her to leave*
A CEO's compensation includes
an employee stock option plan [ESOPj;
underwritten stock options;
a retention bonus;
a free residence (if the employee stays on, the organization gifts to (he employee the
house Ihut he/she is living in);
a sign on bonus, to ensure commitment;
a joining bonus or a kgolden hello* (to compensate the loss of the existing
job);
severance pay (if one party decides to rescind the contract, it will pay a certain
amount to the other); and
H pre-joining holiday
The new FBT (2006} has brought about some cluing*1* in the bouquet ol executive
allowances (see Exhibit 8.2). Some CEO allowances (annual holidays, retention
bonus, and ESOFs) that were outside the salary structure have now been included as
part of salary or of CTC
A look at the trends in CEO compensation suggests that it is structured to reward
executives when the organization grows m profitability and in market value over the
years. Chief executive officers are being offered a 'market premium bonus'. Such a
bonus is a small percentage of revenue paid to the
CEO if the company is listed in the lop 25% of the stock market. Since CEO
compensation falls in the high tax bracket, the structuring of the package is more
important than ihe base pay per se. Organizations are providing long-term wealth
creation opportunities in the form of incentives, retention pay, ESOPs, and deferred
bonus plans. The components of executive compensation package include the base
pay (salary), short term incentives, long-term incentives, benefits, and perquisites. A
brief overview of these components of executive compensation is presented in Exhibit
8.6.
The most popular form of performance-based long-term incentives for executives and
CEOs is the employee stock option plan (ESOP). It gives them the option to buy a
specific number of shares of the company slock at an advantageous/concessional price
during a specified time. An ESOP has four stages: (I) the actual granting of the
option; (2) vesting; (3) exercise (conversion of the options into shares); and (4) sale.
The vesting period is the length of time during which employees are restricted from
selling the shares. After this point, the restriction is lifted. An executive can make
ahuge profit by exercising his/her stock option if he/she buys the shares in 2006 at a
2004 price, for example, if the price goes up. The rationale for offering an ESOP is an
assumption that the manager will work towards ensuring that the price of the stock
rises. The stock price is a measure of organizational performance. Flow-ever, stock
price is not always in the management's control. General economic
and market conditions play an important role. The senior executives generally
negotiate for ESOPs during the hiring stage- Employee stock option plans
make employees aware of the significance of creating value;
align rewards with the creation of value as reflected i n the market valuation of the
company's stock;
attract and retain talent;
help organizations compete in the market for talented employees; and
align individual goals with organizational goals.
Employee stock option plans became popular in the 1990s. Infosyt was among the
first Indian firms to introduce ESOPs as an Incentive tool 'llie scheme was very
successful as stock prices of technology firms soared. However* stock market
fluctuations made ESOPs a less lucrative HR tool for attracting or retaining
employees* particularly in the IT industry. Stock options were replaced by a highly
flexible compensation package for high fliers in 2004, when organizations began
customizing compensation packages and began asking employees how they would
like to be paid. Infosys <mspmded the KSOP scheme in Ma) M M A and renewed t $*t
EVfflfdl toi employees. However, slock options made a comeback in 2006, and arc
being recognized as an integral part of senior executive compensation in industry-The
advent of the FBT has contributed lo this trend in Mime measure-Several
organizations, particularly large recruiter* in the retail and telecommunications
sectors, have started to rely on [Link]* to attract and retain talent. Though the term
has come to be associated with young and new com panies, several old and
established organizations are also offering ESOPs. Pun] Lloyd, GATE Nagarjuna
Constructions, etc. have announced ESOPs. The Government of India proposed in
2006 to offer liberal ESOPs when the entity that emerges from the merger of Air India
and Indian Airlines makes its initial public offering IPO;. Most private sector banks
that started operations in India in 1994-95. have liberal ESOPs. In the Indian banking
industry, HDFC Bank and 11)111 Bank used this compensation tool to attract senior
executives from foreign banks during their initial years of operation. A proposal for
ESOPs for public sector banks to reward and retain talent is on the anvil.
Organizations are also innovating ways to implement ESOPs. Phantom stock option
plans allow executives to hold shares without owning them physically These shares
are held in 'units' and accumulate over time. These arc alio performance-based. Ai
some time in the future, (he executive can encash these units by receiving the value of
die appreciation of ihe 'phantom' stock they own.
A restricted Hoek option plan allows the executive to hold shares without paying for it
The employee can sell the stock after it vests. If the executive leaves during the
vesting period, he/she gives up the right to these shares.
The CEO could not sell until 200fi. Wipro introduced 'restricted slock awards* in
2004. It granted six million stock options to its middle level managers, who
constituted 10 12'W ot its total workforce. The options had a vesting period of five
years (encash 20% allotment each year] and a nominal exercise price. It was estimated
that about 2000 employees of Wipro would be entitled to options worth Rs 20 lakh
over a five-year period. Wipro's objective was to reward employees and to have a
deferred salary component that locks the employee for some years. The scheme was
believed to help the company retain the middle level managers. Microsoft announced
a stock award scheme in 2004. HLL, the KMC(! major, has also introduced a
variation in the implementation of stock option plan. The scheme at 1 ILL. introduced
in Mav 2006, is called the 2006 HLL Performance Share Scheme. The objective of
the scheme is retention of talent. The restricted stock scheme at HIX provides for
conditional giant ot peitormance shares free of cost to eligible management
employees. Employees are prevented from immediate sale of shares. Unilever and
American Express also offer similar stock grants to their employees. Information
technology and multinational companies have also adopted slock award schemes.
Under these schemes, shares are given at concessional rates to employees. Stock
awards differ from ESOPs in that the base for stock awards U the real value of shares
rather than the perceived value of options, as in ESOFs. See two examples of
innovative slock option sehemrs in Exhibit 8.7 It is important to link rewards to
business strategy of the firm. Incentives provided to executives give signals about
what will be rewarded by the organization. This is likely to make an impact on the
success of business strategy. Let us now discuss the linkage between business strategy
and compensation.
BUSINESS STRATEGY AND COMPENSATION
The past few years have been ssilncss tn an increasing alignment of HR suat* egy
with business strategy. In earlier chapters, we have discussed the linkage between the
HR practices of an organization and its business strategy. There is a growing
recognition that compensation and reward strategy must also complement
organisational strategy. A compensation and rewards strategy aims to attract and
retain employees. Reward strategy also seeks to motivate employees to perform belter
and to reinforce those employee behaviours that contribute to the achievement of
organizational objectives. This linkage has always been implicit in discussions of
compensation and reward strategy. However, it is only recently that systematic efforts
have been made to identify appropriate compensation and reward strategies for
different organizational strategies. A compensation and rewards strategy aims to
attract, retain, and motivate workers- It is a subset of an organization's HR strategy,
which is aligned with business strategy. Therefore, the compensation and rewards
strategy should also be aligned with business strategy so that it facilitates the
accomplishment of organizational goal* by reinforcing the behaviours needed to
achieve these goals. The linkage between reward strategy and business strategy
focusscs on identifying behaviours needed to achieve organizational objectives. In
turn, compensation and reward systems that elicit these behaviours can be identified
and implemented- For example, an organization that achieves it* objectives through
work groups or self-managed teams should have team-based pay and reward systems.
The dr*ign of an effective reward system requires a close association and relationship
between HR strategies ind pay strategies and between compensation strategy and
organizational strat egy. The linkage assumes that individuals direct their effort
toward achieving the strategic objectives of the organization through the
compensation system. When properly designed, the compensation system contributes
lo organizational effectiveness. Thus; it is important lo understand the role that
compensation can and should play in the strategic plan of the organization.
Gomez Mezin and Welbourne (1!)H8) defined compensation strategy as the repertoire
of pay choices available to management that may, under some con* ditions, have an
impact on the organization's performance and the effective use of its human
resources*. In other words, the compensation strategy of an organization determines
the conditions under which employees are rewarded. The degree to which various
compensation or pay choices will be successful will depend on the conditions or
contingencies facing the organization at a given point of time. The repertory of
pay/compensation choices can be grouped into three strategic compensation
dimensions: (1) the criteria or bases for determining pay levels; (2) the design of the
compensation system; and (3) the administrative framework. Table 8.7 details these
dimensions, as well as the compensation choices relevant to each dimension.
Some of these compensation dimensions are associated with each oilier; when they
are, basic combinations or patterns of compensation or pay decisions result. Gomez-
Mezia and Welbourne (1988) created a typology of compensation dimensions based
on relationships among t h e three compensation dimensions. Two clear compensation
patterns were identified: ( 1 ) mechanistic; and (2) organic (see Table 8.8). These
strategic patterns of compensation may apply to a variety of organizations and
environmental conditions.
It is necessary to pay attention to certain issues to understand the linkage between
compensation strategy and organizational strategy. For example, it is necessary to
understand the relationship between strategic employee groups in an organization and
the compensation strategy. The strategic significance of different employee groups
varies according to industry and firm characteristics. Scientists and engineers may be
crucial in influencing compensation strategies of high-technology firms. However,
this employee group may not be as important when designing pay systems for mature
manufacturing organizations. It is also likely that compensation strategy may differ
for different functional areas such as marketing, finance, or R&D. Similarly, pay and
reward systems for professional, semi-skilled, and unskilled employees can be quite
different.
We have already emphasized that the compensation strategy must complement the
business strategy of the organization. Efforts to identify appropriate compensation
systems for different organizational strategies have focussed on the (1) typology of
business strategy; or (2) type of industry; or (3) organizational life cycles.
Typology of Business Strategy
The most common approach to theorizing about compensation strategy is to
categorize organizations by business strategy, based on a chosen typology (such as
that of Miles and Snow or of Porter). Subsequently, the compensation features most
appropriate for firms in each category are delineated. The question that needs to be
answered is: which organizational strategies are related to mechanistic and organic
compensation strategies? The mechanistic compensation strategy is likely to be used by
organizations that are secure in their present
business and current product. When expanding, these organizations prefer Lo grow
into a similar business by utilizing their expertise. Mechanistic pay patterns are
associated generally with organizations following the defender and maintenance
business strategies. As discussed in Chapter 1 (Miles and Snow typology 4 of business
strategy), defenders are concerned with maintaining their current market share.
Organizations following a maintenance strategy are also concerned with retaining
their current position in the market. The primary concern of the business unit is with
existing products and markets.
The organic compensation strategy i s likely to be used by organizations that are at a
stage of early growth and are preparing for rapid expansion along a narrow product
line. It is also used by organizations that are in a stage of mature growth when they
acquire businesses unrelated to their current btisiness or product through acquisitions
and mergers. Organic compensation patterns are associated with the prospector and
dynamic growth strategies. The prospector strategy involves searching for new
products and markets and pursuing opportunities both within and outside the existing
domains of expertise. The dynamic growth business strategy is to take on significant
and frequent financial risks. Thus, the prospector and dynamic growth strategies are
opposite to the defender and maintenance strategies associated with the mechanistic
compensation strategy.
The mechanistic and organic compensation strategies represent the two ends of a
continuum. There is also the possibility of a third compensation strategy, which is at
the mid-point of this continuum, called the mixed compensation strategy. It is
associated with the 'analyser' business strategy. The analyser strategy is used by firms
operating in both stable and growing markets. The mixed strategy* is also associated
with firms that follow the dominant product strategy. The dominant strategy is
followed by organizations that are not very diversified and that earn their revenue
primarily from a single dominant product. These firms may be in a transitional stage.
Therefore, they need a com pensation strategy that can provide both control and
autonomy. A summary of the linkage between business strategies and compensation
strategies is presented in Table 8.9.
Many compensation theorists propose die concept oPfiV between corporate strategy.
HR strategy, and compensation strategy. /Wording to this perspective, optimal
conditions for organizational success result from a best fit between business and
compensation strategy. However, the Tit" perspective may suggest rigidity
Determining compensation features most appropriate for firms in each category of
business strategy results in an 'ideal1 type in terms of pay strategies for each strategic
grouping (e.g., prospectors, defenders, analysers, etc) One drawback in the use of
typology of business strategy in compensation strategy is that few organizations can
be neatly classified by business strategy. Most organizations use a combination of
business strategies. Hence, business strategy
typology linkage with compensation strategy at best provides a general direction; it
cannot be prescriptive. Though a fit is desired, strategies that are appropriate today
may become inappropriate tomorrow. Therefore, manage ment should be careful
when developing ideal compensation strategies since these could easily become
obsolete. This issue is especially significant, because once a reward system is in place,
employees develop a set of expectations. This makes it difficult to change the reward
systems.
For a particular business strategy', there are a variety of approaches that can be used
to achieve the goals of dial business strategy. For example, an organization operating
in a very competitive environment and manufacturing a standardized product may
follow a cost leadership strategy. Several approaches are available to achieve the goal
of cost leadership. For example, one firm
may adopt the lowest price approach. Another firm may develop innovative product
and process changes that reduce manufacturing costs. Thus, the same goal of cost
leadership may be achieved by following different ways. When an organization
follows the cast reduction business strategy, rewards should be linked to improved
profit margins. Reward systems for the same business strategy, that is, cost leadership
strategy, will then have different emphases* depending on the approach to achieve
cost leadership. This view supports the contingency perspective.
Another aspect of business strategy and compensation strategy linkage and one that
supports the contingency view relates to the components of a com pensation
programme, that is. base pay. incentives, and benefits. The base salary- -the fixed
component that is adjusted annually—must be market-driven in attract and retain
employees. However, managers with different abilities command different prices in
the pay market. Different organizations require different levels of expertise depending
on their strategy and their environ ment. Organizations that have an environment of
uncertainty and change need to give greater attention in their staffing, I hese
organizations must pa> higher-than-average base compensation in order to attract the
top candidates, that is, those who have high technical competency and can cope better
with uncertainty
The incentive component plays a key role in the successful achievement of business
strategies. Incentives have the potential to motivate managers to carry out the
activities that are significant for accomplishing organizational goals. Incentives
should be tied to behaviours that are critical for achieving organizational strategy. The
same business strategy, for example, cost leadership strategy or the differentiation
strategy, might require differences in approach by different organizations. The
incentive programme must be designed to support the particular approach of tire
business strategy followed by the organization.
Type of Industry
Firms in technology-intensive industries, and in emerging and rapidly growing
industries, adopt different compensation strategies.
Technology-intensive Industry
High technology firms develop compensation strategies thai are congruent with the
culture of innovation. Some attributes are characteristic of high technology firms (see
Exhibit 8.8).
The business strategics followed by high-technology firms are of innovation or
creative destruction in order to be the first to the market. The attributes of high-
technology' firms pose several challenges for the HR function, such as
attracting and retaining R&D personnel when turnover rates are very high, rewarding
the performance of R&D personnel, etc. The attributes of high-technology firms and
their business strategies require a compensation strategy that will facilitate the
successful management of these firms in the light of the constraints and challenges
that they face. High-technology firms that adopt a certain profile of compensation
strategies have a more effective pay system than those high-tech firms that do not
adopt this profile. This profile of compensation strategies is characterized by greater
emphasis on the individual rather than the job, more risk sharing, an external market
orientation, discretion in making pay decisions, emphasis on aggregate incentives, and
a longer time orientation. Thus, the compensation strategies most likely to be utilized
by these firms are individual-based compensation; risk sharing; market-driven pay;
higher discretion; aggregate incentives; and time-orientation (Figure 8.9).
Individual-based compensation strategy It rewards employees in high-technology
firms for their skills, knowledge, and ideas. Compensation strategy is, thus, employee-
based. Knowledge workers should be rewarded for their contribution to innovation
and not for their position in the organizational hierarchy.
Risk-sharing compensation strategy It is used by high-technology firms to reduce risk
by having employees share part of the performance uncertainty with the organization.
Employees do this by accepting less secure income, that is, by earning a large
percentage of their salary in the form of variable pay and incentives. This helps the
organization reduce labour costs. Risk sharing is reflected in compensation strategies
such as, performance-related pay, variable pay, and market pay policy.
Market-driven pay It enables high-technology firms maintain external equity in their
pay system by paying their employees based on external comparisons. High-
technology firms depend heavily on human capital, or knowledge workers. It is
important for these firms to be responsive to the market value of each individual If
best performers are not paid according to their market value, they may leave the
organization for more lucrative offers made by competitors. The market for high-
technology talent evolves rapidly. Therefore, the firm needs lo respond quickly to
attract critical employees and retain high performers.
Higher discretion Higher discretion in compensation strategy is appropriate for high
technology firms. This suggests higher latitude in decision-making when making pay
allocations. Rigid compensation systems that do not permit exceptions to existing
norms are not applicable to these firms. When judging the performance of R&D
workers, many factors need to be considered. These include difficulty of task, ideas
generated, integration in a team, etc. A centralized rigid system does not allow a
consideration of these factors.
Aggregate incentives These are appropriate to the characteristics of high-technology
firms. Aggregate incentives are financial rewards linked to the performance of teams
as opposed to individual incentives that depend on individual employee performance.
Mosi high-technology firms are work-group based where employees work in teams
for accomplishing a project. Therefore, it appears more natural to link rewards to
group performance.
Time orientation k is used by high-technology firms to reward employees. These
firms emphasize long-term incentives. Long-term incentives serve some purposes for
the organization. These include increase in employee retention since an employee
who changes the organization has to forfeit certain accrued gains. This makes it
expensive for employees to change jobs.
Thus, the compensation strategies of high technology firms are unique and distinguish
them from that of other companies.
Emerging and Rapidly-growing Industries
Emerging and rapidly growing industries are defined as 'those industries that are
newly formed or revitalized industries that have been created by technological
innovations, changing cost factors, or new consumer demands that elevate a new
product or service into a potentially attractive business opportunity' (Porter 1980). For
example, in the 1980s. financial services and personal computing were emerging
industries. In the 1990s, IT and ITeS were emerging industries, and in the decade
starling 2000, die retail sector, insurance, and outsourcing are emerging industries.
The characteristics of emerging industries are presented in Exhibit 8.9.
Rapidly-growing firms have certain characteristics that place some constraints on
HRM programmes. All HRM practices, including rewards, must support the
organization's growth goals. These attributes of rapidly-growing firms have an impact
on the design of the reward system (see Table 8.10).
The reward system for rapidly-growing firms consists of base salary, benefits, short-
term pay incentives, and long-term pay incentives. The incentives component is an
important part of the overall reward package for a rapidly-growing firm, but not for a
mature firm. The incentives are tied to the growth of the firm since it is growing
rapidly. The general characteristics of the pay/reward components of rapidly-growing
firms are presented in Table 8.11.

Organizational Life Cycle

Organizations in the birth, growth, mature, or decline phases choose different strategic
directions at each phase because they confront different opportunities in their external
and internal environments. Table 8.12 suggests that compensation strategy has to be
adapted to the overall business strategy of each stage of the organizational life cycle.
The pay mix (base salary, incentives, and benefits) varies as an organization moves
from the growth stage to the mature stage.
When a firm is at the growth stage, product innovation is viewed as the best w a y to
get established in a particular industry. High-technology firms that are in the growth
stage search for new products that are based on technology that is more advanced than
the existing technology with the objective of penetrating markets controlled by mature
firms, and in which mature companies have invested heavily in existing routine
technologies. Firms at the growth stage invest significant time and money in R&D
since these firms are focussed on launching new products in the market. Therefore,
these Firms rely heavily on
incentive-based compensation for scientists and engineers involved in R&D, to attract
and retain this employee group. Employees in R&D may be willing to accept the
short-term risks inherent in working for a firm that is not yet established in
expectation of long-term rewards.
Firms thai have reached the mature stage are less likely to use an incentive pay
strategy. Mature organizations use well-established and routine technologies which
they are reluctant to change because of high associated risks. These firms are
conservative and growth is less rapid. At this stage, product innovations do not play a
major role. In the last stage, that is, the decline stage, organizations face declining
product demand in the external market(s) (Table 8.12). They are likely to pay a high
salary and benefits but less likely to offer pay incentives.
TOTAL COMPENSATION AND REWARDS STRATEGY
A total compensation and rewards strategy defines the compensation and rewards
programmes, the individual elements of these programmes, and the ways in which the
elements relate to each other to fulfill compensation and rewards objectives. A total
compensation and rewards strategy is a statement of an organization's H R philosophy
related to rewards, or the organization's compensation and rewards philosophy. It is
important that organizations have a well-conceived total compensation and rewards
philosophy that embodies the values and benefits of the organization. This philosophy
should serve to guide the design of reward programmes as well as to measure their
effectiveness. When a new compensation and rewards programme is being developed
by an organization, or when the organization is refining (he existing reward
programme, ihe proposed design of the compensation and rewards programme should
be viewed within the context of the total rewards strategy. This is to ensure that the
design of the compensation and rewards programme does not conflict with the reward
philosophy of the organization. For example, if ihe compensation and rewards
programme strategy of an organization emphasizes teamwork as its core value, it will
be incongnient with a compensation and rewards programme that rewards individual
achievements exclusively. This incongruence will then not permit the reinforcement
of desired behaviours (teamwork) that are important for achieving business goals.
International organizations also extend their total rewards strategy to their global
operations across several countries. In doing M I . the underlying compensation
philosophy remains constant across the countries. However, specific country
offerings, in terms of individual elements of the compensation programme, may
differ. Thus, various reward programmes are integrated with a common philosophy
underlying them.
It is rare Lo come across companies that have a clearly articulated total compensation
and rewards philosophy. Many organizations thai do articulate a compensation
philosophy in writing .still fall short of incorporating other types of rewards into their
compensation strategy. Organizations generally adopt individual elements of the
compensation programme, such as different types of incentives, variable pay, etc.
piecemeal, without considering how these individual elements fit strategically into the
total compensation and rewards programme. Sometimes, the individual elements may
even conflict with each other, and render the strategy counter-productive. In such a
situation, the compensation programme neither helps the organization achieve its
objectives nor helps meet the employee's needs and aspirations.
It is also imperative for organizations lo examine their total compensation package to
ensure that it reinforces the HR strategy and the business strategy. From the HR
perspective, it is important to evaluate whether the various reward programmes are
achieving their objective of motivating employees. Evaluation should also focus on
the return on total expenditure on compensation and rewards. To improve the ROI,
the cost structure should be realigned by redesigning the rewards programme.

Components of Total Compensation and Rewards Strategy

The design of the total compensation and rewards strategy requires that decisions
must be made regarding the overall objectives of the reward programme; the
competitiveness of reward programmes; and the types and mix of rewards. These
decisions are influenced by several internal and external factors. Therefore, the
formulation of the total compensation and rewards strategy should incorporate (1)
a comprehensive audit or assessment of current programmes; [2) internal business
faclors; and (3) external environmental and market factor*
Audit of Current Programmes
Auditing an organization** existing reward programmes helps to
determine which programmes have achieved their objectives;
review the competitive posture of the current total compensation package in relation
to the market by determining the value of each element or component of cash and
non<ash compensation such as basic, incentives, benefits, perquisites, pension* etc.;
and rate each element of the programme on the degree to which it supports key
objectives.
By doing these, an audit examines die combined effect ol the total package and
identifies gaps belween programmes and objectives. For example, the annual bonus
may be seen as important for retaining employees, providing them recognition, and
motivating them through short-term incentives. An audit will help determine that the
bonus is meeting these objectives.
Assessment of Internal Factors
This is most significant for ensuring an alignment between rewards strategy and
business strategy. ftroible internal factors are business strategy [growth objectives, life
cycle stage); management philosophy/values; and workforce demographics (turnover
rate, age profile, and family status profile). Assessment of internnl factors involves
examining the key elements of business Strategy; the organization's mission, vision,
values, culture; and management philosophy; life cycle position of the organization;
and workforce demographics. These factors determine the reward strategy of the firm.
A start-up lech* nology company with limited cash flow may emphasize variable pay
and long-term rewards over base salary4. However, a mature financial institution may
favour a larger benefits package over a variable pay programme. Company
demographics play an important role, loo. The needs of a young workforce differ
from those of a mature workforce. The younger employee may value rewards such as
skill development, career development, and cash rewards. Older workers may prefer a
mix of cash and estate-building vehicles, etc. Similarly, gender plays a role. Women
may favour different benefits and types of flexibility compared to men. As mentioned
earlier, it is important to align rewards with organizational philosophy and values so
that rewards convey them.
Assessment of External Factors
External ration include, economic environment (globalization, unemployment rate,
supply-demand situation in labour market,, market compensation trends (trends in
increase in salary and in financial rewards), tax/regulatory environment, and
demographicVsocial trends 'trends in workforce demographic and in societal trends
and values). These have been discussed earlier in this chapter External factors
influence the total compensation and rewards strategy. For example, if there is a
shortage of certain specialized skills, this will influence the rewards package needed
to attract and retain employee* who possess these skills.
Assessment of external (actors requires that the oiganizalion identifies the key factors
and then aligns compensation elements with these factors* For example, an
organization may consider the salary trend an important factor 1 his organization will
develop a total condensation programme that is attuned to salary trends. Tracking
market trends and monitoring economic forecasts and legal developments are all
important to the development of compensation strategy.
Internal factors and external factors need to be balanced by the organization when
designing the compensation package. This is likely to result in closer alignment
between compensation and business strategy and with other important internal and
external factors. Three types of assessments help develop a total compensation and
rewards strategy. The total strategy help* determine the changes that are required in
the design, delivery, and administration of reward programme to align these
programmes with business requirements.
A total compensation and rewards strategy helps the organization
align its compensation and rewards strategy with its H K and business strategies;
develop new compensation and rewards programmes or update existing ones by
serving as a guide for HR practitioners;.
eoinpete Initer when recruiting new talent;
moderate its labour costs by trading off some components; and
enhance performance.
rewards to be fair When rewards are perceived as unfair or inadequate, employees
fee) dissatisfied and reduce effort; performance is, therefore, impaired. There have
been several changes in compensation trends over the years: the variable component
of pay has increased; rewards have be* cuiuc performance-1 inked; there is a trend
toward team-based rewards; and rewards are linked to organizational performance*
Average salaries have been increasing continuously over the past several years. The
chapter categorized rewards into two-financial and non-financial. The basic
components of compensation and reward programmes—base pay. variable pay or
incentives, and benefits—were discussed. Three types of incentive plans- individual,
group, and organi rational—were also described, The chapter dwelt briefly upon the
role of intrinsic motivators and of recognition schemes in rewarding employees. Two
approaches to compensation—traditional and contemporary—were presented. The
internal and external factors in the determination of individual financial compensation
were highlighted. The chapter also discussed the four types of pay-for performance
approaches for rewarding individual employees: (II merit pay; (21 variable pay; (3!
skill-based pay; and [4] competency based pay The important role that employees'
perception of equity plays in their satisfaction was discussed. Team-based reward sys-
tems and (heir advantages and disadvantages were also discussed. The components,
trends, and innovations in compensation of top management were examined. The
linkage between business strategy and compensation and reward strategy was dis-
cussed with respect to typology of business strat egy\ stage in organizational life-
cycle, and type of industry, viz. technology-intensive and fast-grow th industry. The
linkage between two compensation patterns—mechanistic and organic—and a variety
of organizational and environmental conditions wore highlighted. The chapter ended
with an over view of the total compensation and rewards strategy and by emphasizing
its importance in guiding the design of the compensation and rewards programme in
an organization.
Keywords
individual receives based on the time he/she has worked for the organization. It
includes wages and salaries.
Benefits are employer-provided rewards other than wages, salaries, or incentives that
accrue to all employees by virtue of their membership in the organization. Benefits
are a form of indirect financial compensation and are not contingent on UM
performance of an individual, a team, or an organization
Compensation is the total of all forms of payments and rewards given to employees
for performing tasks to achieve organizational objectives.
Compensation Management is a process that includes decisions regarding benefits and
variable pay
Compensation Strategy is the repertoire of pay choices available to management that,
under some
performance and the effective use of its human resources.
Competency-based Fay System is one in which employees are paid for the range of
skills, knowl* edge, motives, attitudes* etc. that they bring to the job, not for their job
tides.
Contemporary Compensation Approach places value on individuals rather than on
jobs and pays for skills and competencies.
Direct Financial Compensation or Reward is
the monetary payment made to employees in ex* change of work. It includes basic
wage or salary, bonus, incentives, merit increases, overtime pay* men is, variable pay,
and commissions.
Employee Stock Option Plan gives an individual the right to buy a specified number
of shares of the company stock ai an advantageous price during a specified period.
Equity is ihe employee's perception of fairness of the compensation and rewards
he/she receives compared 10 w hai he/she doe* Equity in compensation and rewards
exist when ihe outpuL input ratios of ihe individual and tilt significani either are
perceived lo be equal.
External Equity exists when the employees of one oigaiuzation are paid comparably
to employee* who perform similar Jobs in another organization.
Flexible Benefits or Cafeteria Approach gives employees a bouquet of benefits to
choose from.
Indirect Financial Compensation or Rewards
arc benefits (pensions, insurance* paid time off work, etc! 1 given to all employees on
the basis of their membership in the organization.
Individual Equity exbts when an employer per* trivet that hit or her pay is fair when
compared with what co-workers are earning lor similar jobs within the company,
based on each individual's performance.
Individual Incentives are given to reward the rflnn and performance of individuals.
Internal Equity exists when employees are paid according to ihe relative value of their
jobs within the same organization.
Job Evaluation Is the process that determines the relative value of a job in order to
assign a wage rule to the job.
Mandatory Benefits are those benefits that are Ir<.tll\ bi!it!;ni; < >n the employ el
PkOvMtf t,.n<i grahiiry. health plans, maternity leave, medical leave, etc. are
examples of mandatory benefits.
Merit Pay is the pay increase given by an organi-/-in H I to employees baaed on the
organizauon's appraisal of employees' performance during a previous period.
\ L i i M M i i ■. M l Compensation, also called intrinsic rewards, is praise and
recognition for good performance and the satisfaction that an individual denves from
ihr job or from the environment in which he/she performs it.
Organizational Incentives compensate all employees of the organization based on its
performance that year. Stock options and profit sharing plans are common forms of
organization-wide incentives.
Phantom Stock Option Han allow? executives to hold shares in the form of uniu
without physi tally owning them and to encash the units to receive value equal to the
appreciation of the phantom stock they own at a specified time in the future.
Restricted Stock Option Plan allows an executive to hold shares without paying for it
but restricts him/her from selling them for a specified period.
Salary refers to a consistent payment made to employees at dip end of a specified
penod regard* lesa of the number of hours worked.
Skill based Pay compensates employees for iheir Job relaied skills and knowledge,
and not for their job titles.
Team based Pay Plans link individual financial rewards lo team performance or to the
achievement of team objetUves/goalt,
Total Compensation and Rewards Strategy is
a statement of an organization's compensation and rewards philosophy It defines the
objectives of the rewards programmes, the individual elements of these programmes,
and the ways in which those elements relate wiih each other to fulfill reward
objectives.
Traditional Compensation Approach is to use
job evaluation to determine the relative worth of each job, which in turn, helps
determine the salary for the job.
Variable Pay is the compensation linked to indi vidua), team, or organizational
performance, not to the time worked. It is a form of direct financial compensation.
Voluntary Benefits are discrrUonary and provided by the employer voluntarily
Compensation (or time not worked, paid holidays, tick leave, family friendly benefits,
retirement, etc. are examples of voluntary benefits.
Wages refer to employee payments directly calculated on an hourly basis.
1. What is compensation? Differentiate between direct and indirect financial
compensation. Also, outline the major objectives served by a compensation and
reward system.
2. What are the basic components of a compensation and rewards system? What
innovations have organizations introduced in each of these components because of
an increasingly competitive business environment?
3. Compare the two major approaches to compensation and rewards. Discuss the
importance of a total compensation and rewards strategy.
4. What is incentive pay? Distinguish between individual incentives, team-based
incentives, and organizational incentives.
5. Under what circumstances is it appropriate to link individual payment to team
performance?
What are the advantages and disadvantages of team-based rewards?
6. Compare performance-related pay. skill-based pay, and competency-based pay.
What steps should be followed in designing a competency* based pay system?
7. 'Recognition is the most reliable of all rewards'. Critically examine the statement.
Identify two or three ways organizations commonly use to recognize and reward
employee* through non-linancial means.
8. What is compensation strategy? Explain the difference between mechanistic and
organic strategies of compensation.
U. Explain the business and compensation strategy linkage in organizations.
Critical Thinking Questions
1* What is merit pay? How is it different truin variable pay? What are die main
advantages and disadvantages of the following two forms ay-for-porformance:
(I) one-off bonus payment and (2) salary increments linked to high
performance? Which of the two, in your opinion, has a higher motivational
value for an employee? Explain your answer with suit able examples.
2. What U the role of equity in compensation and rewards decisions? What leads
to perceptions of inequity in compensation and rewards decisions? Describe
 the three types of equity that should be a part of an equitable compensation
and rewards system.
3. Do you think that the compensation and rewards strategy of a high-technology
firm will be different from that of an emerging fast growth firm? Why?
Enumerate your answer giving examples from organizations you are familiar
with.
Simulation and Role Play

I. Turnstar is a leading consumer durables MNC headquartered in the US. It is a well-

respected firm with a well established brand name. It is one of th- most soughl-aftei
Arms dui ing campus recruitments at all prestigious management institutes. Fresh
management graduates consider the firm one of the best training grounds for starting
onc*s career Those who begin their career with this firm command high respect in
their professional circles. Until about live years back, most of the management
graduates who began their career with Turnstar stayed with the firm for seven or eight
years at the leasL lately, however, Mr V I the HR manager, observed that many
employees weie leaving the linn after about two years. The compensation and reward
structure at Turnstar has lollowed a fixed salary plan. 1 ligh perform* crs were
rewarded with merit pay increases. The salary levels at Turnstar were lower than other
firms* in die geographical region. However, the CEO had consistently refused to in-
crease its executive salaries slating that the executives who worked for the firm
received non-financial compensation Uiat more than made up for lower rates. For
example. Turnstar recognized skills and contributions, provided challenging
assignments, chances to do some-dung worth while, and opportunities to develop a
career. Mr Mishra conducted several exit interviews with employees who were
leaving the organization. It emerged lhat the majority were leaving because other
firms were offer iug I hem higher salaries and performance-based incentives. Mr
Mishra would like to restnicniro the reward and compensation plan at Turnstar to
include performance-linked incentives.
Assume you are Mr Mishra. the HR man ager. Design a variable rewards and
compensation plan for Turnstar to be presented to the CEO for approval. While
designing the new pay plan, incorporate the following: percentage
of total pay dial will be fixed and variable, pay rates of othei firms operating in die
region, etc. Also, develop arguments in support of variable pay over merit pay.
The siluaiion may also be used for a role play exercise. Two students should volunteer
with one student taking on the role of Mr Mishra, and the other that of the CEO. Both
Mr Mishra and the CEO ate concerned about the reasons for the increase in employee
turnover and debate them. They search for solutions and deliberate upon several
different reward, bonus, and incentive schemes. Mr Mishra suggests thai the firm
should offer executives an ESOP to retain them. The student volunteer* should
discuss the pros and cons of changing the reward structure of the organization from a
merit-based system to a variable pay system.
After the role play is over, the instructor invites observations and questions from the
class. The instructor leads the discussion on the importance of performance-linked
variable pay system, cxlrrnal equity in compensation, the need to have a competitive
salary structure, the merits and demerits ol LSOPs, and innovative approaches to the
implementation of ESOPs.
Classroom Projects
I, Working in teams of three or four, list the range of benefits thai are offered by
organizations to their employees. Classify these benefits into *mandatory* and
'voluntary*. Discuss lhe voluntary benefits lhai are of greatest value to employees.
Are all voluntary benefits equally relevant to employees of all age groups in an
organization? Give reasons for the differences in benefits preferences across different
age groups.
Assume your team has been hired as a benefits consultant to an IT firm Your job is to
• list the benefits lhat employees belonging lo different age groups—20s, 30s, 40s,
etc.— will find valuable and relevant;
customize flexible benefit packages for three groups of employees: (1J new graduates
recently hired; (2) employees in their early 30s; and (3) employees around 50;
* assign a money value to each benefit in the flexible benefit package and calculate
the total cost of benefits for each of the three employee groups;
• discuss the impact of FBT on lhe structuring of executive compensation packages
as well as the manner in which die employer calculates cost-to-company; and
- discuss the objectives that organisations seek to accomplish by customizing benefits
packages for employees.
Each leant prepares a report for presentation and discussion in the class* The
instructor facilitates the discussion emphasizing the importance of customizing
benefit packages and the role of benefits in attracting, motivating, and retaining
employees.

2. This exercise requires some out-of-class preparation. The students are required to
gather information from newspaper articles* business magazines, and company
websites about the changes in the structuring of executive compensation packages.
Students also obtain examples of organizations that have modified their reward and
compensation packages. In the class, students are asked to form groups of 1 or 5
snidents. Based on the information each student has. the group discusses the nature of
changes that have occurred in reward and compensation structuring and the reasons
for the changes. Ihe discussion centres on the increase in variable payt competency-
based pay. and skill-based pay The significance ofESOPs in executive compensation
packages is also discussed. Each group presents a summary of the discussion to the
rest ofthc class. When all groups have made their presentations, the nv stnictor should
engage the entire class in a discussion on the trends in executive compensation. The
discussion should also focus on the pros and cons of factoring in individual, team, and
organizational incentives in executive compensation packages

1. The objective of this field project is to help students appreciate the role of internal
and external determinants of compensation and rewards. The instructor should divide
the class into groups ol live. Each group is asked to visit one organization belonging
to one of the following industries: retail, insurance. BPO. IT and IT< S, and
hospitality. Group members conduct interviews with H R managers as well as few
middle level managers of the firms to find out
• die compensation and rewards structures for different groups of employees in
the organization;
■ the internal and external factors that i n lit: ence reward and compensaiion
decisions;
• if the firm conducts salary surveys, how of ten it conducts diem, and how it uses
die results; and
• if the firm benchmarks salaries in the same sector or across sectors, and why
Each group prepares a report for class pre seniauoti as well as a written report for sub -
mission to the instructor The groups make presentations in the class highlighting the
internal and external determinants that influence compensation decisions. When all
groups have made their presentations, the instructor should engage the entire class in a
discussion about the relative importance of various factors that influence
compensation decisions in the contemporary business environment. The discussion
should also focus on industry differences in the determinants that are important for
compensaiion decisions.
2. The objective of this group exercise is to appreciate the strategic linkage between
organi* zational life cycle and compensation strategy. Students fonu groups ol live
members each. Each group identifies one organization and determines the life cycle
stage of the selected organization. Group members visit the selected organization and
conduct interviews with HR managers as well as a few line managers IO obtain
information about the business strategy that the firm follows at its correal stage in or-
ganizational life cycle. Students also obtain details of the compensation strategy of the
firm. Each group prepares a report for presentation in the class as well as a written
report for submission. After all groups have made their presentations to the class, the
instructor leads ihe discussion to demonstrate how the pay mix |base salary,
incentives, and benefits; varies at different stages of the organizational life cycle.
Industry differences as well as specific com pensation features unique to particular
industry are also emphasized.
A shift in the culture of any organization is effective only if employees change their
behaviour to support the change- For this to happen, rewards must be designed to
reinforce desirable behaviour Employees must be able to see a clear connection
between their everyday work and their rewards. At the Central University, however,
achieving these objectives seems too farfetched.
Central University is one of the leading universities of the country. There are about 30
postgraduate departments, and almost 500 teachers. The university was established in
1950, and has enjoyed a reputation of academic excellence. Several of the teachers
have been very well known in their fields, nationally its well as worldwide. Some of
them have been leading scientists and have won prestigious awards. However, the
well-acclaimed and highly qualified first set of professors have all but retired. In the
past decade, the academic standards at the University have gradually eroded. Students
have become apathetic Teachers1 commitment has declined. They no longer lake pride
in being associated with the University* According to the teachers, the root of die
problem is the cul tore* which is not oriented towards performance. Whatever the
reason, it is evident thai the University has slipped from its elite position of academic
excellence.
The new head of the university. Dean Puri, who assumed office in early 2003, was
worried and keen to reinstate die university to its former gluiy. 1 le felt that teachers'
responsibilities included leuctv ing classes, writing and publishing research papers,
presenting research papers in conferences, and administrative work assigned from
time to time. According to Dean Puri, promotions of teachers should be linked with
the academic contribution of teachers. He also felt dial the salaries of teachers should
have a variable component, linked to research publications, courses offered/taught,
training programmes conducted, research projects undertaken, resources generated,
etc. If promotions and salary increases of teachers were made contingent on such
criteria, these rewards would reinforce desirable behaviour and a performance-
oriented culture.
Accordingly, when promotion interviews were held, promotions of several teachers
belonging to various departments were not approved, This re* suited in much
discontent among the teaching com munity, because of which the university
administration came under severe attack from the teachers* associations. They argued
that since there were hardly any avenues of career growth in the profession, time-
bound promotions should be given to everyone as a right. Moreover, they felt that the
implementation of academic criteria for assessment of teachers should have been
preceded by communication to this effect. Since the university did not have a system
of performance-linked promotions or performance-linked financial incentives, it was
unfair to link promotions or salary increases to academic criteria without formalizing
such a system. It was clear that the teaching com munity was not ready for a change in
the reward system. Change of such a magnitude required a university-wide
communication programme.
Dean Puri took the initiative to diagnose what was ailing the university. Hence, at his
behest, a university-wide survey was commissioned to de-tenuine ihe levels ol
satisfaction, motivation, and commitment among the teachers. To obtain an objective
feedback, the survey was conducted anonymously. What emerged was unbelievable:
almost 90% of the teachers were dissatisfied with various aspects of their job. had low
levels of motivation, and felt emotionally detached from the university although they
fell morally committed to ihe system of education. This was highly disturb ing and
something needed to be done urgendy Hence, a follow-up survey was undertaken lo
diagnose lhe reasons for this state of affairs, during which many teachers were
interviewed in depth. The survey found diat satisfaction, motivation, and commitment
of teachers was low* because
• automatic salary increments did not discriminate between high performers or
poor performers;
• teachers who taught sincerely were not rewarded, and teachers who did not teach
sincerely were not penalized;
• there were no incentives for research, publications, paper presentations at
conferences, or odier such academic criteria;
• promotion decisions were based on senioriry and/or length of service rather than
on merit;
• there was no assessment of or formal feedback on performance;
• benefits given to teachers were mandatory only; and
• The university lacked a performance culture.
Thus, die findings suggested that the major source of the problems confronting lhe
university was the absence of a formal compensation and rewards system. Until 2003,
there was no reward strategy; only a time-bound promotion system based an years of
service rather than on performance. There was no system for appraising performance
of the teachers along any of the specified criteria. Salaries of teachers were according
to grades and increased annually. The university followed the traditional
compensation philosophy— it increased the salary of all every year according to
salary grades and increased the salary for performers and non-performers equally.
Since performance was not linked to rewards or promotions, nor recognized, leachers
who had a good performance record and showed high potential gradually reduced
iheir effort. The feeling was that since everyone was promoted with time, extra effort
would not lead lo higher rewards. This resulted in the instimtionalizaiion of a non-
performing culture, a culture in which there was no motivation to excel or perform
well
Dean Pun was keen lo orient the culture toward higher performance. He constituted a
committee to recommend a reward system that would help achieve this objective. The
commiuee reeom mended, among other things, to
* differentiate the salary increase for average and excellent performance, so that
past performance is rewarded and future performance is motivated;
* assign weightagc to criteria such as publications, number of courses taught, and
other contributions for rewatding performance;
■ base rewards such as promotions less on seniority to avoid demoralizing teachers
and being perceived as unfair;
* extend more benefits to teachers, such as urans-port services, subsidized housing,
admission of teachers* children in the university, etc.;
■ base a component of the salary on various criteria mentioned already;
* compensate and reward teachers for |ob*re-lated skills and knowledge, not for job
titles, because a skill-based pay and reward system will encourage teachers to
learn continuously and gam additional skills, and will help reduce stagnation and
monotony among teachers, and also ensure that the university has competent
teachers;
* institute a competency-based pay system that rewards teacherfc for the skills,
knowledge, motives, attitudes, etc. they have and pay for whai they can do even if
they do nol have to do it now;
« Recogni/p achievements; and
■ extend some voluntary benefits based on requirements.
Dran I'llri has the committee recommen* dations with him al this time. He has several
questions:
* How should these recommendations be incorporated lo design a total rewards
system for the university?
* What criteria can be used to appraise teach-eiV performance?
* What weigh tage should be assigned to •■ I oflhese criteria when determining
merii pny increase?
* Htm should incentives be linked to perfor maiice ?
Will the teachers accept the proposed reward structure?
* Will the rewards svstem be successful when implemented?
* What is the significance of recognition rela-uve to financial incentives for
stimulating high performance in the case ol education?
Questions
t Analyse the existing reward system of the uni» versity foi the teacher
community.
2. Do you think that die earlier reward system of the university was equitable?
Explain your answer with a suitable rationale.
3- What criteria can be used for assigning points to teachers' performance along
various dimensions* How much weightage should be givm lo each criterion?
Explain.
4. Develop an incentive plan for the teachers.
5, Do you ihink recognition will play an important role for motivating teachers?
Whai kind of recognition schemes can the university develop for the teachers1
6 What, in your opinion, will the teachers of the university value more—
extrinsic rewards or intrinsic reward*7
7 Detign a total compensation and rewards strategy for ihe university.
Notes
The Economic Times, 14 September 2006, 'Leave your Worries at Office\ New Delhi, p.
6.
I fa Economic Timt\ 26 July 2006* 'Paid Holiday: You're Free to Date. Wed & Have
Child1. New Delhi, p. &
The Economic Times, Itijune 2006, 'Industrial Wages IW 2Mb annually Duong 1998-99
to 2O03-G4\ New Delhi, p, 25.
The Etonomu rimes. 8 June 2006, infy Moota Deferred Compensation Package for
Seiuor Management*, New Delhi* p. 10.
The Economic Times, 8 June 2006, 'Infy Moots Deferred Compensation Package for
Senior Man agemem\ New Delhi, p. 10.
Ihe Economic Times, 31 May 2006. 'Cos to ink New Contract Norms for Honchos*,
New Delhi* p. 6.
Ihe Economic Times, 30 May 2006. 'Pay Under Different Heads Now History*, New
Delhi, p. 10,
The Economic Times, 18 May 2006. 'IT cos Move Beyond Stock Options', New Delhi,
p. 6.
Ilit Eioncmu Times, 11 May 20O6» 'H1X Shifts Focus to Stock Grant Scheme', Nw
Delhi, p. 11
lhe Ecuumic Time*, 19 April 2006. Tup Exec* Want Cos to Walk the Talk', New Delhi,
p. 10.
JJu Economic Times, 6 April 20U6» 'Old Economy now Takes to ESOPs*, New Delhi,
p. B,
Ihe Economic Times, 14 March 2006, It Pays to be Skilled'. New Delhi, p, 6.
Human Capital March 2006. 'Ail About Accolades', New* Delhi, pp. 20-3.
The Times of India* 8 February 2006. 'Desi Firms Beat MNCs in Pav Hikes. Says
Study'. New Delhi, p. 17.
The Economic rimes. I December 2005. 'Competi-tiveness Conundrum', New Delhi* p.
15.
The Eeonnmic Times* 8 November 2005, 'Support for CMP: Surprisingly from Salary
Hikes', New Delhi, Editorial page.
The Economic Times* 3 November 2005. 'Perked up Packages', New Delhi, p. II.
The Ecm&mit Times, 26 September 2005, 'Employer must Pay FBT on all Staff Welfare
Costs', New Delhi, p. 12.
m Economic Timet. I September 2005, *FBT Slap on Bank Pension*. New DclhL p. 4.
The Economic Times, 1 September 2005. TWA FBT in. Employers Likely to Club Cash
Salary Under one Head*. New Delhi, p. 4.
The Economic Times* 22 August 2005, 'Ringside
View: li Helps to be Paycheck Sawy\ New Delhi, pp. 1,9-
The Economic Times, 12 Augusi 2005. 'Whai Employees Wani', Corporate Dossier.
New Delhi, p. 3.
The Economic Times* 6 April 2005. fcSoxed FT cos Find ESOP Backup'* New Delhi,
pp. 1,33.
The Economic Times, II October 2004. 'Wipro to Grant ftm Stocic Options to StafT,
New Delhi, p. 11.
The Economic Times, 16 August 2004. 'Cash Reward: High-Fliers get BoOW Points'.
New Delhi, pp. 1, 13.
The Economic Times* 23July 2001, 'Dangling die Bait', Corporate Dossier* New Delhi,
p. 3.
The Eeonomk Times, 7 June to 13June 200 J, 'More the Merrier', New* Drlhi, p. 2.
The Economic Times, 5 May 2004, 'ESOP Umbrella Widens: Another Move towards
Liberalization', New Delhi, p. 8.
The Times of India, 3 May 2004, ^Companies Change the Way CEOs are Paid', New
Dellii, p. 15.
References
Adams. J.S- 1953. Toward an Understanding of Inequity'.yoifnw/ of Abnormal and
Social Psychology* vol, 67, pp. 422-36,
Balkin, D.B. 1988. 'Compensation Strategy for Firms in Emerging and Rapidly
Growing Industries', Human Resource Planning, vol. 11, no. 3, 207-13.
Balkin, D.B. and L.R. Gomez-Mezia 1384, 'Determinants of R&D Compensaiion
Strategies in the High Tech Industry', Personnel Ryehotogy* vol. 37. pp. 635-50.
Bohlandcr, C & Snell, and A, Sherman 2002. Managing Human Resources* 12th edn,
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Carrcll, M.R., N.F. Elbert and R,D. Hatfield 1995, Human Resource Management:
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DeCcmo, D.A. and SJ* Robbins 2005, Fundamentals of Human Resource Management*
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Ltd, New Delhi.
Gibson, V.M. 1995. The New Employee Reward System*, Management Review*
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Gomez-Mozia, LR. 1997. The Effectiveness of Organization-wide Compensaiion
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INTRODUCTION
In (In* contemporary business environment, (he traditional notions about
career and career management have taken on entirely new dimensions for both
[Link] and organization^. Business decisions such as merger*, acquisitions, lay
offc, and restructuring all have influenced the way indi-vidualv and organizations
view carters .»nd carta management.
More opportunities have become available for the high performing employees who
are valuable to the firm. High performers, who are in short supply, get many job
offers from other companies due to their competencies and skill sets. Employees are
changing jobs more often than in the past and oh hopping has become an acccptuble
reality to-day Employee loyalty today extends more to the individual's 'career 1 rather
thai) to the 'organization*. If an individual's career aspirations are not fulfilled by the
organization, he/ she is likely to seek fulfillment in some other organization.
Therefore* organizations are confronted with the challenge of attracting and retaining
this group of employees.
Job and career are not viewed as equivalent any more. Employees are no longer
content with just having a secure job widi 111 ne bound upward mobility. Today,
employees arc looking for a 'career* and are not willing lo lake any chances with it.
Employees do not let their careers just 'happen', instead, they want a more active
control over their careers. They also want their firms lo provide them with career de-
velopment opportunities. Changing workforce expectations and the changing
psychological contract between the employei and the employees have led
organizations to direct more attention towards career management interventions.
The present chapter discusses various aspects of career management— both from the
employee and the organizational perspective. The career *tage model, career
planning, and career development issues related to each stage have also been
explored. A perspective on the design and implementation of career management
programmes within organizations is also explored. A typology of organizational
career management practices has been diM;usscd. ITie chapter goes on to offer a
strategic view of career management HS well as some creative career practices that
firms may adopt lo manage contemporary HR challenge*.
CAREERS—CONTEMPORARY NOTIONS
The nature of the world of work, as it exists today, is fundamentally different from
what i t was a generation ago. tarlicr. individuals were expected to work for only one
organization during their entire work life. The individuals belonging to today's
generation, on the other hand, are likely to work in many different organizations
during the course of iheir careers. These individuals arc* also unlikely to remain in
one job or occupation, leave alone one organi nation, for their entire work lives.
Recently, it was reported in a national newspaper that the country manager of Oracle
India quit the firm after a stint of 12 years to pursue other interests. In the next phase
of his career he is expected to join academics where he feels his experience with
Oracle will give him an advantage. Such shifts are likely to become more common in
the near future. Globalization, merger-*, acquisitions, lay-olK technological
advancements, and mher such trends have significantly contributed to this trend.
Changing economic and market conditions have ted many organizations to take some
tough decisions, such as cutback*, manpower reduction, and de-laycring. For
example. Delta Airlines Inc. had announced plans for reducing workforce in
thousands as part of the company's plans to save billion a year by 200b. The growing
concern on part of organizations to lower costs has reduced opportunities as firms
adopt measures such as downsizing and restructuring. In the face of such cost
constraints, career paths often collapse, resulting in employe** dissatisfaction, At the
same time, the limited supply of high-talent employees ensures that firms compete for
this scarce resource. By offering career development opportunities, organizations may
be able to improve their ability to attract and retain ihis group of employees. Many
firms incorporate 'career growth4 as part of their recruitment strategy. In a study
conducted bv AC Nielsen ORG-MARG. for identifying the most preferred company
in the lop campuses in India in the year 2004. IBM emerged among the top three.
According to the study, students chose IBM because it offers individuals with career
opportunities, at the local as well as global level, along with a high-performance
culture and a healthy work-life bnlnnce. The
recruitment campaign of e Serve, a member of Citigroup, talks about the opportunities
that the company offers its employees, such as an opportunity to do an MBA
programme while working.
Volatility of environmental conditions has placed a question mark on the n'levance of
long-term business decisions. These have, in turn, also affected how individuals
perceive organizations. The employee-organization relationship has been re-defined,
as discussed earlier in the book. Organizations realize and accept the reality that
employees may leave the organization for more challenging or lucrative jobs. The
educational level of the workforce has Increased along with their career aspirations.
Employees are no longer content with only good pay cheques and secure jobs. They
want greater challenge, autonomy, better quality of work life, and an opportunity to fit
their work harmoniously with other priorities such as family, health, etc. Career
planning and development help employees achieve this balance between different
priorities. Thus, career management helps employees achieve these concerns and also
ensures that organizations have a productive and committed workforce.
Careers are a late entrant in the field of management study. According to Boerlijst
(1984), career as a whole began to receive real attention only in the l!>7(K, Although
a more systematic study of careers has arisen since, the orga nizational aspect in
career theory still lacks a comprehensive framework.
The term career has been used to connote several different meanings. In day-to-day
usage, career is used lo refer to the choice of a profession (She has chosen a career in
management1) or vertical advancement in the organization 'he is moving up in his
career*). In management parlance, a career refers to the series of wori related
positions occupied by an individual throughout life and the associated activities,
behaviours, attitudes, values, and aspirations. A Job* on the other hand, lefers to the
grouping of tasks, duties, and responsibilities that is assigned to an individual as part
of work at a particular poinl of time. This grouping may change over time and hence
jobs assigned to individuals may also change. The sequence of jobs that an employee
performs during ihe span of work life, not necessarily with the same company, may
constitute his/her career. However, an individual's career does not consist of an
unrelated sequence of jobs. Rather, the concept refers to a visible progression through
objectively defined stages or steps.
Today, the definition of career itself has undergone a change (Figure !U1. 'Career
success* is no longer measurrd in terms of vertical advancement in the hierarchy or
increasing salary levels. It is now characterized by the achieve* ment of one's full
potential, and the ability to face challenges and assume greater responsibility, along
with increased autonomy. More than salary and security, individuals today look for
interesting and meaningful work Though LJien sun-ess may br nhjectiselv measured
in terms of promotions, il mas
also be subjectively defined in terms of satisfaction. The socially acceptable
connotation of what constitutes career success may depend on how each individual
defines personal career success. For a university teacher, career success may be
defined in terms of a promotion from lecturer to reader after the stipulated number of
years. On completion of the requisite number of years of experience, if one teacher
gets promoted while another does not, then, in social terms, the former may be
considered to be more successful than the latter. However, if the latter intrinsically
values academic and research contribution instead of the designation, then this
individual may be viewed as more successful in terms of the internal subjective
valuation of success. Let us take another example—if person A is working to earn as
much money as possible so that his/her family can have all luxuries and if person B
works as a social worker in order to help the less privileged sections of society, in
internal subjective terms, person B is likely to be more successful. Due to these
differences in viewpoints and definitions of career success, individuals arc likely to
respond to different motivational tools.
CAREER PLANNING, DEVELOPMENT, AND MANAGEMENT
Career planning involves establishment of individual career objectives based on an
assessment of career goals, aspirations, performance, and potential. Career planning is
concerned with the choosing of occupations, organizations, and jobs by individuals. It
is a personalized and ongoing process whereby an individual establishes career goals
and identifies the means for achieving these goals. A fresh management graduate
hoping lo start an independent financial consultancy firm may first choose to work for
such a firm for some years to gain experience. Individuals may identify a sequence of
positions they need to move through to achieve their career goals. Tliese sequences of
positions may extend beyond the organization. Career planning should foi u s
on matching personal goals with opportunist's dial arc realistically available. Since the
number of positions at senior levels arc scarce, upward mobility

cannot be a reality for every employee. Hence, career planning need not focus only on
success related to promotions.
Career development, as opposed to career planning, refers to the activities and
processes undertaken by the organization to help employees attain their career
objectives. I t is the process by which an individual's career plans arc accomplished.
For example, an organization may provide developmental training to employees to
help them perform better in their jobs. Career development, however, is different from
employee development. Employee development focusscs on improving work
effectiveness and performance in the immediate or intermediate time frames. Career
development is oriented towards long-term career effectiveness and success of the
employee.
The two concepts, however, arc closely linked. Employee development should be
compatible with an employee's career development in the organization. However, a
successful career programme should not only match individual aspirations with the
needs of the organization, it should also develop employees for the long-term needs of
the organization.
Career management is a continuous process lhat involves setting personal career
goals, developing strategies for achieving these goals, and revising lhe goals based on
work and personal experiences. McMahon and Merman ( I f ' 8 7 ) defined career
management as 'an ongoing process of preparing, implementing.

and monitoring career plans undertaken by the individual alone or in concert with the
organization1. Since careers are made up of exchanges between individuals and
organizations, career management incorporates a partnership between individuals and
organizations. Baruch and Peiperl (2000) defined 'organizational career management'
(OCM) as the design and implementation of activities relevant to the career
development of its employees. They proposed that OCM was distinct from career
management as practiced by individuals. However, the two were not mutually
exclusive, rather, OCM can complement career management. Figure 9.1 presents the
concepts of career planning, career development, and career management.
Several sources have suggested lists of OCM practices. These include lists by Walker
and Cuttcridgc (1979), Baruch (1996), and Bowen and Hall (1977), among others.
The most exhaustive list of OCM practices is perhaps the one suggested by
Guiteridge, Leibowitz, and Shore in 1993 in their study of OCM practices in the
United Stales. Baruch and Peiperl gave their list of OCM practices based on a pilot
study and a review of the sources cited above. This list is presented in Exhibit 9.1 and
according to the researchers; it may be taken as covering the whole range of OCM
practices.
The individual and Ihe organization have different perspectives on careers. Depending
on whether career is viewed from lhe perspective of the employee or of the
organization, the study of careers takes on different orientations.
From an employee's point of view, concerns such as technological advancement, slow
rate o f economic growth, opportunities for personal advancement, ageing, and
organizational restructuring have a long-term impact on career related issues. For
instance, computerization and automation are accompanied by skill obsolescence.
When economic growth is slow, fewer jobs are created, and, therefore, individual
careers arc affected. Further, as firms restructure and reorganize, employees have
lesser opportunities for career advancement. As people grow older, they have fewer
career options and opportunities.
Therefore, for individuals, there exists a personal interest in their own careers.
Individuals wish to satisfy their personal needs through the careers they pursue. When
they experience a sense of psychological failure and lack of accomplishment in their
careers, they may look for career change.
On the other hand, organizations' perspective on careers is directed towards ensuring a
people-career match and smooth employee succession when managers need to be
replaced due to retirements, resignations, or other such movements. The main concern
of organizations is to ensure high levels of performance and lower levels of employee
turnover. Therefore, i t is in the interest of organizations to ensure that employees
pursue careers in which they are interested and for which they are properly trained.
Although individuals and organizations clearly have different perspectives on careers,
both can benefit from working together to improve career man agemcnt (Exhibit 9.2).
Effective career planning and development take into consideration both the individual
centred and the organization-centred perspectives. When an organization provides
opportunities to employees for integrating personal
career goals with organizational objectives, it needs to recognize that each individual's
career tnuves through several *lagt's\ Employees change as they grow older and move
into higher positions, ITierefore. these emplnvers view their careers differently at
various stages of their lives. An individual at the age of 28-30 yean may be extremely
ambitious and focu&sed on upward mobility. Hie tame individual at the age of 45
years is likely to be content with career achievements and satisfied with a slower pace
of career growth One way to analyse careers is to discuss iheir various stages. Each
stage of an individual4* career is characterized by unique concerns, needs, and
challenges. The next section discusses the four stage typology of careers-

CAREER STAGES

Career stages are gradual changes that occur over lime in careers. Moorhcad
and Griffin define career stages aa "periods in which an individual's work life is
characterized by distinctive needs, concerns, tasks, and activities." Several models of
career stages have been proposed by various researchers Dalton, Thompson, and Price
(19971 suggests! that there are four stages in a career—apprentice, colleague, mentor,
and sponsor. Hall (1976) presented a five-stage model that was proposed by Erikson
(1963), However, the most commonly used career stage typology identified four
distinct but interrelated career stages—establishment, advancement, maintenance, and
withdrawal (Figure 9.3),
Huse and Gumming* (1980) proposed that as individuals move from one stage to
another, need* and expectations evolve and change. Each stage is also marked by
significant personal life transitions. Individuals enter and exit each stage of their
career at different ages. The age range* shown here for each stage of career are
approximations.

Establishment stage (age 20-26 years) The first stage of an individual's

career marks the onset of his/her career. At this stage, individuals are often unsure of
their c inabilities, competence, and potential. Hence, they show high levels of
dependence on their superiors for guidance, support, and feedback. Being newcomen,
they may be unsure about their choice of career and may continue to explore
alternative career options and available choices regard ing organizations and jobs.
Their main concerns, however, are directed to wards learning the job and adjusting to
the organization. Towards the end of this stage, newcomers manage to adjust within
the organization.
Life transitions In the establishment stage, individuals move from educational institutes
lo work, that is, from non work to work life. They also become less emotionally and
financially dependent on then parents.
Advancement stage (age 26-40 years) In this stage, individuals become independent
contributing members of the organization and are no longer dependent on their
superiors or on co-workers. Advancement is a highly achievement-oriented stage
during which employees are mainly concerned with increasing their competence and
achieving and advancing in their careers. The employees also seek to advance in life.
Developing closer ties with peers and integrating career choices (such as promotions
or transfers) and personal spheres also emerge as important concerns for employees in
this stage. Vertical (promotions) and lateral (transfers) movements frequently occur
during this stage- These movements broaden the sphere of experience for the
employees as they learn different jobs.
The employees who fail to make the necessary adjustments in the organization during
this stage, may respond by changing jobs. Job hopping has become a characteristic of
the advancement stage in recent years, because of greater career opportunities for high
performers.
Life Transitions When individuals reach and cross the age of 30, it marks an important
personal life transition. It is during this stage that most individuals settle down with a
partner, necessitating several adjustments in personal life. These include working out
dual career partnerships (when the employee has a working spouse) and managing
time between the demands of work and home.
Maintenance stage (age 40-60 years) By the time an employee reaches this stage*
he/she has usually achieved career ambitions and created a place in the world of work.
Individuals are, therefore, no longer concerned with advancement. Most of their
efforts are directed towards maintaining the career gains. Some people, however,
continue to grow during this stage, though not at the same rate as in the advancement
stage. Typically, this stage involves levelling off or reaching a career plateau^ i.e., the
point where Ihe probability of moving up the hierarchy is low. Not all individuals,
however, manage career plateau equally well. Some employees may become
frustrated and dissatisfied with their jobs and achievements. These individuals go
through what may be termed as "mid-career crisis*, w rherein they perceive a threat to
their career identity. These individuals experience this career stage as one of conflict
and crisis. In an organization, these employees may be identified as those who have
not achieved their career goals probably because of a mismatch between their
aspirations and the iealiu. Newt omen lo the organization a: e perceived as threats by
these employees. Reappraising circumstances, searching for alternatives^ and
redirecting efforts assume great significance during the maintenance stage.
Life Transitions Individuals experience mid-life transition approximately around forty-
five years of age. This is the time that people realize that they are no longer young and
they are mortal. This transition also involves assessing the
extent 10 which they have been able lo realize iheir dreams. Individuals who believe
lhat their dreams have been dialled experience mid-life crisis, which also contributes
to mid-career crisis.
Withdrawal stage (age 60 and above) During this stage, individuals seriously begin to
consider and plan withdrawal front active employment. This stage involves gradually
leaving the career behind, letting go of the organizational identity, and establishing a
productive leisure life during retirement. Career needs of individuals in this period are
limited to using their experience and wisdom to help others.
The decision to retire varies from person to person. Some individuals welcome this
stage. They view retirement as a signal that a long period of continuous employment
will soon come lo an end, providing them more time for their leisure activities like
gardening, golf, music, or socializing. Others, however, may prefer to gradually
withdraw from work by scaling down their work hours or by working part-time. For
instance, after retirement, a manager may accept the position of a consultant in his/her
organization. In such a case, the organization derives the benefit of the senior
employee's experience At the same time the individual's need to continue to be useful
is fulfilled. For individuals who have had a satisfying career, this period results in
greater willingness to leave the career behind.
Life Transition This stage signals a major personal life transition from work to non-
work life. This also encompasses the possibility of income uncertainty, declining
physical capacity, failing health, and die fear of Insing one's family members and
friends. The individual seeks to establish a meaningful post* retirement life and
achieve a sense of integrity.
The duration of each stage and the timing of transitions between career stages vary
greatly from one individual to another. Individuals are likely to face and experience
specific personal and career issues differently at each stage. For instance, one person
may experience the withdrawal stage as a positive opportunity to indulge in leisure
time activities. Another person, on the other hand, may view the withdrawal stage as
signifying lhe beginning of a meaningless existence. An understanding of the personal
and career issues confronted by individuals al different stages of iheir career can
contribute lo effective career planning.
CAREER PLANNING

Career planning, as defined earlier, is about individuals' choice of occupations,

organizations, and jobs. In planning their careers, individuals set career objectives and
determine the methods to achieve those objectives. Individual career planning
generally includes the following:
• individual's assessment of his/her own interests, abilities, and goals
• examining alternative career opportunities
• establishing personal career goals
• developing a career path
• planning how to progress through the career path

Carter path refers to a line of progression through which an individual moves during
employment within an organization. Career paths are the logical sequence of job
progression tracks for employees to follow. For example, the progression of a sales
representative to account director to sales manager to vice president (sales) constitutes
one such track.
While planning their careers, individuals determine the types of training and
development they would require at different stages to be able 10 successfully achieve
their goals. At the same lime, they need to monitor their progress towards their goals.
They also need to determine die relevance and appropriateness of their career goals in
a dynamically evolving environment and may revise their career expectations from
lime to time. For instance, a fresh management graduate may choose to join a
consumer goods firm, but, two or ihree years laler, the same person may feel
disenchanted with die industry and its pace of work. This may propel die individual to
change his/her career track. He/she may then choose to go for further studies and join
the world of academics.
Traditionally, career planning was considered to be the responsibility of the
employee. However, employees may lack lhe information required for determining
their career goals. They may also lack the skills to develop suitable career plans. This
situation can lead to blocked ambitions, frustration, and lowered motivation.
Therefore, it is important that organizations provide resources and support to help
employees identify their career paths and plan their careers accordingly.
Career Planning Methods/Practices

Organizations may use various ways lo support employees in deciding iheir career
goals and career plans. The career planning methods that may be used by
organizations to help individuals in career planning include communication,
counselling, career planning workshops, self-development materials, and assessment
programmes (Figure 9.4). The objectives of these methods are described in Table 9,1.
These career planning practices may be used by organizations in isolation or in
combination. For example, an organization may provide self-development materials
to the employees as part of career planning support. Another organization may
organize career planning workshops and disseminate career-related information on a
regular basis. For example, J FMorgan Chase offers a
wide range of programmes and services globally to help its employees improve their
skills, grow in their career, and meet their personal and professional [Link]
Morgan Chase has a set of tools and resources lhat help its employees around the
world assess their strengths, set career goals, improve skills, and identify growth
opportunities within the firm. Employees can establish a concrete plan for career
growth. learning Connect is a career management programme atJPMorgan Chase that
provides employees with ready online access to all types of global firm-wide training
as well as business specific learning, from instructor-led training and virtual
classrooms to web-based programmes, and ordering self-study materials. Employees
are able to follow a comprehensive and personalized learning path.
Since unique needs and concerns are associated with each career stage, career
planning practices and activities need to be customized to the specific concerns of
each career stage. This requires, first, diagnosing the career stage in which an
employee presently is. Secondly, it involves designing the career planning practices to
help the employee address the concerns and issues relevant to that career stage.
Table 9.2 presents the main career planning concerns and how each of the career
planning methods may be appropriately used for each career stage.
The career planning practices used by firms are directed towards meeting the
employee needs and expectations associated with each of the four career stages. A
number of career planning practices are adopted by firms for their oyces al the
establishment stage. Infosys, for example, maps out a software engineers future the
day the individual joins the firm. Using a combination of training and small simulated
projects, the company assesses each newcomer's abilities and strengths. The career
plan is then determined accordingly. The manager provides constant feedback to the
newcomer. Sapient Corporation, LG Electronics, and Modi Xerox are a few of the
several firms which assign mentors to newcomers. Noida-based ST Microelectronics
provides its employees in the first career stage with a great deal of freedom lo work.
The firm also ensures that the newcomer works on critical projects right from the
beginning. This gives an opportunity to the new employees to demonstrate their
potential and experience a sense of achievement. HCL Technologies also provides
newcomers w ith tremendous operational freedom and the constant stimuli of working
with cutting-edge technology. At ICICI,
For employees in the advancement stage, organizations provide fasi track growth,
career counselling, and lateral movement*. Polaris Software Labs identifies high
performer*, who are called *konarks*. These employees are treated as mini CEOs and
are invited to participate in strategic thinking sessions. They also enjoy accelerated
career development. The fchigh flyer' concept of LG rewards exceptional performers
with double promotions. The IILL tradition of identifying high potential managers as
listers' has been a much talked about practice* The listers are managers who are given
more responsibility. Several firms such as Ashok I-eyland und Marico provide
opportunities for job rotations to employees in the advancement career stage to
provide op|M»rtunities for skill development. Etcher, HLU Modi Xerox. B1LT, and
Crompton Greaves are some of the firms who are using assessment centres for
development purposes. General Electric (GE) believes in assessing performance and
aligning performance with meritocracy. Towards this end, GE has a well developed
system of continuously measuring its people and providing them feedback. Based on
performance and potential, GE works with-employees in helping I hem map their
career and move ahead. IVicewalerhouseCoopers il'wC) has an independent career
counselling service to help employees recognize their development needs and develop
action plans.
Organizations offer opportunities for cro*s-functional movements for their employees
in the maintenance stage of their careers. Several organizations offer opportunities for
skill upgradation through specialized training pmgninimes or sponsoring employees
to enroll for management develop* menl programmes in reputed business schools.
Aviva Life Insurance sends its high-performing middle-level managers to MM
Ahmedabad on an 'accelerated leadership programme*. The firm also selects some
middle-level managers for 'rotational development programmes* to provide them
cross-functional avenues of growth. Wipro. L&T, HCL Inlosystems, and FedEx
Corporation are some other firms that encourage employees who are in this stage to
go for development programmes in order to provide them opportunities for cross
functional movements.
Hhaiat Heavy Electrical? Ltd (BHEL) provides reading material lo em-plovees who
are uearmg retirement, i.e., in the withdrawal career stage. As support for these
employees, BHEL also organizes workshops for providing guidance for financial
planning.
All of these career planning methods are used by organizations to assist employees in
their career planning efforts. Yet, the primary responsibility for establishing career
goals and career paths still rests with the employees. < hgtinizattons can adopt a more
active role in helping individuals attain their career goals. This idea is explained in
detail in ihe next section.
CAREER DEVELOPMENT
As mentioned earlier, career development is a formal approach taken by an
organization to help employees in achieving their career objectives. Thus, career
development includes all those activities undertaken by the organization which
prepare an employee to meet the current and future needs of the organization. Career
development, therefore, benefits both the employee and the organization. While
employees become better equipped to meet their goals, they also add value to the
organization through superior performance, higher motivation, and commitment.
Career development may include various organizational practices such as skills
training, performance feedback, coaching, planned job rotation, etc. Like career
planning, career development activities too need to be integrated with specific career
needs of the employees at each career stage. As mentioned earlier, each career stage is
characterized by specific career issues relevant to career planning. Career
development practices should be geared towards helping employees implement these
career plans. Career development needs are likely to evolve as an employee
progresses from one career stage to the next. Therefore, different career development
practices are likely to be relevant and effective at different career stages. Table 9.3
depicts the specific career development needs associated with each career stage and
the career development interventions that organizations can adopt to facilitate career
development.
Establishment Stage
The career development interventions for the establishment stage are explained in this
section.
Realistic job preview (RJP) Employees often develop unrealistically high
expectations about their jobs and the organization. This usually happens when
employees get 'good news only' information about the organization from various
sources such as business magazines, company communications, and so on before
joining for the organization. On joining the firm, if their high expectations are not
fulfilled, they may suffer from 're;i!it\ shock* resulting in reactions such as reduced
motivation, performance, and even employee turnover. Firms may prevent such
unproductive reactions by providing employees with realistic expectations about the
job prior to signing the employment contract. During the establishment stage, it is
important even for newcomers to assess whether the company and job are likely to be
consistent with their career plans. Therefore, they need objective information about
organizations and jobs. For example, Texas Instruments (TI) hires only those
individuals who have the specific skills the centre needs. Hence, employees joining TI
know about the company and their job profiles well in advance. This practice,
according to the manager (staffing) at TI, helps in managing employee expec tations.
Tata Telecom has recently introduced some changes in its mode of recruitment, the
key priority being to get the right candidate. Before calling candidates for an
interview, it sends a CD to them which contains information about the company, its
work environment, and I I R policies.
Job pathing It refers to the planned movement of an individual through a carefully
developed sequence of job assignments to develop his/her skills, knowledge, and
competencies. The jobs in the sequence are at the same
hierarchical level in the organization. Job pathing provides challenging job
assignments to employees fairly early on in their careers. Employees move through
selected jobs of increasing challenge and responsibility, thus allowing for gradual
stretching of their talents. Effective job pathing requires the following steps:
I Identifying a target job for the employee Identifying the skills and experience an
employee needs to reach this target job Laying out a sequence of jobs that provides
experience in those skills Assigning the employee to each job in this sequence one at
a lime. When the employee gains experience and performs weil on one job he/she is
moved to a more demanding job sequentially.
Each subsequent job in this career path requires more advanced skills and knowledge.
The sequence is arranged to provide skills and experience in small enough increments
so as not to overload the individual, but in large enough jumps so that the person is
always being stretched, for job pathing to be successful, different jobs should provide
enough challenge to stretch an individual's learning capacity. Moreover* the target
job should not be withheld for too long. Job pathing helps in minimizing the time the
employee lakes to reach the target job. Quite similar to job pathing is the practice at
Infosys to map a software engineer's future the day he/she joins the organization.
Infosys uses a blend of training and simulated projects to assess each new employee's
abilities and strengths. This i* used to determine the career plan of the newcomer.
Constant feedback from the employee is used to modify the career plan. For example,
when the engineers in the firm complained thai they were progressing only as
engineers but not as managers, the HR depart ment initiated management
development programmes for developing the leadership skills of these engineers.
At Hughes Software Systems (HSS/t the 'people action plan* is steered by the CEO.
In this plan, managers work with employees who have spent at least one year at HSS
to understand their career aspirations and develop plans to provide opportunities to
fulfil these.
Performance feedback and coaching Career establishment can be facilitated by a
superior by providing performance feedback, coaching, and on-the-job training. This,
by far, is one of the most effective interventions during the first career stage. Through
performance feedback and couching, employees are helped in getting the job done,
while, al the same lime, meet ing their career development needs. Silicon Automation
Systems (SAS) uses a comprehensive performance, planning, review, and
development module to clearly explain to its employees their targets, whether they
have achieved them, and where they can expect their career paths in the company to
lead.
Mentoring It involves establishing a close relationship with a superior who takes a
personal interest in the employee's career and guides and sponsors the employee. A
inenior ensures that the hard work and skills advancements of the protege get noticed
and rewarded. It has been observed that most successful people have had a mentor or
mentors. Several firms, such as Modi Xerox, JPMorgan Chase. Eichcr, Infosys, and
Ashok I^eyland have started formal mentoring programmes. Mentoring is dealt with
in more detail later in Chapter 10.
Assessment centres Traditionally used for the selection of high potential managers,
assessment centres use a battery of psychological tests, in-basket exercises,
simulations, interviews, group discussions, etc. over a period of four to five days.
Each assessment centre is facilitated by trained observers. At the end of the
assessment centre workshop, a detailed assessment report of each individual is
prepared. Mure recently, assessment centres have been used for purposes such as
performance evaluations, promotions, career development, etc When assessment
centre approach is used for career development purposes, the organization becomes a
partner in individual development by providing employees with the support and
direction needed for career development The emphasis is on providing feedback on
assessment centre results to participants and on counselling them about career
advancement training required by them to aid their advancement. IBM, AT&T, and
General Motors are some firms who have assessment centres. Many firms in India
who have established assessment centres include Cadbury, Aditya Birla Group,
Eicher, RPG, TISCO, Wipro, and Castrol {India}.
Dual-career accommodations It is during the advancement stage of their careers that
most individuals are likely to settle down with a partner. More women are entering
the workforce today Hence, dual career couples have become more prevalent, A
major career issue confronted by individuals in this career stage is that of job transfer
to another location. When both die husband and wife are working, the transfer of
either one of them would mean that die spouse also relocates. For instance, if the wife
gels transferred to another city, then the company employing her husband must either
lose one employee [toe husband may change the job to be with the wife) or may
arrange for the husband to be transferred to the same location as his wife. Career
development interventions that may be adopted by firms for helping employees cope
with the problems inherent in dual careers include help with relocation, fiexi-time,
and day-care centres. These initiatives make it easier for both the husband and ihe
wife to work outside the home. These issues have been discussed in detail in Chapter
II which deals with work-life integration.
Maintenance Stage
The career development interventions for the maintenance stage focus on
development training* mentoring, job rotation, and mid career counselling. These are
explained briefly in this section.
Development training Employees at the maintenance stage have usually reached the
highest possible level in their career. In this stage, the attention of most employees is
focussed on developing and grooming less-experienced employees for higher
responsibilities. Therefore, career development programmes help employees gain the
skills and knowledge for training and coaching others. In-house programmes for
training managers to develop skills to train and coach others include reading material,
lectures, experiential exercises, and case studies on topics such as active listening and
supportive relationships. These practices are rotated with on thejob experiences and
workshops for developing coaching skills. Ashok leyland uses questionnaires and
management games to develop team spirit, leadership qualities, and feedback skills
among middle managers. Kamco Systems, BPL, and ITC also focus on developing
skills required for the role of middle managers.
Assigning mentoring roles A manager in this career stage can also be assigned the
role of a mentor. As mentors, such mumigcrs assume responsibility for mentoring
younger employees who are in the establishment and advancement slagen of their
careers. A mentoring role offers opportunities to mid-career managers to satisfy one
of their major career concerns of the maintenance stage -to share their knowledge and
experience with those who are less experienced than them. It has been observed in
Crompton Greaves that performance level of middle managers rise when they are
given mentoring assignments. Philips Software too trains its managers to become
mentors for younger employees.
Rotation to jobs requiring new skills It has been observed that when individuals
remain in one job for three years or more, they become unresponsive to job features
such as autonomy, responsibility, skill variety, and other job enrichment
clmnicteristics. It is only during the first one to three years that jobs are seen as
challenging and motivating. 'I hen they lose their inotivalional value. Hence job
rotation is an important developmental tool. When employees are moved to a newjob,
it provides them with new challenges and opportunities for learning and contribution.
By providing mid career alternatives in the form of rotation to new and more
challenging jobs at about three year intervals, organizations can prevent the loss of
motivation among this group of employees. Job rotations for this group of employees
assume importance since the)' are likely to remain in jobs for longer periods of time
than employees m the establishment and advancement stages. At times, redesigning
the current job can also serve the function of sustaining employee motivation. The
middle level manager* in the Tata group who have completed about fifteen years in
their existing functions are provided cross-functional exposure. They are encouraged
in decision-making and their span of responsibility is increased Some companies
encourage employees who are not promoted to make lateral moves that can broaden
their experience. Companies also provide assignments to these employees that lire
different from those they have had in the pa*t. At GE, middle level managers are
encouraged to take a foreign assignment or take positions that they could not hold at a
younger age. The employees who reach mid-level in organizational hierarchy are
usually more settled tn life and have grown up children. General Electric encourages
these employee* to lake advantage of the greater flexibility and personal mobility that
ihey have at this age. The organization actively recruits seasoned managers for jobs
overseas. For instance, a middle level manager who had spent most of his career in
the US was transferred to Budapest after his children grew up. Recently, this manager
moved again to Chtna, where he helps local employees understand GE procedures and
culture. Phillips has effectively redeployed mid-career managers to the company's
overseas operations lo retain this group of managers whose experience makes them
ideal candidates for handling sensitive situations. Overseas posting rescues them from
their comfort zones, rejuvenates them, and makes them productive again. Similarly,
New York apparel maker Phillips-Van lleuscn provides new career opportunities lor
its seasoned employees. For instance, a manager of a branded business may be given
an option of moving to a design business. At Manco, employees at mid career stage
are provided frequent inter functional movements and are involved in the strategic
business planning of the firm.
Mid-career counselling Employees in ihe maintenance stage are also likely to
confront mid-career crisis as mentioned earlier in the chapter Mid-career crisis leads
to lowered job performance as employees* upward mobility levels off. Providing
counselling to help the plateaued employees (those with little chance of further
advancement] accept their new role tn the company can help them continue lo have
minifying and productive careers. For example, Marico organizes value experiential
workshops for mid-career employees* The workshops arc designed to help these
employees understand and acccpl that promotion is not the sole criterion for
measuring growth* It is communicated to them that being assigned to leadership or
problem-solving tasks is a measure of the trust thai the organization has in their
abilities. It is one of the ways thai the organization redefines their role in Ihe firm.
Withdrawal Stage
Organizations have not been very proactive in helping employees cope with the
withdrawal stage. Traditionally, career development interventions have foamed on
younger employees who are likely to contribute to the firm for longer periods.
However, more recendy, a few firms have been helping employees manage their
withdrawal from active work life.
Consultative roles Employees in their lale career stages can be assigned the role of
consultants. This provides ihem the opportunity lo apply their wisdom und knowledge
to help others in solving organizational problems. Comulla live roles are different
from mentoring roles. In consultative roles, employees help in dealing with complex
organizational problems or projects. Mentors, on the other hand, focus on guiding and
helping a younger manager's career Moreover, in consultative rules, senior managers*
credibility is based more on wisdom and experience rather than on managerial
authority vested in thai position. Hence, older managers can apply their years of
experience and skills in a more supportive way. Consultative roles provide a smooth
transition for pie*rciirement managers to more support stall positions. Some public
sector firms in India follow this practice. Eicher (ioodearth Ltd is one of die firms that
retains its retired managers in consultative roles.
Phased retirement An effective way to withdraw from active work life and establish a
productive leisure life is to reduce the lime devoted to the organization gradually For
example, an employee nearing retirement may be given lime off work lo enroll for
certain courses and gain new skills to create a pn>ductive posl-retirement life.
Alternatively, they may be required to work part-time so that they may make a
gradual transition from organizational to retued life. An important advantage of
phased retirement is that it lessens the reality shock for employees nearing retirement
and allows Uiem to withdraw emotionally from the organization. Various universities
in India have been following the practice of phased retirement. Professors who attain
the retirement age of 63 years are re employed for the next three yean. The retiree in
such cases can gradually withdraw from work life.
Retirement counselling By providing counselling to employ-res who are about to
retire, organizations can facilitate a smooth work-Uvnon work transition. Some of the
practices adopted by firms to manage the concerns associated with the withdrawal
stage include retirement workshops, providing material on post-retirement financial
planning, and organizing alternative skills training programmes. The pre-retirement
workshops of 1-1:1 1 are designed to offer the employees guidance for financial
planning and attitude change towards life. The workshops have a spiritual element too
with discourses by spiritual leader*. The firm also provides a retirement planning
booklet to these employees. HSBC Bank also offers pre-retirement counselling to its
employees.
CAREER MANAGEMENT SYSTEMS
The basic unit in career management is the individual As mentioned earlier, career
management refers to a collaborative effort between the emplovec and the
organization, which results in career development It is the process by which
organizational career planning is implemented. Therefore, there exists an interaction
between the organizational and individual approaches to career planning and
development. Career management is lies! viewed as a partnership between the
individual and the organization and. therefore, as a shared responsibility For instance,
at JPMorgan Chase, it is believed that career management will succeed only if it is a
partnership between employees, their managers, and the firm* While each employee
is expected lo take a leader ship role in managing his/her own can*er, it is critical that
employees, managers, and the firm work together to provide a supportive
environment in which all reach full potential.
However. there are two different viewpoints on career management- the individual
perspective and the organizational perspective. Depending on whether the prime
emphasis in career planning is on individual needs or organizational needs one of the
following career management system* (Figure 9S) may be chosen:
Individual centred system
Organization-centred system
Individual-Centred Career Management System
When the career management system is oriented towards individual career
perspective, the individual's goals and aspirations are ihe most irapoiiant, 'ITie focus
is on the individual's career rather than on organizational nerds Efforts are directed
towards identifying the individual1* career goals; assessing the individual's personal
abilities and interests;planning the individual's life and uork goals; assessing
alternative career path* inside and outside the organization; drawing a career path for
the individual; and noting changes in interests and goals as career and life stages
change.

The indiv uhul-centred system considers situations both within and outside the
organization Career paths encompass opportunities outside the organization if
individual goals cannot be fulfilled within it. For example, a medical representative of
a pharmaceutical firm may aspire to rise ui the position of Vice President iSalesk
However, if it becomes apparent that his/her caieer aspirations can be best achieved
outside the employing organization, the employee may decide to leave it after
reaching the maximum possible point in the career path.

Individual Strategies for Career Management

According to Gordon (1986), individuals can use one or more career management
strategies. These strategies are explained in this section.
Self-assessment Through self-assessment, individuals can take stock of their own
skills, personal characteristics, goals, and aspirations. An evaluation of personal
strengths and weaknesses is basic to career planning since it provides a platform for
determining which job to select from among alternative offers, the sequence of jobs
that will lead to desired career goals, the jobs to seek or avoid, and the strategy to be
followed to secure a particular job.
Individuals have a number of options for collecting and analysing data about
themselves. For instance, they may complete a series of exercises like writing an
autobiography, listing significant experiences, and reconstructing their own career
progress.
One of the tools that can be used by managers to understand and leverage their talents
is the Reflected Best &{f(RBS) exercise. This tool has been developed by Roberts et al.
(2005) as a core part of 'The Positive Organization' (POS) mission to help
organizations improve their practices. The positive organization is an area of research
in organizational behaviour that focusses
on the positive dynamics (such as strength, trust. delenninaLmn, trie.) thai lead to
positive outcomes for organizations as well as individuals. The RBS exercise helps
individuals tap into unrecognized and unexplored areas of their potential, as a result of
which they can improve their work performance. This exercise requires the individual
to collect feedback from a number of people, both within and outside the
organization. These may include past and present colleagues, teachers, friends, etc.
Based on the understanding gained from i dies lhat emerge from this comprehensive
feedback, the individual may proceed to write a self-porlrail summarizing the
accumulated information, This self portrait can be used as a guide for future actions.
Thus, having identified the strengths, the individual may obtain a better fit between
work and his/her best self by determining the type of job description that is likely to
best suit the personal portrait. Thus, RBS helps in jAsevsing strengths and then
developing a plan to build upon them and also helps individuals deal svirh their
weaknesses.
Another tool that has t>een traditionally used to facilitate self assessment and the
development of career strategy involves the determination of antrr anchor*. Career
anchors are self-perceived syndromes of motives, talents, and values that guide an
individual's career decisions. The concept of career anchors was developed by Edgar
Schein (1978} based on a twelve year study of M HA graduates from the
Massachusetts Institute of Technology MIT'. From extensive interviews with the
graduates, Schein developed five career anchors. A detailed description of these
career anchors is provided in Exhibit 9.3. The career anchor model is designed to
guide Individuals in contemplating their career movements as well as to assist
organizations in helping their employees with career planning.
Assessment of job opportunities Individual career management also requires
employees to regularly monitor the job opportunities available within and outside the
firm. Thus, an individualized career management requires the employee to consider
exiting the organization if the present employer is un likely to dlfer opportunities that
will utilize the employee's potential. Employees, therefore, must pay attention to
company bulletins, recruiting literature* newspaper articles, trade journals, etc, thai
describe the jobs available. Other sources of job information include friends and
family, members of alumni associations, professional societies, etc.
ormulating career goals Once individuals have gathered self-assessment information,
as well as information about job opportunities, they should formulate specific career
goals for themselves. In determining career goals, individuals should clarify the
following: WWk-related activities they are looking for Demands the position will
place on personal and family lime
Limitations they have with respect lo location of the job and mobility if the spouse is
working
What sequence of positions they need to go through to perform effectively on the
target position Matching individuals to jobs Individuals should look for job
opportunities that fit with personal goals and aspirations. It is also important for the
individual to continuously monitor his/her own career movement over time to ensure
that the career is on track. Further, career strategy should be flexible enough to allow
individuals to adjust their career direction as their career goals evolve or shift.
The People Action Plan of HSS thai focusses on the career aspirations of employees
and develops plans to provide opportunities is one example of individual-centred
career management. At FedEx Corporation, the company ranked number one by
Business World in its 2004 survey, employees have the opportunity to rise from the
ranks. Managers discuss career paths and interests with their employees. The right
type of training need is then identified that will help employees progress through their
career paths. The manager then also works with the in house training department to
identify the right opportunities for the employees. SAP Labs projects career
development as the responsibility of the individual employee. The firm caters to
varying career aspirations of employees while employees are able to steer their own
career path at their own speed^ At Intel Technologies India, a lot of emphasis is given
on the personal growth of employees. Each Intel employee has a development plan on
which the employee charts out his/her career. The employee and the manager discuss
about the former's career goals and Intel invests on the training that the employee
requires to achieve the goal.
Organization Centred Career Management System The main purpose of the
organization-centred system is to fulfil the goals of the organization. It is concerned
with jobs in the organization and on constructing career paths lhat provide logical
progression of people between jobs within the organization. Efforts in the
organization-centred system are directed towards identifying organizational
objectives; determining future manpower staffing needs of the firm; identifying
available career paths within the firm; communicating with employees about
opportunities; assessing employees' potential as well as training needs; and matching
organizational needs with individual abilities.
In a dynamic business environment* organization centred career planning and
development ensures that capable employees are available to meet the organization's
needs at all limes.
Infowavz International, an 1TES company, follows an organization-centred career
management system. The company communicates the career path to the employee
along with the job description and key result areas (KRAs) right at the recruitment
stage itself. The career planning form of Ihe firm ouUincs the organizational structure
and the skill sets required for various functions and at different levels in Ihe (inn.
Infowavz International also evaluates each individual's competencies, strengths, and
areas of improvement under a comprehensive'training needs analysis* (TNA)
programme, for current and future roles. Personal counselling and psychometric
profiling form part of the process. Based on this, the linn is able to clearly chart out
and communicate specific career options to its employees. The firm is also able to
help them build skill sets and bridge gaps that would facilitate the employees in
developing their careers effectively. This process is repeated at regular intervals
including at the time of performance appraisals.
Thus, the organization centred system looks at individuals filling the needs of the
organization, whereas the individual-centred system addresses each individual's
personal career goals and development issues. However, the two
systems are not separate and distinct. They are complementary and interact with each
other. By integrating the needs of the organization and goals of the employees, both
the perspectives may be brought together. Individuals whose career goals cannot be
fulfilled within an organization are likely to leave the organization sooner or later. If
opportunities are not available to the individuals outside the firm, thus making it
imperative to continue membership with the organization, they may respond by
reduced productivity. Under both the circumstances, it is the performance of the
organization that gets affected. Therefore, it is in the interest of organizations to assist
employees in career planning so that both the individual and the organizational goals
are fulfilled.
Indian Shaving Products Limited (ISPL), a subsidiary of Gillette, believes thai it must
be an equal partner with each of its employees in planning their careers. Employee
goals should fit with the organization's goals and should be complemented with
institutional support in facilitating the career choice. At ISPL, the career planning
process begins with the employee's self-assessment. The firm uses a competency
model known as the Behaviour Event Interview (BEI) to draft career paths for its
managers. This model is applied with the help of human resource development
consultants, allows each manager to be assessed on 60 competencies, and throws up a
career path for the manager. The assessment is followed by a validation of the
evaluation by the employee's superior. Differences in perception are ironed out before
the career plan is finalized. The company matches the individual employee's
competencies against the competencies that possible future jobs will require and then
decides whether to let the employee follow that career path or not.
Organizations may undertake various combinations of career management
programmes for meeting their career management objectives. Career management
programmes include counselling employees to help in their individual career
planning, offering career planning workshops, using assessment centres, conducting
developmental performance appraisals, providing mentors to individuals, and
developing career paths for employees. Examples of comprehensive career planning
and development programmes of some organizations arc presented in Exhibit 9.4.
organization and help employees build their careers within the organization. Each
path in the firm is a series ol positions and for each position, competencies have been
identified. Employees, depending upon their career aspirations, can move along a path
or even across paths. It there are gaps in the competencies required tor the new
position, these are bridged lhrough training and inputs given on self-development.
Career progression forms containing inputs from performance appraisal, 160 degree
feedback wherever applicable, and development centres are prepared to help the
employee and his/her menlor arrive at career-related decisions. The development cen-
tre is a sophisticated rating device that is con* dueled at the campus to assess the
potential of the middle level managers and help them to enhance the competencies
required in their job roles as well a* to assume larger roles in the future.
Fannie May Confections Inc a wholly owned subsidiary of Alpine Confections Inc., is
based in Chicago- The Fannie May brand stands lor pre-mium quality chocolate and
is committed to support the professional development of every member o* the work
force and offers a variety of career development programmes. The career de-
velopment programmes play an integral part in Increasing opportunities fur growth
and advance-mom of all employees. The career development programmes al Fannie
May include the following:
 Financial assistance for rollege education to help employees who seek to enhance
their careers through an undergraduate of graduate degree programme
Career development training for career devel* opment opportunities
Skill development training for enhancing specific professional skills
Job rotation programmes
■ Consultation among employees and managers where, through one*on-one
sessions.
employees discuss tailored development strategies
■ Lunch and learn sessions which are targeted al employees with an interest in
developing goals, writing personal career development plans tied to business
objectives, and identifying learning opportunities lailored to meet employees'
needs. For managers, these sessions explore career coaching (or employees,
how to develop mutually beneficial goals lied in organizational objectives, and
establishing learning objectives for employees
Assessment Kxils to help employees define and clarify their interests, values, and
skills while targeting specific organizational learning opportunities
A variety of courses to enhance employee knowledge or skills related to managing
their careers, including managing personal growth and career coaching for managers
Numerous training programmes for technoL ogy and other business disciplines
American Express views career development as a process of giving employees
knowledge, skills, and competencies to prepare them for future jobs and
responsibilities. The company's employees can choose Iheir own target fobs at the
same level in a different function or GVttl at a higher level in a different function.
American Express then helps the employees lo qualify for that job using a two-
pronged tool:
« Professional development process IPDP)
■ Performance management process IPMP)
Both POP and PMP work together lo guide the company employees through
an entire chain:
■ Specific goals are set for the employee, covering business targets and uthef
objectives*
■ To help the employee achieve these goals, development planning is provided
after assessing the gaps in technical and motivational skills.
This is followed by coaching, feedback, and performance and potential appraisal.
Within this broad framework, American Express enables its employee* to plan their
careers using a customized development grid. For example, after an employee
identifies the target job. assessment reveal* where he/she stands on the competency
scak*s riiajirctl lot a particular job. The skills and know ledge required lo pev-toon
Ihe job. and the* volt skills, jjersonality type, strengths and weaknesses are assessed.
The lalirr < onsirtules rompctenc v assessment. This helps determine how well ihe
individual is suited lor ttml role by determining the gaps between ihe individual's
personality and the desired profile for the job This gap helps to identity Ihe
development plan lor the em* ployetv thai is, the* kind of training or participation in
a cross-functional project lhal the employee may be provided wilh.
a If more number ot employees target a job. the person with the highest competency
ratings ror lhal particular yob will ultimately get thai job.
SAP Labs India *s a pnxkict development organization having its own definition of
success and progress. Growth in the company is not associated with notional
promotion*. Rather, it means adding more* value. migrating to new roles, new areas
of work, and increased responsibilities. The firm offers (our career paths—technical,
people management* quality, and product. Employees are coached to follow I be one
lhal would be most interesting to them and the moM mutually beneficial lo the
individual and the organization. A career in RAD al SAP requires an employee to
work on one product for years, refining it with newer applications, versions, and
uptfradaiionv SAP labs believes that the more time an employee spends on one
product, the more value he/she adds to the firm. Therefore, SAP employees in R&D
do nol jump from project to project. With six to seven labs worldwide, theie are ample
opportunities for employees. Human resource managers frum all global locations
meet once a year lo decide on transfer guidelines for the em ployees to provide* I hem
opportunities to shift paths. Career development ami training at SAP Labs is viewed
primarily a*» the responsibility ot the individual employee lo provide greater op-
portunities to professionals the firm has a Global Mobility Programme. There are a
number of ca-reef path* worldwide and employees can steer their own path at their
own speed. The firm caters lo varying career aspirations oi the employees, be it the
desire to work in a cross-cultural environment or live need lo explore diverse interests
such as produt t development and consulting.
periodic career counselling; and
helping develop clear career paths.
 On the other hand, in the advancement stage, the organization should provide
opportunities for independent contributions by employees. During the maintenance
stage, employees may experience content plateaus when the content of their job
remains the same for too long, or they may experience structural plateau when there is
no room for advancement up the hierarchy. Content plateaus may be managed by
providing job rotation. Structural plateausvaay be reduced by introducing alternative
career paths or reducing external hiring. To deal with mid-career crisis, organizations
can provide their employees with educational opportunities to facilitate Uieir shift to a
career path that is valued by the organization.
An effective organization-centred career management strategy provides flexible
career options for employees and specific and clear career directions for
organizational members-
Organizations also help individuals in career management by helping them
detennine avenues for career advancement. They can accomplish this by objective
identification of job progression paths for their employees. These career paths take
into account individual career goals. Therefore, fast trackers are provided avenues for
speedy movement to the target job. On the other hand, those who prefer a slower
career growth can be provided with lateral moves. Exhibit 9.5 presents the highlights
of individual and organizational career management strategies.
ESIGN AND IMPLEMENTATION OF CAREER MANAGEMENT SYSTEMS
Career management systems draw information from both corporate human resource
needs and employee career needs. These systems are also tied to other HR subsystems
such as goal-setting* performance appraisal, training and development, etc. However,
career management systems arc frequendy designed and operated without having any
connection with human resource planning. Moreover, much of the career development
activity lakes place in isolation in the classroom and consists of exotic exercises that
have little connection with employees' careers within the organization.
There is no one way to implement career management programmes. However, Walker
11980} suggested that if certain guidelines are followed, it is likely to increase
implementation success.
Identity career planning needs and develop a strategy The first step in the
implementation of a career management system involves the identification of career
planning needs and developing a strategy based on these. Career needs can be
identified through interview data gathered from managers, HR specialists, and other
staff specialists. If employees within the firm express the need for career-planning
assistance, they are also likely to suggest the type of practices that would best serve
these needs. Developing a career management system with employee participation
ensures greater commitment to the programme.
Develop necessary resources Career planning resources, such as career planning
workbooks containing exercises on self assessment, videos, and other such material
needs lo be developed. Related information such as a firm's personnel policies and
realistic information on career opportunities available in the firm also need to be
provided along with the career planning information. As mentioned earlier, other HR
systems, such as performance appraisal, training and development, recruitment,
manpower planning, etc. need to be integrated with each other and the career
management system. For instance, a firm may modify its performance appraisal
system lo be more development oriented, or it may develop a detailed profile of all
employees to enable an easier identification of potentials for various job vacancies.
This is important in order to ensure that the HR systems support the career
management programme. Career development programmes in some firms, for
example, American Express, SAP [Link], LG Electronics, ICICI, Aviva Life Insurance,
and Godrej Consumer Products Ltd (GCPL) are linked with performance evaluation
systems.
Introduction of a pilot programme Before introducing the full programme, it is
preferable to examine the resources and materials developed to assess their
effectiveness and to bring about modifications if needed. A pilot programme may
initially be introduced cither in one location of the firm or limited to one department.
Feedback from the employees regarding the effectiveness of the programme in
helping them gain information and skills for developing their career plans may be
obtained through questionnaires. Based on the feedback, necessary modifications may
be made at this stage.
Introduction of the full programme Finally* the career management programme can
be implemented throughout die organization. Before implementation, employees
should be provided information about the programme, what it entails, how to be
involved in it, and how to use it Organizations may also set up a career centre that
supports implementation by way of providing material, counselling, and workshops.
Other factors that conuibute to the effectiveness of career management systems are
described below.
Involvement of HR and line managers A comprehensive career management system
has implications for human resource professionals as well as for managers. Human
resource professionals can be involved in the design and implementation of a career
management system in various ways. Some of the activities that may be underlaken
by them include career counselling, conducting career workshops, providing career
paths in the organization, and training organizational members in the development
and implementation of appropriate career strategies. line managers can involve
themselves by facilitating the ongoing career development of their subordinates. This
they can accomplish by assisting in self-assessment, identifying appropriate and
realistic career paths for them, serving as mentors for junior employees* creating
advancement opportunities that fit with career stage needs of each employee, and
otherwise help them in preparing for future goals. For example, at ICICI the
immediate supervisor discusses career options with (he employee. A managers main
job at Intel Technologies India is to take care of his/her employees' career
development. Senior managers at Intel personally train employees. At Sapient
Corporation loo, the manager helps map out the career of the employees and provides
immediate feedback on ihcir performance.
Top management support For the career management system to be effective, it should
be driven from the top. Senior management should be involved in the strategic
decisions related to the career planning programme, like any other corporate plan.
Career planning should fit the nature of the business, resources available lo the firm,
company philosophy, attitude toward its employees (paternalistic, democratic, etc.),
organizational sUncture, its employment practices and other human resource
practices, and the employees for whom it is planned. Data obtained from career
management should be used for other HR systems. For instance, if career discussions
suggest training needs related to both the individual and organizations goals, the
information should be provided to the training department so that appropriate follow-
up may be undertaken. Career management systems, therefore, cannot be effective if
they have no linkage with other practices.
There is no one right career management system that can be universally
implemented. Moreover, the career system should fil ihe personality of the firm. In
simply-strucUired informal organizations, very formal and complex career systems
may not be effective. The IIR personnel should work with the senior management in
the design and implementation of the career planning system. Finally, it is important
for a Firm to consider the results that other firms in the competitive environment have
been able to accomplish tbrough their career programmes. Since organizations seek to
attract, develop, and retain the best people through their career programmes, they
should understand how other firms have accomplished these outcomes through their
career management systems. The various aspects of a comprehensive career
management system are illustrated in Figure 9.6.
Alignment with culture While implementing career planning and development
systems, an organization must consider its basic values and beliefs. Organizations
must ensure lhat the career planning and development system reflects the culture of
the organization. For example, if an organization believes in providing opportunities
for personal growth to its employees, then it is likely to encourage employees to
attend career management seminars. Sapieni Corporation is one such organization
where employees* growth and career are part of the organizational culture. When an
employee joins the organization, initiation of the employee takes place through a
coaching programme. The programme manager helps map out the career for the new
employee and spells out what the employee must deliver for (he company. The
performance of the employee is closely monitored until the employee completes the
project. On completion of the project, feedback is provided immediately ralher than
waiting till the year end. Further growth within the firm is linked to the performance
feedback. Sapieni takes up only very high-value consulting tasks. To ensure that the
firm creates business value for its clients. Sapient makes sure that its team is
rigorously trained. Working on projects requires the employees to stretch themselves
and this, in turn, sets them up for success. The company has managed the strain that
arises from the stretch by building a culture of care and transparency. All members of
lhe project team have access to the financial data of the project.
Career planning and development affect the relationship that the employee has with
the culture of die organization. It also affects the way the various HUM systems of (he
organization fit with individual systems, needs, and goals. Organizations design
strategies for the integration of career and organizational needs. This integration is
becoming increasingly critical lo ensure organizational effectiveness.
Culturally, people are attuned to express their identity in terms of the work they do.
Therefore, by having a career planning programme in place, individual contribution to
the organization can be maximized. Though individuals themselves should be
primarily responsible for their own career planning, it is • desirable for organizations
to provide career planning programmes to facilitate the individual's achievement of
personal objectives. This is likely to lead to higher commitment from the individual
and a more productive individual-organization relationship.
However, career management programmes are often neither properly planned nor
managed. Firms have been viewing career planning programmes as something they
implement for the benefit of ihe employees and that, in the long run, would benefit the
firm through improved employee motivation and loyalty. Hence, they have been
considered a staff function. Not many firms have formal career programmes such as
career counselling and career pathing. Many of the career programmes have
traditionally run informally in the organizations. However, recent experiences of
organizations have led them to acknowledge that career planning and development is
not just something to be done for the employees, but something that should be done
for the benefit of the organization too. A properly planned and managed career
programme can be a significant I I R M tool resulting in cost savings, reduced
employee turnover, and increased productivity. Some reflections on how to
implement a state-of-lhe art and successful career management system are
summarized in Exhibit 9.6.

Following these pre-requisttes is likely to result in a successftil career management

system.
Till now we have emphasized the benefits that accrue to the individual and the
organization as a result of a well-designed and implemented career management
system. However, a risk inherenl in implementing career planning programmes is that
career planning and development programmes may raise employee expectations by
putting additional strains on personnel systems such as training, development support,
educational assistance, career development resources, counselling, etc. Raised
employee expectations may increase employee anxiety turnover and can be beneficial
if this enhances employee motivation. However, if left unfulfilled, it may result in
reduced commitment and diminished performance. The solution lies in developing
realistic, not raised, career expectations* In a hierarchical organization avenues for
promotion are usually limited. In such an organization, realistic career planning
should focus on personal development, job importance, and work content rather than
on promoiabiliiy and career ladders. For example, pay-scale promotions and
responsibility promotions are delinked in the Centre for Development of Telernaties
(C-DOT) and the company provides several opportunities for career growth. This
allows employees to take higher responsibilities even when they initially join the
company at a low pay scale. C-DOT provides career paths for professionals by
allowing them to take managerial roles or become experts in their respective technical
areas. ITC also offers two broad streams of career, the generalists and specialists, to
its employees. The company designs careers without offering vertical movement as
the only growth option, thus consciously creating a culture that respects
specialization. The focus is on moving people to increasingly higher levels of
responsibility or specialization, without it being reflected in their position in the
hierarchy. Realistic career expectations minimize dissatisfaction, and enhance
employee performance and retention.

ORGANIZATIONAL CAREER MANAGEMENT: A TYPOLOGY

Farlier in the chapter, a list of organizational career management (OCM) practices
was identified. Baruch and Petperl classified OCM into five categories based on
factor analysis. The five types of OCM practices are presented in Table 9,4-
Baruch and Peiperl also proposed that there is an association between the types of
OCM practices and the features of the organization. The combination of OCM
practices that an organization is likely lo adopt depends on certain characteristics of
the organization. With respect to the above five categories of OCM. the next section
discusses the types of organizations that are likely to use each of these (Figure 9.7).
OCM and Type of Organizations
The can-gone* ol < >CM and the typei ol oiganliatioiu thai ON Ifaeu * H M practices
are explained in this section-Basic The practices of this category are elementary and
applied in most organizations that have IIRM systems in place- Although these
practices are widespread, they best 111 the older bureaucratic model ralher than the
new emerging organization. For example* pre-reliremem programmes are not very
relevant to new firms where most members are not expected to stay till their
retirement* These organizations arc also so dynamic that job postings become
obsolete very fast. New firms are also likely to be reluctant to invest in employee
'education". They prefer to 'buy* fully qualified personnel due to the cost factor, high
employee turnover, and fluctuating skill requirements thai render long-term planning
impossible. Basic OCM activities have been found to be associated with group-
oriented and proactive climates and have always existed in those organizations that
took upon themselves the responsibility to facilitate the career progress ol all
employees at u fundamental level.
Active planning These OCM practices demand an active involvement on the
organization^ pari in the career of the individual employee. These practices also have
an element of planning that considers the individual's development over time and the
organization's need to fill jobs in the future. Firms that use OCM practices of this
category have a forward looking HRM system that lakes initiative/ Active planning
practices are associated with dynamic, proactive climates. Openness is necessary for
the counselling activities in this category Firms using these activities also rely on the
internal labour market that reflects the use of career and succession planning within iL
Active tnanagement These practices have an informational element that is bi-
directional in nature, that is, it involves the process of information gathering for the
organization or the use of information for developing individuals. Active management
was not significantly related with any measure of the organizational climate. Size of
the firm and internal labour market were associated, with these practices, indicating
thai a particular kind of environment was necessary for the creation and success of the
assessment centre.
Formal activities These OCM practices provide employees with a formal system of
information and presentation of opportunities. Information is trans-ferred from top to
bottom. These activities were not linked to any climate measure and were also
relatively little used. However, the size of the firm and the internal labour market
were related to the use of these practices even more strongly than ihey were related to
the active management practices. Larger firms are more formal than smaller ones and
hence, are more likely lo use these practices.
Multi directional These practices were related to open climates since the success of
peer and upward appraisal needs such a climate for feedback. These practices were
positively associated with internal labour markets since the latter trust the capabilities
and opinions of its employees.
Career Systems and Organizational Characteristics
It is important for HR managers or anyone entrusted with the task of designing a
career management system, to recognize that career systems should be developed a\
actual 'syvtems' ind these ^huu!d neo oi *<'ts <>i practices which fit together with the
organizational characteristics such as the stage of development, industry, etc.
Established firms that seek to implement a career system should first consider the
elements of the 'basic OCM* cluster. Since most firms have these practices,
employees would naturally expect their own firm to have these in place. Therefore,
not having practices such as job posting, pre-rctiremenl programmes, and lateral
moves may be a disadvantage for a firm. Several firms offer lateral moves, for
example, Marico. Prudential Process Management Services (PPMS), and Hewleti
Packard. Bharat Heavy Electricals Ltd offers pre retirement material and workshops
to its employees. Hewlett Packard, HSS, and Spcctramind have internal job posting
programmes to help employees in choosing their own careen Firms seeking to sustain
inter* nal labour markets and offer long-term careen may go in for the 'formal*
category of OCM practices, such as written career planning* dual career ladders, and
books/pamphlets on career issues. Dual career ladders in particular were developed in
the 1960l and li»70s in large firms such as IBM These helped scientists and olher non
managers lo continue to advance their careers without having to enter the
management ranks and yet making long-term career development possible. Many
public sector firms such as C-Dot follow these practices. The company permits
employees to choose from two career paths available—responsibility promotions and
technical promotions. Wipro also offers a technical career path along with the
management career path.
Firms seeking to maximize knowledge about employee potential, both for the sake
of the individual and the organization, may prefer to use active management OCM
practices, such as assessment centres, formal mentoring relationships, and career
workshops. Xerox has formal mentoring programmes for entry level managers. Al LG
Electronics too, buddies or peers are nominated to help new hires. Eli Lilly, the
pharmaceutical company, assigns a mentor to employees who choose a career path in
sales training, marketing, or human resources. KPMG, the global advisory firm, runs
a career-ownership workshop directed towards individuals who had undergone their
professional training within the firm, particularly ihose in tax and audit. Firms that
seek to translate group forussed. Individualisticfirms should focus on active planning
and active management categories which permit attention to be paid to individual
careers. On the other hand, group foamed firms may focus on basic and multi-
directional activities. RtartUt organizations do not have time for new initiatives. I
lence, these firms may be able to use only formal OCM practice*. Conversely, proaitiu
firms benefit from basic OCM practices initially and from active planning and active
management practices later
HSBC has long relied on bavu and active planning OCM practices such as job
postings, formal training, pre-retirement counselling, lateral movement, and
succession planning. More recently, the bank is also moving towards the active
management OCM cluster, such as assessment centres, thereby suggesting a more
innovative approach lo OCM. Unilever has long relied on the active planning and
 formal OCM practices. The company has career counselling, written career plans, and
performance appraisal process linked lo career planning. Unilever also has annual
succession planning for all senior management roles. Elements of basic OCM are also
found ml Unilever. For instance* formal education is provided mainly internally and
this, along with lateral moves, are provided primarily to the identified high potrntiml
group, which is about ten to fifteen per cent of its managers globally. Electronic Data
Systems, one of the world's largest IT firms, believes that individuals are primarily
responsible for their own careei management. Hence, there are very few OCM
practices in evidence in the company. However, more recently, the firm hus
introduced the 3011 degree feedback system to ensure continued employee skill
development and is also developing a succession planning system. Therefore, the firm
has also begun its OCM with the multi-directional and active planning categories of
career practices.
CAREER MANAGEMENT FOR IPECIFIC HR
ISSUES: HRD APPROACH
This current business environment has challenged the human resource tunc lion to
provide competilive advantage to organizations. Career planning and development
can be a powerful means of dealing with some ol the issues related to managing a
stable or shrinking organization in a stagnant economy* Various HR issues have
emerged which demand attention. Some of these are, ensuring the continuance of
newly hired employees; development and retention of high potential employees;
providing growth opportunities in a stable organization; rewarding and retaining
trchnical and professional employees; and motivating plateaued employees. Hall and
Hall ;1980) suggested some creative techniques for career management that help in
coping with these HR problems. We will now briefly discuss some career
management techniques for specific MR issues (Figure JJ.8).
Reducing Turnover among Recently Hired Employees
The cost of employee turnover can be very high, especially in the case of professional
and managerial employees. Some companies lose as many as 50% of their employees
in the first two years of employment. An organization can save a lot of money by
careful management of the entry and first year of new employees who are in (he
establishment phase of their careers. Companies like AT&T and GE have found that
making initial jobs more challenging and stretching decreases turnover and also
improves long-term career perfor mancc. To reduce turnover, firms can adopt certain
measures.
(i) Select a challenging first job for new employees, thus ensuring that
new employees experience a feeling of psychological success, (hat is,
accomplishment on a job with a reasonable probability of failure.
(ii) Provide job enrichment by giving the new employees authority and
responsibility. This again contributes to stretching initial jobs.
(iii) Assign new employees to demanding bosses—when a boss expects
better performance from an employee by selling high performance
standards, the subordinate performs belter.
(iv) Give realistic job previews by providing new employees with realistic
expectations during the recruitment process in the form of company visits,
booklets, or talks conveying the demands of the job. These prac tices can
reduce dissatisfaction and turnover among employees when they actually join
the firm.

Developing High-potential Candidates for Management Positions

An organization can identify high-performers through assessment centres and other
such methods. The real problem, however, is to tram and develop these promising
candidates once they are identified.
Asirssment trntns for development As discussed earlier in the chapter, assessment centres
were earlier developed for selection purposes and to identify high performers for
promotion. More recently, they are being used for employee development too. The
use of assessment centres for developmental purposes focusses on providing feedback
to the employees. After the employee evaluates and accepts the feedback, the
discussion shifts to counselling and identifying the training requirements and
developmental assignments that the employee would require for the target job. Used
in this manner, assessment centres provide the individual with a specific career plan.
The organization, therefore, becomes a partner rather than an adversary in career
planning.
Job pathing It involves moving employees through logically sequenced job
assignments to help ihem reach a certain target job faster than the normal course. For
example, an organization may stipulate that an individual would take about 15 years
to grow to the position of general manager. However, by careful plotting of jobs that
provide structured experience to the employees, the position could be reached in
about seven years. Hence, job pathing can be used for developmental purposes.
Providing Promotion Opportunities in a Stable or Contracting Organization
When new management positions are available in an organization, career
opportunities become abundant. However, during economic downturn or corporate
slowdown, careful planning is required for providing career advancement. Some of
the ways in which an organization can do so are as follows:
Cross functional moves Lateral or cross-functional transfers are used to provide
opportunities for development, usually at the beginning of an individual's career.
Cross functional transfers throughout the career keep employees updated, open to new
learning, and provide them with a broader perspective of the organization* For
example, in the early 1970s, three executive vice president* of Union Carbide traded
jobs. The purpose was to give each one of them a belter 'big picture* of the lotnl
organization and prepare them for presidency. Lateral moves provide opportunities
for development and also makes it possible for each individual to take on a more
demanding position.
Fallback positions Cross functional transfer or promotion* carrv with them a risk,
especially when they lake place at senior positions. The risk is that the individual may
fail in a new job because it is too demanding and beyond his/ her level of competence.
One way this risk may be minimized is by identifying a fallback position into which
the individual can move if he/she is not successful after a promotion or a transfer.
When a firm establishes fallback positions, it communicates to the employees that the
promotion or transfer involves some risk. The firm accepts some of the responsibility
lor it and sends a message thai moving into a fallback position does not constitute
failure and is quite acceptable.
Rewarding and Retaining Techniral and Professional Employees
In today's high lech world, specialized knowledge is as important as managerial skill.
Technical and professional employees, such as engineers, information technology
experts, scientists, etc.. present a special challenge for organizations. Most technical
and professional employees would like to have more responsibility that is associated
with advancement. However, they prefer to stay in their technical and highly
specialized areas rather than move into management as put of the normal upward
mobility in an organization. This trend is most common in technology-driven
industries, such as pharmaceuticals, rhemicaU, computers, and electronic*. In
iesponse to this trend, organizu tions have started offering dual career paths or
ladders. The dual career path isamrthod of recognizing and rewarding technical
specialists and professionals who prefer 10 contribute their expertise to a firm without
having to become managers. This allows technical and piolessinnal employees to nu
iraise thru specialized knowledge, make contributions to their firms, and be rewarded
without entering management* On each side, that is, management and technical, the
compensation is comparable and at par
Dual career paths are becoming increasingly popular. An individual may advance up
the management ladder orona corresponding technical or pro fesMonal ladder Union
Cat bide, IBM. and AT&T have used dual career paths for years. Several other firms,
such as C-DOT, Kricsson. GCPL, and Kli Lilly encourage their employees to follow a
managerial career path or a specialist/ technical one. A dual career path permits
organizations to retain both highly skilled managers and highly skilled technical
specialists. Eli Lilly, the Rs 160 crore pharmaceutical company, (or example, has
created new career paths to stem attrition. The employees can move into related
functions like sales force training, marketing, HR, or clinical trials. For clinical trials,
which is a technical function, the company trains the employees to prepare for it.
Alternatively* employees can specialize in any one of Lilly verticals, such as cancer,
sepsis, cardiology, or diabetes. In this case, the employees are put through a very
structured training programme.
Motivating Plateaued Employees
Almost all individuals experience career plateau at least once in their career It occurs
when an employee'* uork content and joh functions continue to remain the same
because of lack of promotional opportunities in the organi zatinn. Employees find
themselves stuck at the same career level. Fcrence et al. (19~. defined carta plateau as
the point in a career where the likelihood of additional hierarchical promotions or
further upward mobility is very low. Career plateau has become more common in
contemj>orary times. Al more organizations opt for downsizing, moving to flatter
organizational structures, and eliminating middle management layers, morr number of
employee* are forced to remain at the same level for longer periods. Career plateau is
also a natural result of a hierarchical organizational structure in which the number of
positions is far less at higher levels in the hierarchy.
The term career plateau is viewed as negative and is seen as suggesting failure. This is
because success is commonly defined in terms of upward mo bilitv. However,
reaching a plateau is not a negative career stale. When a person reaches the career
plateau, it merely indicates an individual's current career status in an organization. A
conceptual model of the career plateau phenomenon as presented by Ference et al. is
described in Exhibit 9.7
Career plateau presents new challenges for the HR function with respect to
organizational career planning and development. To deal with the problem of career
plateau, several HR approaches can be used:
Lateral movements Individuals may be moved laterally within the organization. Though
the status and pa\ remain unchanged, the employees have the opportunity to learn new
skills that increase their marketability In lateral movements, the firm may use any one
of the following two appnui hey
 • Skill based pay system: Rewarding employees for the type and the num ber of
skills they have.
• Job enrichment: Rewarding (without promoting) an employer by in e reading job
challenge, responsibility, autonomy, task variety, etc.
Seminan and university courses By taking these courses, plateaued emplovres find new
opportunities.
Rotation to other departments A formal programme of rotating managers at mid-career
stage to other departments may be adopted by firms.
CAREER MANAGEMENT: A N SHKM APPROACH
Business planning, which was tradn,on**)l\ concerned with marketing and finance,
has now expanded to include human resources to meet business objectives.
Integration of human resource planning (HHP) with business objectives has led to the
inclusion of HR managers on corporate business planning teams. All corporate plans
are interpreted for their human resource implication. Human resource planning mav
be appropriately viewed as a macro HR system that provides guidance for the
optimum usr of the organization's human resources. Human resource planning
systems must also those H RM subsystems that ensure growth and development of
potential of all the employees in the organization. It must also deteimine linkages
between individual growth and maximum utilization of human resources and the
interaction between these two aspects.
Human resource planning complements individual career planning. Career planning
practices help individuals set career goals. Human resource planning, on the other
hand, is aimed at creating and maintaining an effective work force to meet the
business goals of the organization. It involves strategies for attracting, selecting, and
orienting new employees to the firm. It also fonnulates approaches for matching
individual needs with job opjM>nunities, methods for helping employees dev elop
and perform effectively, and ways to smouthen the separation of employees through
retirement By integrating career planning with HRP, employees* needs can be
merged with those of die organization. Long term goals and objectives of the firm are
analysed in terms of their implications for manpower requirements—both qualitative
(type of skills, such as technical skills, interpersonal skills, eld and quantitative (the
number of
 (|uirrtl tor thr organization to achievi those objectives By linking
employees* career plans with the firm's human resource needs and
business, objectives, career plans become more realistic and improve
the organization's human resource plans. For example, setting up of
individual career objectives should be aligned with the organization's
business plans. An individual's concern for performance feedback
and development planning may be complemented by organizational
activities for helping employees to develop and perform effectively.
Career development helps individuals achieve career objectives. Like career
planning, career development also requires integration between the corporate business
plans and employee career needs. Career development can also be integrated with the
company's business goals through 1IRP When HRI 1 is included in corporate business
plans, career development practices reflect the company's objectives. It is aimed at
ensuring the availability of the light number and ly|>e of workforce to ensure the
achievement of business objectives. Human resource planning includes career
development practices aimed at matching individuals to jobs, helping them perform
and develop, etc.
Career management activities and programmes ol an organization are integrally
aligned and consistent with strategic human resource planning. Career management is
the next logical phase in HKK Hence, career management helps align the individual
employee's aspirations and needs with those of the organization. This increases the
probability that an organization will be able to meet its changing faffing requirements
on an ongoing basis.
Today, an increasingly growing number of people seek jobs that offer challenge,
responsibility, opportunities for advancement, and quality of work life. Employees
prefer lo work for organizations who demonstrate concern for their employees*
future. Therefore, career planning and development is a rising concern for employees.
A firm that has a formalized career manage ment programme is also likely lo to
attract good quality employees. When firms institutional./'- caieei development plans,
they become more successful in recruitment and retention of high talent employees.
For years individuals and organizations operated in a relatively ad hoc manner with
regard lo career development. However, managers, employees, HR professionals, re
searchers, and consultants believe thai only active career management leads to
individual and organizational success. Career planning and development not only
improves individual performance, but also develops an interface between the
individual and the HR system. Career management helps to identify those HR
programmes which deal with the issue of individual growth and productivilv within
the organizational environment.
Since careers are made up of exchanges between individuals and organiza tions,
these exchanges inherently incorporate the idea of reciprocity The notion ol
reciprocity between the individual and the organization has been derived from the
inducement-contribution model of Dernard and Simon. According to March and
Simon (1958), the contributions individuals make to organizations and the
inducements organizations provide to individuals should be satisfactory for an
effective association to continue. From an individual's perspective, one inducement
thai an organization can provide is 'challenging work 1. If the organization reduces the
autonomy the individual has over his/ her work, the individual may perceive the job
as no longer offering enough challenge. This may ultimately result in an individual's
exit from the organization. From the organization's point of view, the individual
contributes'quality performance' to the organization. If an individual's performance
falls below die accepted standards of quality the organization may view the individual
as stagnating. The organization may ultimately choose to replace the individual with a
better performer.
Individual organization reciprocity is important to career management and it is a
joint responsibility of individuals and organizations. Both the individual and the
organization can take specific actions lo contribute to successful career management
and lead lo positive results for each other. These have been discussed in the section on
organization centred and individual ^centred career management.
Theoretical career models are very few, and these relate to the individual
perspective. For organizational career management, the existing theoretical base is
very thin. Schein's model of career development is perhaps the only one that reflects
both the individual and organizational perspective, I his model is based on the concept
of fit between the goals of the organization and the goals of the individual. The model
demonstrates thai the goals of each party change over lime as an individual's career
evolves. An organizations goals consist of a series of plans for managing human
resources. The organization must continually plan for hiring* developing, retiring,
and replacing individuals. The organization can match these activities with (he career
stages of individuals. An individual's career stages should ideally parallel the
organization's planning process. For example, the organization's plan for staffing can
mesh with the individual's plan for career choice through recruitment* selection,
placement, and training activities. Similarly, the organization's plan for growth and
development of individuals can mesh with the individual's early career stage issues,
such as how to establish an area of contribution in the firm through job rotation,
performance appraisal, and developmental training. Both the organizations planning
phases and the individual's career stages follow a cycle or series of stages- When
these two cycles are matched with each other, it ensures reciprocity.
Similar to IIRP, organizational careers can also be seen at two levels— macro and
micro. At the micro level, the focus is on facilitating the careers of individual
employees through various activities, such as counselling, career pathing, etc At the
macro level, manpower planners develop organizational charts to track the movement
of large number of people through various positions in the organization, identify fast
tracks, future staffing gaps, etc. Most organizations rarely attempt to integrate these
two types of career planning. More often, organizations use only one of these
approaches. For instance, a company may focus only on individuals. Such a firm may
do well in developing employees but its overall corporate manpower needs may get
ignored. On the other hand, an organization may focus only on corporate manpower
plans and pay no attention to training and development of its employees to ensure
their movement through various positions. Such a firm ends up merely monitoring
career plans and not managing them. It is obvious that both the macro and the micro
facets of career management need to be integrated. This can be facilitated by ensuring
diat manpower planning and career counselling are placed in the same department.
Usually, the backgrounds of personnel in these two functions differ, with counsellors
usually being from psychology and manpower planners from economics or
management. Organizations need to have as much coordination as possible between
corporate planning, human resources planning, and individual career planning.
However, these three kinds of planning operate in isolation. For instance, an
individual may chalk out a career in computer hardware sales at a time when the firm
may plan to phase out of hardware business. Similarly, an organization may plan a
large expansion of its software business, but it may lack qualified software engineers
within the organization and in the external labour market.
Human resource planning clearly forms the base for successful organizational
career planning. Only by forecasting the demand for people needed in various future
jobs and assessing the current internal supply of people and their potential, can
analysis put together a career system for the organization. By careful matching of
organizational needs and employees' goals, HRF covers both the individual and the
organizational perspectives of career manage-ment. A match between individual and
organizational career plans determines employee satisfaction and how long employees
are likely to stay with the organization. Unfortunately, many organizations prepare
career ladders and career paths without considering how current employees fit into
those plans. More important than having a career assistance programme in an
organization is having a proper match between the organization's strategic needs and
the individual's career needs.