Unit-4

Performance appraisal

Meaning of performance appraisal

 Performance appraisal means evaluating how well an employee
is doing their job.
 It includes both quantity (how much work is done) and quality
(how well the work is done).
 It is a systematic and objective process to check the
performance and potential of employees and to help them
improve in the future.

Features of performance appraisal

1. Systematic process:- it includes three steps:-
i. Setting work standards
ii. Measuring actual performance
iii. Giving feedback for improvement
2. Focus on improvement:- it tells how well the employee is
working and helps in planning for better performance.
3. Regular activity:- it is done from time to time and not just once.
4. Future oriented:- it is not done to punish employees for past
mistakes but to guide them for better results in future.
5. Different from job evaluation:- performance appraisal means
how well an employee is doing the job and job evaluation
means how valuable the job is for the company and what salary
it should have.
 6. Focus on employee development:- it helps managers act like
coaches instead of judges. It gives a chance to solve problems
and set new performance goals.
7. Formal or informal:- informal appraisal may be biased or based
on personal opinions. Formal appraisal is fair and uses proper
forms and methods.

Purpose of performance appraisal

 Performance appraisal is done for two main purposes:-
1. To evaluate employee performance:- checking how well
the employee is doing the job.
2. To help in employee development:- guiding and
supporting them to improve in the future.
 it helps in understanding strengths and weaknesses of both
employees and the organization.
 It also improves relations between managers and employees.

Objectives of performance appraisal

1. Compensation decisions:- appraisal helps in deciding
salary increases. Employees who perform well get raises
based on merit, not just on how long they’ve worked.
2. Promotion decisions:- helps in deciding who should be
promoted or transferred. Those who perform the best are
rewarded, and this reduces frustration among other
employees.
3. Training development:- appraisal shows what skills
employee need to learn. It helps managers plan proper
training programs to improve performance.
 4. Feedback to employees:- employee get to know how well
they are working. They also learn what to do to improve
and grow in the organization.
5. Personal development:- helps find out the reasons
behind good or poor performance. Managers can then
guide employees to perform better through counseling
and support.

Who will appraise?

 Performance appraisal can be done by anyone who knows
the employee’s job well, can observe their work, and judge
fairly.
 The person doing the appraisal should know what in
important in the job and must be free from personal bias.
 Main people who can appraise performance:-
1. Supervisors:- usually, the immediate boss or superior
does the appraisal. They see the employee’s daily work
and are responsible for their performance. Sometimes,
other managers who are familiar with the employee’s
work also give feedback.
Drawback:- supervisors may focus only on some areas of
work or may use the appraisal to justify decisions like
giving promotions or salary hikes.
2. Peers (co-workers):- friends or co-workers can also give
feedback. Peer appraisal works best when the team works
together for a long time. However, in business settings,
this method is less researched and rarely used seriously.
3. Subordinates:- employees can also give feedback on their
superiors. Theis is common in developed countries like
the USA. For example, students rate teachers in
 universities. This method works well if the relationship
between bosses and workers is good.
4. Self-appraisal:- employees rate their own performance. If
they understand what is expected, they can judge
themselves fairly. This method also motivates employees
because it involves self-improvement.
5. Users of services (customers):- in service industries,
customers are the best judges. Example, a teacher’s
performance can be judged by students; a bus
conductor’s by passengers.
6. Consultants:- when no one trusts the internal appraisal
system, outside consultants are called. They are trained
and observe the employee’s work carefully for a long time
to give a fair appraisal.

Performance appraisal process

1. Setting performance standards:- the first step of performance
appraisal is to set clear and measurable standards which define
what good performance means. These are based on the job’s
requirements and include qualities like teamwork, responsibility
and job knowledge.
2. Telling employees about standards:- the standards are explained
to employees so they understand what is expected from them.
Feedback is taken, and changes are made if needed.
3. Measuring performance:- the actual work done by employees is
observed and recorded using reports, meetings and observation to
collect accurate information.
4. Comparing performance with standards:- the actual performance
is compared to the set standards to see if employees are doing
better, the same or worse than expected.
5. Talking about the appraisal:- the results are discussed with the
employees. They are told about their strengths and weaknesses,
and reasons for their performance are explored.
6. Taking steps to improve:- if improvement is needed, actions like
training, coaching or counselling are taken to help the employee
perform better in the future.

Methods or techniques of performance

appraisal
 Traditional method
1. Confidential methods:- this method is mainly used in
government organizations. In this, the immediate superior
prepares a confidential report about the employee’s
performance, behavior, discipline, and character. The report
is not shared with the employee and is used for decisions like
promotion or transfer.
2. Essay evaluation:- in this, supervisor writes a detailed essay
or paragraph about the employee’s strengths, weaknesses,
skills and overall work performance. It is a qualitative
method and depends on the writing ability and judgment of
the manager.
3. Checklist and weight checklist:- this is a technique where
the evaluator marker yes or no for a list of statements about
the employee’s performance. It is quick and simple.
Weighted checklist method adds scores to each statement
based on importance. The total score shows the overall
performance, making it more accurate and useful.
 4. Graphic rating scale:- this is commonly used method where
employees are rated on scale (e.g., 1 to 5) for different
factors like punctuality, quality of work, cooperation, etc. it is
simple and provides a clear visual record of performance.
5. Force choice method:- in this method, the evaluator is given
a group of statements in sets (usually 2 to 4 per set, and they
must select the most suitable statement for the employee.
The evaluator cannot choose all or none- they are forced to
make a choice.
6. Straight ranking method:- in this method, employees are
ranked from best to worst based on their overall
performance. It is simple but becomes difficult when the
number of employees is large.
7. Paired comparison:- in this method every employee is
compared with the other employee in pairs. For each
comparison, the better performer is selected. At the end, the
employee with the most favorable comparisons is ranked
highest.
8. Group appraisal method:- in this technique, a group of
supervisors or peers evaluates the employee together. This
method ensures fair judgement and reduces individual bias
as more than one person is involved in the appraisal.
9. Field review method:- in this method, an HR specialist (from
outside the department) conducts interviews with the
supervisor to discuss each employee’s performance. Based
on the discussion, the HR person prepares the appraisal
report.

 Modern method
 1. Assessment center method:- this method involves testing
employees through simulations, role-plays, case-studies, and
other activities. It is mainly used to identify leadership and
decision-making skills, a team of trained assessors observes
and evaluated performance.
2. Human resource accounting:- in this method, employees are
treated as valuable assets. The organization tries to measure
the monetary value of an employee’s contribution and
compares it with the cost of hiring and training them.
3. BARS {behaviorally anchored rating scales}:- this method
combines rating scales and critical incidents. Each point on
the scale is defined by specific behaviors that show what
good or poor performance looks like. It helps make the rating
more accurate.
4. 360-degree feedback:- in this method, feedback is collected
from all direction – superiors, peers, subordinates and
sometimes even customers. It gives a complete picture of
the employee’s behavior, teamwork and leadership.
5. Management by objectives (MBO):-management by
objectives is a modern method of performance appraisal
where the manager and employee work together to set
specific goals. These goals are clear, measurable and
achievable within a fixed time period. At the end of that
period, the employee’s performance is evaluated based on
how well they achieved those goals.

Problems with performance appraisal

 Performance appraisal is useful tool, but it also has some
problems. These problems can affect the fairness and accuracy
of the appraisal. These issues can be grouped as follows:-
A. Judgement errors
 B. Poor appraisal forms
C. Lack of rater’s preparedness
 Judgement errors:- these are mistakes made by the person
who is rating the employee. These mistakes are mostly due to
personal opinions, impressions or lack of objectivity. Some
common types are:-
1. First impression:- the rater forms an opinion about the
employee based on the first impression. If it’s positive, the
employee may get high rating always; if it’s negative, they
may always be rated low.
2. Halo effect:- if one thing is good, the rater assumes
everything is good. For example, if an employee comes on
time, the rater may also think they work well in all areas.
3. Horn effect:- opposite of the halo effect. If one thing is bad,
the rater assumes everything is bad. For example, if an
employee is shy, the rater may wrongly believe they can’t
work in a team.
4. Leniency error:- some rater is too soft and give rating to
everyone to avoid conflict, even when the performance is
poor.
5. Central tendency error:- the rater gives average rating to
everyone, avoiding very high or very low marks- even if
employees performed differently.
6. Stereotyping:- the rater makes assumption based on the
age, gender, background, caste, etc. for example, someone
from a village might be rated low just because of the rater’s
bias.
7. Recency effect:- the rater focuses only on recent
performance, ignoring the work done earlier in the appraisal
period.
 Poor appraisal forms:- sometimes, the forms used for appraisal
are badly designed. Problems include:-
1. Question or scales are unclear or confusing
2. Important aspects of the job are not included
3. Irrelevant or unnecessary items are added
4. Forms are too long and difficult to fill.

 Lack of rater’s preparedness:- sometimes the rater is not

trained properly or is not confident. Issues include:-
1. Not understanding how to rate employees correctly.
2. Not having enough time to observe or assess.
3. Being confused due to unclear appraisal goals.
4. Lack of technical knowledge about the employee’s job.

 Ineffective organizational policies and practices:- problems also

come from the organization’s system and attitude. For
example:-
1. Raters don’t get rewarded for doing the appraisal
properly.
2. Giving low ratings is seen negatively by management
3. Supervisors may not even check or approve ratings.
4. To avoid trouble, most employees get average or good
ratings, even if they don’t deserve them.
Essential characteristics of an effective
appraisal system
 a good performance appraisal system is important because
many decisions like promotion, transfer, training or salary
increase are made based on it.
 To make the appraisal process fair and useful, it must have
certain features. These are:-
1. Reliable and correct:- the results should be true and no
change if done by different people.
2. Related to job:- it should check how well the employee is
doing their own actual job not personal things.
3. Easy to use:- the system should be simple, not expensive
and easy to do again and again.
4. Follows law:- it should follow all labor rule and
government laws.
5. Training for appraisers:- the people who give ratings
should be trained to be fair and honest.
6. Clear talk:- employees should get regular feedback and
know what is expected from them.
7. Employee can see results:- the employee should know
what score they got and why.
8. Right to complain:- if the employee thinks the result is
unfair, there should be a way to complain or appeal.
Potential appraisal
 Potential appraisal means checking how much ability or talent
an employee has to take up bigger roles or higher positions in
the future.
 It is not about current performance, but about future
possibilities.
 Main purpose of potential appraisal:-
1. Future growth advice:- it helps tell the employee what
roles they can reach in the future based on their skills and
attitude.
2. Career improvement tips:- it guides employees on what
they need to learn or improve to grow in their career.
3. Succession planning:- it helps the company plan who can
take important roles in the future when current leaders
leave or retire.
4. Better training:- it helps the company decide what kinds
of training or development programs are needed for
employees to grow.

 Steps to introduce a good potential appraisal system

1. Clear job role descriptions:- the first step is to clearly
describe each job. Every job should have a job description
(what work is to be done) and a job specification (what skills
and qualities are needed).
2. List of required qualities:- based on job description, make a
list of skills, abilities and qualities needed to do the job well.
This helps in judging if the employees have the potential to
handle such responsibilities in future.
3. Rating mechanism:- there should be clear ways to evaluate
employee potential. These can include:-
 i. Supervisor’s rating:- the immediate boss, who knows
the employee’s work, gives a rating on qualities like
technical skills, leaderships, etc.
ii. Tests:- use psychological or ability tests to judge
things like leadership, decision-making, etc.
iii. Games:- simulation games or exercises can help
check how the person behaves in real job-like
situations.
iv. Records:- look at past performance records – things
like creativity, problem-solving, risk-taking, etc.
4. Organizing the system:- The HR manager should set up the
system properly by deciding:-
i. How much importance should be given to meri vs.
seniority?
ii. How to balance different performance areas –
technical skills, behavior, leadership, etc.?
iii. What tools will be used to assess potential and how
reliable are they?
5. Feedback to employee:- every employee should get
feedback on their potential appraisal results. They should
be told:-
i. What qualities are needed for higher roles.
ii. How they were evaluated
iii. What their results mean
iv. And how they can improve for the future

 Benefits of potential appraisal

 o Potential appraisal means checking if an employee has the
hidden talent or ability to take on bigger roles and higher
responsibilities in the future.
o It is different from performance appraisal, which looks at
how well a person is doing their current job.
o How to judge potential?
1. Reviewing present performance:- if someone is doing
their current job very well, they might be ready for a
higher role.
2. Looking at personality traits:- qualities like leadership,
confidence, creativity and decision-making help show
future capability.
3. Checking past experience:- past roles and experiences can
help predict how the employee may perform in future
positions.
4. Considering age and qualifications:- younger employees
with strong qualifications may have a longer growth path
ahead.
5. Exploring unused skills:- some employees may have
talents or knowledge they haven’t had a chance to use
yet, but these can be helpful in future roles.

Employee counseling
 Employee counseling means helping employees when they are
facing problems especially emotional or performance-related
problems.
 It is a two-way process where a senior (like manager or
supervisor) listens to the employee’s issues and give advice or
guidance.
 Types of counseling:-
1. informal counseling:- happens naturally in daily
conversations between a manager and their team
members. No fixed time or schedule is needed.
2. Formal counseling:- this is planned and organized. It may
be done by the employee’s boss or even by a professional
counselor.

 Why is counseling needed?

1. Conflict:- people in an organization have different
opinions, needs and feelings. These differences can lead
to flights or misunderstandings between individual or
groups. Such conflicts cause emotional stress and reduce
team spirit and performance. Counseling helps solve
these conflicts and keeps the workplace peaceful.
2. Frustration:- when an employee cannot achieve their goal
or is blocked from doing something they want, they fell
frustrated. Counseling helps the employee deal with
frustration and feel motivated again.
3. Stress:- stress can come from too much work, fear of
losing a job, confusion about job roles or personal
problems like family or money issues. Counseling helps
the employee handle stress, build confidence and stay
emotionally strong.

 What is performance counseling?

o It is when a manger helps an employee to:-
1. Understand their current performance
 2. Find out what is helping or stopping them from doing
better.
3. Recognize their own strengths and weaknesses
4. Make a plan to improve
 Benefits of counselling:-
1. Better communication between boos and employee
2. Stronger relationships at work
3. Employees feel more supported and understood
4. Helps employees plan for their own growth
5. Solves problems early and prevents future issues.

 Objectives of employee counseling

1. Help the employee use their full potential
2. Help them understand their strengths and weaknesses
3. Understand their behavior better
4. Help them understand the work environment
5. Provide a safe space to talk about problems
6. Improve personal and workplace relationships
7. Create a plan for better behavior and performance

 Functions of counseling
1. Advice:- giving suggestions to solve an emotional problem.
Bust just giving advice isn’t enough – true understanding is
needed.
2. Reassurance:- giving confidence and support (e.g., saying
“you’re doing well”). It helps, but only if used carefully.
3. Communication:- encourages open talk between employee
and counselor. Helps both understand feelings and company
policies.
 4. Release of tension:- letting out feelings reduces stress. Talk
to someone who listens helps the employee feel lighter and
calmer.
5. Clarified thinking:- clears mental confusion, helps the
employee think better and take responsibility for solving
their problems.
6. Reorientation:- helps change negative thinking and adjust
personal goals to match reality. It helps the employee grow
emotionally.

 Forms of employee counseling

1. Directive counseling:- in this type, the counselor takes the
lead. The employee shares their emotional problem. The
counselor give advice, suggests a solution and motivates
the employee to act. It helps the employee feel relaxed
and think clearly. It is suitable when the employee needs
clear guidance.
2. Non-directive counseling:- it is also known as client-
centered counseling. The focus is on the employee, not
the counselor. The counselor listens patiently without
interrupting or giving advice. The aim is to help the
employee understand and solve the problem by
themselves.it is democratic and respectful, but takes more
time.
3. Cooperative counseling:- it is a mix of directive or non-
directive counseling. Both the counselor and employee
work together to solve the problem. The counselor shares
knowledge and suggestions, and the employee shares
their thoughts. It requires training and teamwork. Best for
 managers handling regular emotional or work-related
problems.

 steps of employee counseling:-

1. preparation stage:- this is the first stage where the counselor
creates a comfortable and trusting environment. The
counselor listens carefully and shows genuine care for the
employee. It is important to avoid distractions and stay calm,
so the employee feels safe to talk openly.
2. Intermediate stage:- now, the counselor encourages the
employee to look within and understand the problem. The
counselor collects more details and helps the employee see
what parts of the problem are in their control. The goal is for
the employee to recognize their strengths and weaknesses
and understand the real cause of the issue.
3. Helping stage:- in this final step, the counselor helps the
employee find possible solutions to the problem. Together,
they look at the advantages and disadvantages of each
option and choose the best one. The employee is
encouraged to follow the plan and monitor their own
progress, with regular follow-ups for support.

 Benefits of employee counseling

1. Better relationships and adjustment:- the employee learns
to interact positively with the people and handle different
situations better.
2. Improved personal effectiveness:- he or she becomes more
productive and confident at work.
 3. Emotional clarity:- the employee clears out negative feeling
and becomes more focused and calmer.
4. Stress relief and support:- sharing problems with a trusted
counselor helps the employee feel relaxed and supported.

 Effective counseling
o Counseling is a skill that helps an employee learn and grow.
o The counselor guides the employee, but employee must also
make an effort to learn, take responsibility, and improve.
o The counseling process works best when both the employee
(counselee) and the manager (counselor) work together with
trust and understanding.
1. Role of counselee (employee):-
 Must openly share their problems, feelings and
concerns mainly related to work.
 Should take responsibility for their behavior and
actions
 Needs to be ready to improve by following
suggestions and creating an action plan.
 Must understand that the counselor is there to
guide, not carry them forever.
2. Role of counselor (manager):-
 Should collect clear facts about the employee’s job
performance (e.g., late coming, conflicts).
 Encourage the employee to explain their side
without feeling blamed.
 Help the employee understand the problem and
explore different solutions.
 Be clear about what the employee needs to do, by
when and what support will be provided.
  Follow up regularly and praise good efforts.
3. Counseling climate:-
 Both sides should focus on work goals and
performance improvement.
 Discussions should be fair, respectful, and
supportive.
 A healthy atmosphere of mutual trust and
understanding is necessary for success.

Job changes
 Job changes refer to any kind of movement or shift in an
employee’s job role within an organization. This can involve a
change in:-
a. Position (like promotion or demotion)
b. Department (transfer)
c. Responsibilities (job redesign or enlargement)
d. Location (relocation or deputation)

 Purpose of job changes:-

1. To improve organizational effectiveness:- removes
unnecessary jobs and creates better roles to improve
efficiency.
2. Maximise employee efficiency:- places employees in role
that match their skills for better performance.
3. Cope with operational changes:- adjusts workforce during
growth or recession through promotions, transfers, or
layoffs.
 4. Ensure discipline:- used to correct behavior through
demotions or layoffs when needed.

Transfer
 A transfer means moving an employee from one job to another
within the same organization, without changing salary, position or
responsibilities much.
 for example, an employee may move from one department to
another or from one office or plant to another.
 Transfer can be requested by management or by the employee.

 Purpose of transfer (why transfer is needed):-

1. To meet organizational needs:- when there are changes in
production, technology or work volume, employees may
need to be shifted to different jobs.
2. To satisfy employee needs:- employees may request a
transfer due to personal issues like health, family, location,
dislike of a boss or lack of growth opportunities.
3. To use employee skills better:- if someone is not performing
well in one role, they may do better in another role that suits
their skills.
4. To make employees more skilled:- transfers help employees
learn different jobs (job rotation), which improves skills and
reduces boredom.
5. To balance workload:- if one department has too many
workers and another has fewer, transfers help balance the
workforce.
6. To provide relief:- transfers can give rest to employees doing
risky or stressful work for a long time.
 7. To discipline employees:- problem employees may be
transferred to distant or less-preferred locations as a form of
punishment (common in government offices).

 Types of transfers:-
1. Production transfer:- this transfer happens when there is
less work in one branch or department. Employees are
shifted to places where work is available, so that they don’t
lose their jobs. It helps the company adjust workforce
without layoffs.
2. Replacement transfer:- in this type, a senior or experienced
employee replaces a newer one in a tough job. This is usually
done to give relief to the experienced employee from heavy
or stressful work, especially when they’ve worked long in
one place.
3. Versatility transfer (job rotation):- employees are moved
from one job to another regularly. The goal is to develop
multiple skills, increase experience and reduce boredom by
giving variety in work. It also prepares employees for future
promotions.
4. Remedial transfer:- this transfer is done when an employee
is found unsuitable for their current job. They are shifted to a
role that better matches their skills or abilities. It helps in
correcting mistakes in placement.
5. Shift transfer:- employees are shifted from one work shift to
another (like day to night or vice versa). This usually done for
personal reasons such as health, childcare or family needs. It
helps employees maintain work-life balance.
 Transfer policy
o Transfer policy is a set of clear rules made by an
organization to manage employee transfers fairly.
o It helps avoid unfair or random transfers and ensures
every transfer has a valid reason.
o Without policy, transfers can be confusing or unfair. A
proper policy helps save time, cost and treats all
employees equally.
o A good transfer policy include:-
1. Types of transfer and when to use them:- the policy
should mention what kinds of transfers are allowed and
under what situations they will happen.
2. Transfer criteria:- if more than one person wants the
same transfer, the policy should say whether seniority,
performance or another factor will decide who gets it.
3. Who approves transfers:- it should be clear which
manager or authority can approve a transfer.
4. Within or between departments:- the policy should
state if transfers are allowed only in the same
department or also between different departments.
5. Effect on pay and seniority:- it should explain if the
transfer will affect the employee’s salary or position
level.
6. Written policy:- the policy must be in writing, not just
based on spoken rules.
7. Communication:- the policy should be clearly
explained to all employees.
8. Employee involvement:- transfers should be discussed
with the employee when possible or informed in
advance.
 9. Personal reasons:- the policy should mention which
personal reasons are valid for requesting a transfer.
10. Transfer benefits:- it should list what support the
employee will get, like leave for shifting, travel
allowance, etc.

Promotion
 Promotion means giving an employee a higher position in the
company that comes with more responsibilities, higher status and
better salary.
 Example, a junior manager is promoted to senior manager.
 Sometimes, a person may be promoted without a salary increase
(this is called dry promotion), like a professor becoming head of
department.

 Promotion vs upgradation
PROMOTION UPGRADATION
meaning Moving an employee to a higher Increasing the pay scale of the same
position job
Job role Changes- more responsibility and No change- same duties and
authority responsibilities
Status & Increases Remains the same
authority
Salary Increases Increases
Purpose To reward and promote capable To motivate when promotion isn’t
employees possible
example Clerk to supervisor Clerk remains clerk but gets a higher
pay grade
  Promotion vs transfer
Promotion Transfer
Meaning Moving to a higher position Shifting to a same-level job in another
department or location
Job role Changes- more duties and May or may not change, but stays at
responsibilities the same level
Status & Increases Remains the same
authorit
y
Salary Usually increases Usually same, unless conditions differ
Purpose To reward performance and To adjust workforce or for personal or
promote growth organizational reasons
example Clerk to manager Clerk in accounts to clerk in HR

 Promotion vs hiring from outside

o Promotion is used to fill higher job positions from inside
the company.
o If company only hire form outside, employee may feel
demotivated and unimportant.
o benefits of internal promotion
1) internal staff already know the work and company
2) boosts employee morale
3) encourages staff to work hard
4) saves time and cost of training
o drawbacks of internal promotion
1) talented outsiders may not get a chance
2) promoted employees might not have the right skills
3) can lead to favoritism or unfairness
4) limits fresh ideas and growth
 purpose of promotion
1) to reward good work:- promotion is given to recognize
employees who work hard, are loyal and perform well.
2) To motivate employees:- it boosts the confidence of
employees to do even better.
3) To encourage learning:- employees try to learn new skills
and gain more knowledge to get promoted.
4) To keep talented people:- when employees know they
can grow in the company, they stay longer.
5) To prepare future leaders:- promoting employees helps
build a strong team for higher-level jobs in the future.
6) To use employee skills better:- promotion helps place
skilled people in roles where they can perform at their
best.
7) To attract good talent:- a promotion policy encourages
smart and capable people to join the company.

 Advantages of promotion
1) Improves job satisfaction:- employees fell valued
2) Increases income and status:- promoted employees earn
more and have higher roles.
3) Reduces resignations:- loyal employees stay longer
4) Encourages personal growth:- employees take more
interest in training and development.
5) Rewards loyalty and experience:- long-serving employees
feel appreciated.
 Criteria (bases) for promotion
1) Promotion based on seniority:- seniority means how long
a person has worked in the company. It is based on the
idea that more experience means more talent.
 o Advantages:-
i. Easy to know who is senior
ii. Simple and transparent
iii. No favoritism – based on length of service
iv. Employees feel secure and stay longer
v. Supported by trade unions
vi. Matches Indian values that respect elders
o Disadvantages:-
i. Longer service doesn’t always mean better
skills.
ii. Young talented employees may feel ignored.
iii. No push to work harder or learn new things
iv. May lower the organization’s overall
performance.
v. Not attractive to young, skilled workers.
2) Promotion based on merit:- merit means how skilled and
efficient a person is. It is judged by exams, interviews or
performance records.
o Advantages:-
i. Motivates employees to perform better and
learn new things.
ii. Maintains high efficiency in the organization
iii. Attracts talented and ambitions employees.
o Disadvantages:-
i. Hard to measure merit fairly.
ii. Workers and unions may feel promotions are
biased.
iii. Past performance may not guarantee future
success.
3) Seniority-cum-merit:- combines experience and talent for
promotions.
 o how it works:-
i. a minimum number of years of service is
needed
ii. among these, merit is used to select the best.
iii. Some companies give 40% weight to seniority
and 60% to merit.
iv. Sometimes, only employees with minimum
qualification and performance are considered,
and seniority decides who gets promoted.
o Usage:-
i. Government jobs prefer seniority.
ii. Private companies mostly go for merit.
4) Open vs closed promotion system:-
o open promotion system:- all employees are
informed about promotion opportunities and can
apply.
o Closed promotion system:- only selected employees
are considered, and vacancies are not announced
openly.

 Promotion policy
o A promotion policy is a clear plan made by a company to
guide how employees can be promoted to higher
positions. If there’s no such policy, employees may feel
unhappy and stuck in their careers.
o Features of a good promotion policy:-
1) Equal opportunities for all:- every department should get
the same chances for promotion. No department should
feel left out.
2) Clear career paths:- employees should know how they
can grow in the company. A chart (called an opportunity
chart or fortune chart) should show different paths for
promotions.
3) Transparent rules:- promotions should be based on
seniority, merit and future potential. He company should
clearly explain how it judges these things.
4) Right people to decide:- the line manager should have the
final say on promotions. The HR department should only
suggest names.
5) Training opportunities:- employees should get training to
help them get ready for promotions.
6) keep performance records:- the company should keep
record of every employee’s work and behavior to make
fair decisions.
7) No favoritism:- promotions must be fair and based on
facts- not on personal like or office politics.
8) Same rules for everyone:- the rules should be applied
equally to all employees.
9) Well-time promotions:- avoid promoting too many
people at once or going a long time without promoting
anyone.
10) Trial and feedback:- promotions should be on a trial
basis. If a promoted employee struggles, they should get
help. Those who are not promoted should be given
reasons and possible alternatives.
11) Right to appeal:- if an employee feels a promotion
decision was unfair, they should be allowed to appeal or
request a review.
Demotion
 Demotion is the opposite of promotion
 It means moving an employee to a lower position in the country
with less power, lower status and reduced salary.
 It is usually done as a punishment for poor performance or
serious mistakes.
 Demotion should be rare and used only in special cases.
 Employees often feel insulted or upset when they are demoted,
so it should be handled carefully and fairly.
 When demotion may happen:-
1. When the company reduces its size or work, some jobs
are removed and employees are shifted to lower roles.
2. If someone was wrongly promoted, they may be demoted
to correct the mistakes.
3. It can be a disciplinary action for employees who break
rules or perform badly.

 Need for demotion

1. Bad business conditions:- during times like a recession, the
company might close some departments. Senior workers
may have to take lower roles until things get better.
2. Incompetence (lack of skills):- sometimes, promoted
employees can’t handle the new role. They are demoted to a
job they can do well.
3. Technology changes:- new machines or system may make it
hard for some employees to do their job. They might be
shifted to easier roles.
4. Discipline issues:- demotion can be used to discipline
employees, but it should not be for small issues like poor
attendance or minor rule-breaking. This is because such
 demotions ca makes employees defensive and unhappy
without fixing the problem.

 Demotion policy:-
o A good company should have a clear demotion policy. It
should include:-
1. When demotion is allowed:- e.g., bad performance,
company changes.
2. Who can order a demotion:- the responsible manager
should be named.
3. Proper investigation:- rule-breaking must be clearly
proven.
4. Impartiality:- no favoritism or bias.
5. Clear demotion path:- explain how and where a person
will be shifted.
6. Economic or technical reasons:- should clearly mention
when these can lead to demotion.
7. Criteria for merit and seniority:- define how
performance and experience are judged.
8. Seniority after demotion:- explain of demoted employee’s
seniority will change.
9. Right to appeal:- employees should have the right to
challenge the decision.
10. Transparency:- the policy should e open and known
to all employees.
Employee separation
 It happens when an employee leaves a company. This can happen
for different reasons like quitting the job, retiring, death, being
removed due to poor performance or being temporarily removed
due to business issues.
 Types of employee separation:-
1. Resignation:- when an employee decides to leave the
company on their own. Sometimes, the company may force
the employee to resign for misconduct like misusing funds.
reasons:- better opportunity, personal issues, dissatisfaction
with salary, work environment or management.
2. Retirement:- when an employee stops working after
reaching a certain age or due to health or personal reasons.
o Compulsory retirement:- required after a fixed age (like 60
or 65)
o Forced retirement:- employee is made to retire due to
misconduct.
o Premature retirement:- retired early due to health issues
or family reasons.
o Voluntary retirement:- employees are offered to leave
early with attractive benefits to reduce staff and save
costs. Common in banks and large companies.
3. Death:- if an employee dies during service, the family may
get compensation and in some cases, a family member may
get a job in the company.
4. Layoff:- when an employee is temporarily removed from the
job because the company cannot give work.
Reasons:- low demand, machinery breakdown, shortage of
materials or electricity, mergers or financial trouble
 The employee is not fired permanently but asked to stay
home for a while. They get 50% of basis pay + DA during this
time.
5. Retrenchment:- this is permanent removal of employees due
to less work, financial losses or overstaffing.
Rules:-
o Notice must be given in advance.
o Compensation must be paid
o Preference for re-employment if company hires again.
o Government approval is required in large companies.
6. Outplacement:- when a company helps a removed
employee find a new job. Help may include:-
o Job search support
o Training
o Counselling
o Financial aid
It shows the human approach of the company and maintains
employee morale.
7. Suspension:- employee is temporarily stopped form work as
a punishment during inquiry. They get a subsistence
allowance. If found guilty, it may lead to termination.
8. Discharge and dismissal:-
o Dismissal:- employee is removed for serious
misconduct like theft, violence, etc.
o Discharge:- employee is removed de to reasons like
health issues, poor performance or long absence.
o Before removing, the employee should be given a
chance to explain and the action should be justified
and fair.
Human resource audit
 Human resource audit means checking and reviewing how the
HR department is working. It is like a health check-up of the HR
functions such as recruitment, training, salary, employee
welfare and legal compliance. The aim is to find out what is
working well and what needs improvement.

 Purpose of HR audit:-
1. To see if HR policies and practices are effective.
2. To identify mistakes or weak areas in HR work.
3. To follow labor laws and rules properly.
4. To suggest improvements for better employee management.
5. To help in future planning and decision-making.

 Advantages of HR audit:-
1. Improves HR performance
2. Helps follow laws properly
3. Buids trust among employees
4. Helps management make better decision
5. Finds problems before they become big issues.