Tag: PERFORMANCE MANAGEMENT

The Entrepreneur

Understand that as the entrepreneur, you are the center of the universe. Without entrepreneurs, there is no startup and no need for financing. Whether you have one founder or multiple, the entrepreneurs have a key role in securing the financing that cannot be outsourced to someone else. You hold the key to ensuring your own start-up’s success.

As time passes, due to complexities in the business, frictions may arise in your company between co-founders. Having a successful round of financing and structuring terms in advance will help reduce any issues when a founder eventually leaves the business.

The Venture Capitalist

Venture Capitalists (VC) can range in sizes and have a corporate hierarchy. Generally, the most senior person at the firm is referred to as Senior Managing Directors (MD), or General Partners (GP). There may be different titles as firms do vary, but the VC makes the investment decisions and generally sit on the governance boards of the start-ups they invest in. Going down the corporate hierarchy, there are principals/directors who manage the juniors, as well as propose deal decisions. These roles are all more deal-centric and are often referred to as relationship managers.

Key other roles include venture partners or operating partners, who are experienced with start-ups and have a part-time relationship with the firm. These guys generally offer advisory services or sit on the board of active investments as a chairman of the board members.

Associates come next, who do many different things ranging from screening out potential deals, building the corporate models, as well as due diligence. Associates lead the analysts who have generally just started, and graduated from post-secondary education.

The associates and analysts (A&As) run most of the grunt work to a potential deal. The line between the two is generally blurred due to firms preparing analysts to become associates eventually. A&As spend the most time with the capitalization table, due diligence, and the underlying technical aspects of a business.

Treat everybody in the hierarchy with respect, as each member of a team has a specific role to play. Although the Managing Director has the most power, building relationships with the juniors may ensure that your work is done quicker and once they are promoted, they may replace the more senior members later on.

VCs could also come as a syndicate of different VCs. A collection of investors is referred to as a syndicate. Just like in an IPO issuance, where the participants are referred to as the syndicate, in a VC financing round, there is generally a lead investor and a couple of co-leads. The role of the entrepreneur here is to communicate with all investors and have the lead investor of the syndicate agree to speak on behalf of the whole syndicate when investment decisions come around. You should not be negotiating deals multiple times with every member of the syndicate, that should be the job of the lead and co-leads. Also remember that SEC laws are extremely strict, and you must treat all investors the same.

The Angel Investor

Angels can refer to anyone ranging from professional entrepreneurs and investors to your friends and family. Not to say anyone can be your angel investor, because there are very specific SEC rules surrounding accredited investors, and you should ensure all of your angel investors qualifies.

Because of this large range of potential angels, VCs may have trouble working together with them to invest in a deal. Your friends and family may be crucial to supporting your business in the beginning, but once it picked up traction, their financing role could be replaced by a larger VC, who might even argue that your friends and family should be bought out since they have nothing else to offer.

With certain legal terms, such as the pay-to-play provision (existing investors must invest on a pro-rata basis in all subsequent financing rounds or they will lose preferential rights) and drag-along rights (VCs have the right to compel the founders and other shareholders to vote in favor of the sale, merger or liquidation of the company).

Always protect yourself from angels. Remember that you are the center of your own universe. Angels can be replaced and make sure if your friends and family are investing, they understand that they may lose this money and family gatherings should not be treated as investor relations.

Intangible assets are those assets in a company’s balance sheet that have monetary or business value hidden in them but are not present in the physical form. Intangible assets help companies by performing operations in a unique manner thereby giving them a competitive edge. For example, intellectual property like patents, trademarks and copyrights are types of intangible assets. All businesses can gain access to intangibles by creating intangibles or acquiring intangibles from other businesses.

The intangible value of a business can also be hidden in the brand value of a corporation. Different businesses exhibit different Unique Selling Points that can be considered part of the intangible value of a business.

Important

There can be different reasons to value intangibles; some of them are listed below:

• Determining the Asset Value: Since an intangible asset is a non-physical asset, the value at which it has to be disclosed should be determined as accurately as possible.
• Regulatory Purposes: Determining the correct value of the intangible asset for taxation purposes, transfer pricing, taxation for mergers and acquisitions etc.
• Improving Accuracy and Reliability of Financial Communication: Informing stakeholders (Management, Employees, Shareholders, Regulators, etc) appropriately and reliably is of paramount importance in today’s day and age.
• Improving and Diversifying Access to Finance: Recognizing the worth and inherent value of intangible assets would greatly improve the chances of any company to successfully apply for financing.
• Impairment Testing: Impairment testing involves comparing an asset’s carrying amount in the balance sheet with its recoverable amount.
• Gaining competitive edge: An increase in intangibles investment may trigger an increase in total factor productivity, and therefore long-term economic growth.

Marketing-related intangible assets

• Trade marks (eg. McDonald’s logo with gold M symbol, Nike logo)
• Internet domain names (eg. www.google.com, www.yahoo.com)
• Non-competition agreements

Contract-based intangible assets

• Licensing, royalty agreements (eg. Lending a license for use)
• Leasing agreements (eg. Leasing agreement to use an asset)
• Broadcasting rights (eg. Hotstar’s right to broadcast IPL)

Technology based intangible assets

• Patented and unpatented technologies
• Software (eg. Microsoft Office)
• Databases
• Secret formulas, processes (eg. Confidential code of a product)

Methods:

1) Relief from Royalty Method (RRM)

In this method, value is assigned to the intangible asset based on approximate royalty rates that would be saved by owning the asset. Because the asset is owned by the Company, it doesn’t have to pay for the use of the asset. The RRM incorporates elements of both the market (royalty rates for comparable assets) and income (estimates of revenue, growth, tax rates) approaches.

2) With and Without Method (WWM)

The intangible asset’s value is determined by calculating the difference between a discounted cash flow model for the enterprise with the asset and a discounted cash flow model without the asset.

It should be noted that identification of incremental income and incremental risk to business cost of capital excluding the capital is of paramount importance here.

3) Multi-Period Excess Earnings Method (MPEEM)

The cash flows related to a particular intangible asset are discounted to calculate the present value. It is applied when the cash flows associated to a particular intangible asset can be properly determined. Software and customer relationships are examples of assets that can be valued using MPEEM.

4) Real Option Pricing

This method is used to value intangible assets that are not presently generating cash flows but are expected to do so in the future. Undeveloped patent options are one example of an intangible asset that may be valued using this method.

Types

1. Human Capital

Human capital is the umbrella term for the skills, education, experience, and value of an organization’s workforce. It’s the know-how and expertise of individuals within a company, which can bring the company value. An organization’s human capital also shows how effectively management uses resources to help employees achieve their potential.

2. Relational Capital

Relational capital consists of all the valuable relationships that an organization maintains with customers, suppliers, partners, clients, and other external entities. It also encompasses brand names, reputation, and trademarks that a company owns.

3. Structural Capital

Structural capital is the organization, process, and innovation capital that supports an organization’s human and relational capital. It includes culture, processes, databases, intellectual property (IP), non-physical infrastructure, hierarchy, and more. It refers to the knowledge and value that belongs to an organization’s structure and processes.

Most people have worked for a company that has offered some type of training and development for their employees. From in-office classes to specialty workshops to college hours, it all adds up as an investment in your business, as well as your employees. With current economic conditions, some businesses are making the decision to steer away from developing their most important asset, their employees, because they don’t see the need for it any longer, or they are simply trying to cut costs.

Investment in employability

– (Training, internship, higher level exposure, learning environment, multi- skilling & growth opportunities etc. which makes employees more employable.

• Investment in training.

– For future strategies and competitive advantage investment in employees training and development to enhance skills to face rapid technological changes.

• On job training.
• Investment in management development
• Prevention of skills obsolescence
• Reduction in career plateauing. (Stagnation)

Investment practices for improved retention:

• Organizational culture emphasizing interpersonal relationship values.
• Effective selection procedures.
• Compensation and benefits.
• Job enrichment and job satisfaction.
• Practices providing work life balance.
• Organizational direction creating confidence in the future.
• Retention of technical employees.
• Other practices in facilitating retention.

Investment in job secure workforce:

• Employment security/ job guarantee.
• Recognition of the cost of downsizing and lay-offs.
• Avoiding business cycle-based lay-offs.
• Alternatives to lay offs.

– Redeployment.

– Curtailment of sub contracts.

– Reassignment of work to company employees.

– Pay cuts.

– Paid / unpaid leaves.

• Ethical implications of employment practices
• Non traditional investment approaches.

– Investment in disabled employees.

– Investment in employee health.

– Countercyclical hiring .-keeping highly technical / skilled for future use when company will have normal operations– bhatta business.

Attracting Better Employees

Companies that offer good paying jobs with room for advancement will always garner a massive amount of interest in their open positions. But, in the hunt for top talent, anything you can do to establish your company as a great place to work is going to pay dividends. One way is to offer employee training and development. This will enable employees to excel in your business as well as their chosen field. This can be as simple as offering in-office training for better pay, advancement opportunities, or bonuses.

Those businesses out there that offer on the job training and development for their workers see more motivated candidates for their open positions. Knowing that there is room for advancement and room to improve themselves is going to be a big draw for potential employees. Having that opportunity there in front of them also gives them the chance to become more engaged in their position, the company, and generally be a happier person at work.

Benefits of Training and Development

So what types of benefits are you going to see in your business if you start to invest more in your employees? There is a long list of benefits that you will enjoy from this simple action, and here are a few of my favorites:

• Motivation: As I mentioned previously, motivation goes way up when people know that they can move up in a company. They want to perform better and show that they are ready to learn new things to gain better positions in your business.
• New Technologies: Offering training in a new technology that pertains to your field is key in keeping your business current, competitive, and on top of the latest market trends. It will ensure that you and your employees know how to run with the rest of the pack and stay competitive in the business world.
• Lower Turnover: When employees know that their company cares about their career, and is willing to offer training and opportunities to improve themselves and advance, they tend to stick around a bit longer. This means less hiring and firing for you, and more time doing business and making money.
• Lower Risks: Offering specific training in the workplace, such as sexual harassment prevention, can mean less risk for you when hiring new employees, and keeping the old ones. This has the potential to allow your business to run more smoothly, with less hiccups or problems in the long run for you.
• Satisfaction: Along with lower turnover and increased motivation, when employees are trained well they become happier, more confident, and have higher overall satisfaction doing their jobs. If you can enable all of your employees to feel this way, you have just created a great working environment, and your employees are more likely to stay with you, and not be on the lookout for another job.
• Image: Your business image means a lot to you, but, it also matters a great deal to your employees as well. When your employees are trained and feel that they can continue to grow with you, it gives your business a better image in their eyes and everyone else’s. You’ll find that your business will become known as one that cares about its employees and ensures that they are not only happy in their job, but, happy overall in their life as well.

Training Costs

One of the best things about training your employees is that it doesn’t have to cost you much at all. You can offer in-office training on a multitude of topics that relate to the workplace (such as sexual harassment and safety), and those that relate to upgrading skills (such as computer training). No matter what you offer, make sure that it all pertains to your business, your field, or growing your employees.

Offering online training can also be a huge help, and you can even do this extremely cheap by creating your own training website for your employees. There are thousands of great articles on how to create a website for training your employees out there and you can even do it without much web design background at all. By offering everything online, employees can easily do this when they have time or during a set time at work thus improving themselves and their performance.

Reasons:

Support Succession planning.

Providing ongoing employee training and development supports succession planning by increasing the availability of experienced and capable employees to assume senior roles as they become available. Increasing your talent pool reduces the inherent risk of employees perceived as “irreplaceable” leaving the organization. Areas of training that support succession planning include leadership, strategic decision making, effective people management, and role-specific skills.

Increase employee value

Effective training can be used to “up-skill” or “multi-skill” your employees. Up-skilling involves extending an employee’s knowledge of an existing skill, providing more experts within a subject area. Multi-skilling is the process of training employees in new or related work areas to increase their usability within the organization. Employees with diverse skill sets can perform a variety of tasks and transition more easily into other roles within the organization.

Reduce attrition rates

Investing in the development of your employees can reduce attrition rates. Well-planned training can provide career pathways for employees making retention within the organization rather than seeing them seeking next-level opportunities elsewhere. Another positive is a reduction in recruitment costs.

Enhance operational efficiency

Training your employees can increase their efficiency and productivity in completing their daily work tasks. Training can also help your organization achieve greater consistency in process adherence, making it easier to project outcomes and meet organizational goals and targets.

Exceed industry standards

Training your employees in industry-standard best practices could also assist you in building your reputation, giving your competitors a run for their money! Many businesses operate in saturated markets, so often it’s the small things that will set your business apart from the rest.

Employee Training is Worth the Investment

Staff training is essential for specific purposes related to your business. You may require new workers to undertake instruction in first aid, food handling or a new booking system. Incorporating training that develops employees toward long-term career goals can also promote greater job satisfaction. A more satisfied employee is likely to stay longer and be more productive while on your team.

The cost of turnover

A recent survey indicates that 40 per cent of employees who receive poor job training leave their positions within the first year. They cite the lack of skills training and development as the principal reason for moving on.

Consider the cost of turnover. With one fewer worker, your company’s productivity slips. Sales decline. Your current staff members are required to work more hours. Morale may suffer. To find a replacement, you spend time screening and interviewing applicants. Once you hire someone, you need to train that person. The cost of staff turnover adds up. Figures vary, but it can cost as much as $2,500, depending on the position, to replace a frontline employee. That is a hefty price to pay for not training staff.

Other benefits of training

Despite the initial monetary costs, staff training pays back your investment. Here are just some of the reasons to take on development initiatives:

• Training helps your business run better. Trained employees will be better equipped to handle customer inquiries, make a sale or use computer systems.
• Training is a recruiting tool. Today’s young workers want more than a pay cheque. They are geared toward seeking employment that allows them to learn new skills. You are more likely to attract and keep good employees if you can offer development opportunities.
• Training promotes job satisfaction. Nurturing employees to develop more rounded skill sets will help them contribute to the company. The more engaged and involved they are in working for your success, the better your rewards.
• Training is a retention tool, instilling loyalty and commitment from good workers. Staff looking for the next challenge will be more likely to stay if you offer ways for them to learn and grow while at your company. Don’t give them a reason to move on by letting them stagnate once they’ve mastered initial tasks.
• Training adds flexibility and efficiency. You can cross-train employees to be capable in more than one aspect of the business. Teach them to be competent in sales, customer service, administration and operations. This will help keep them interested and will be enormously helpful to you when setting schedules or filling in for absences. Cross-training also fosters team spirit, as employees appreciate the challenges faced by co-workers.
• Training is essential for knowledge transfer. It’s very important to share knowledge among your staff. If only one person has special skills, you’ll have a tough time recouping their knowledge if they suddenly leave the company. Spread knowledge around it’s like diversifying your investments.
• Training gives seasonal workers a reason to return. Let seasonal employees know there are more ways than one to contribute. Instead of hiring someone new, offer them a chance to learn new skills and benefit from their experience.

Promotion helps employees in several ways. It provides higher status, salary, and satisfaction to existing employees, motivate employees to higher productivity and loyalty to the organisation, to retain the services of qualified and competent employees, to recognise, appreciate and reward the loyalty and efficiency of employees, to support the policy of filling higher vacancies from within the organisation, to raise employees morale and sense of belongings.

There are many types of transfers such as replacement, versatility, shift and remedial transfer. In organisations, promotions are done as horizontal, vertical and dry level.

Principles of good Promotion Policy: Rules of promotions such as qualifications, experience and other terms should be perfect and specific. Wide publicity should be given to promotion policy. Company must not follow partiality, favouritism or injustice. It should be based on scientific performance appraisal of employees and opportunity should be provided to every worker. Promotion policy should be prepared for long period and should not be forced to accept by an employee. Promotion should be given from within the same department. Grievance relating to promotion.

Transfers

 There is no change in rank, responsibility and remuneration.

• Transfer means shifting of an employee from one place to another.
• It involves horizontal movement of the employee.
• Transfer may be for shifting surplus staff from one factory, branch or office of the organisation to fill the job vacancies in another factory, branch or office.

Promotions

• It leads to increase in status, responsibility and remuneration.
• It involves a vertical movement of an employee.
• Promotion means shifting of an employee from a lower post to a higher post.
• Promotion may be on the basis of merit or seniority of employees to fill a higher post.

Promotion becomes a delicate problem not in the matter of selection of the right incumbent for the right job, but it poses a constant challenge to executives at all levels and impels them to chalk out a well thought-out programme by which the best and the most capable individuals may find an opportunity to go up to the top.

The procedure for promotion, therefore, starts right at the bottom from the shop-floor and ends with the managing director of a company.

All promotions should be on a trial basis (from 6 months to one year) for if the promoted person is not found capable of handling his job, he may be reverted to his former post and former pay scale.

Promotion may be temporary or permanent, depending up on the needs of an organisation, an employee is promoted.

Open and Closed Promotion:

Open Promotion is a situation where in every individual of an organization is eligible for the position. Closed Promotion is a situation wherein only selected team members are eligible for a promotion.

Dry Promotion Systems

When promotion is made without increase in salary, it is called ‘dry promotion’. For example, a lower level manager is promoted to senior level manager without increase in salary or pay. Such promotion is made either there is resource/fund crunch in the organisation or some employees hanker more for status or authority than money.

Horizontal promotion:

When an employee is shifted in the same category, it is called ‘horizontal promotion’. A junior clerk promoted to senior clerk is such an example. It is important to note that such promotion may take place when an employee shifts within the same department, from one department to other or from one plant to another plant.

Vertical Promotion:

This is the kind of promotion when an employee is promoted from a lower category to lower category involving increase in salary, status, authority and responsibility. Generally, promotion means ‘vertical promotion’.

Purposes:

The following are the purposes or objectives of promotion:

1. To recognize an employee’s skill and knowledge and utilize it to improve the organisational effectiveness.
2. To reward and motivate employees to higher productivity.
3. To develop competitive spirit and inculcate the zeal in the employees to acquire skill, knowledge etc.
4. To promote employees satisfaction and boost their morale.
5. To build loyalty among the employees toward organisation.
6. To promote good human relations.

Promotion means the advancement of an employee to a higher job involving more work, greater responsibility and higher status. It may or may not be associated with the increment in salary. Sometimes, salary of the employee also increases with the promotion. Sometimes it is not so. When an employee is promoted but his salary does not increase it is known as dry promotion. Promotion means the placement of an employee on a higher post involving greater amount of responsibility, better status, more pay and more perks.

Some people think that promotion means the increment in pay. The reality is not so. If the salary of an employee increases or the pay scale changes to a higher one, it is only known as up grading or salary increment. However, it can now be regarded as promotion. Generally, promotion is associated with the increase in salary, status, facilities, responsibilities and job.

Performance appraisal forms a basis for HR decisions on training, salary increase, promotion, transfer and separation. Of these, promotion, transfer and separation functions are effective methods to adjust the size of the workforce of an organisation. Promotion, transfer and separation provide workforce flexibility and mobility required to meet the needs of the organisation.

Promotion is one of the best forms of incentives and it provides higher responsibilities, better salary, high morale and job satisfaction to the employees. Practically, all the employees aspire for career advancement and promotion is an advancement of the employee in the organisational hierarchy.

Edwin B. Flippo, “A promotion involves a change from one job to another that is better in terms of status and responsibilities.”

Scott & Spriegal, “A promotion is the transfer of an employee to a job that pays more money or that enjoys some better status.”

In the words of Paul Pigors and Charles Myers, “Promotion is an advancement of an employee to a better job, better in terms of greater responsibilities, more prestige or status, greater skill and specially increased rate of pay or salary”.

(a) To recognize and reward the efficiency of an employee.

(b) To attract and retain the services of qualified and competent people.

(c) To increase the effectiveness of the employee and of the organisation.

(d) To motivate employees to higher productivity.

(e) To fill up higher vacancies from within the organisation.

(f) To impress upon those concerned that opportunities are available to them also in the organisation if they perform well.

(g) To build, loyalty, morale and sense of belongings in the employees.

Watkins, Dodd and others mention the purposes of promotion as under:

(a) To reduce discontent and unrest.

(b) To furnish an effective incentive for initiative, enterprise and ambition.

(c) To conserve proved skill, training and ability.

(d) To attract suitable and competent workers.

(e) To suggest logical training for advancement.

As Youder and others observe, “Promotion provides incentive to initiative, enterprise and ambition, minimizes discontent and unrest, attracts capable individuals, necessitates logical training of advancement and forms an effective reward for loyalty and cooperation, long service, etc.”.

Basis:

Seniority:

Seniority of an employee refers to the relative length of service in an organization. When seniority is considered as the basis of promotion, the rule is to promote the employee having the longest length of service, irrespective of the employee is competent to occupy a higher post or not.

The reason behind seniority as the basis of promotions is that there is a positive correlation between the length of service in the same job and the amount of knowledge and the level of skill acquired by an employee in an organization.

This practice of promoting employees is followed in unionized industrial establishments, government-owned undertakings and sometimes in private corporate and educational institutions.

This basis of promotion has the following advantages and disadvantages:

Advantages:

1. Seniority being quantifiable provides an objective means of identifying the personnel eligible for promotion.
2. It is easy to measure the length of service and administer the rule.
3. There is less scope for subjectivity or arbitrariness in fixing seniority.
4. It gives a sense of certainty of getting promotion to every employee and their turn of promotion.
5. It is also considered that seniority and experience go hand in hand. Hence it is right to have promotions on this basis.
6. Subordinates are interested to work under a senior and experienced boss.
7. As promotion is predictable under this system, it generally reduces employee turnover.

Disadvantages:

1. Seniority always does not indicate competence.
2. The idea that employees learn more with length of service is not valid.
3. Employees learn up to a particular stage. After that grasping power diminishes.
4. This basis of promotion de-motivates the young and competent employees.
5. It kills the zeal and interest to learn and develop.
6. It does not guarantee quality staffing of promotional vacancies as merit or ability is altogether ignored.
7. Judging seniority practically is a difficult task.
8. It discourages creativity and innovation in the organization.

Competence/Merit:

In this case an employee is promoted on the basis of excellent and superior performance in the current job. This is known through performance appraisal done by the organization. Merit indicates an employee’s knowledge, skills, abilities and efficiency measured from the employee’s educational qualifications, experience, job performance and training records.

To get promotion on the basis of merit requires hard work and sincerity on the part of the employee. In non- unionized organizations promotions are made on the basis of merit. In unionized organizations merit is the basis of promotion for non-productive employees. Seniority should be considered as the basis of promotion, when there are more than one employees of equal merit.

According to Peter and Hull (1969) the members of an organization where promotion is based on achievement, success, and merit will eventually be promoted beyond their level of ability. Employees tend to be given increasing responsibility and authority until they cannot continue to work competently. This is commonly known as Peter Principle.

The principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their level of incompetence), and there they remain, being unable to earn further promotions and thus reach their careers’ ceiling in the organization.

Advantages:

1. It motivates the employees to work hard, improve their knowledge, acquire new skills and become a part of increasing organizational efficiency and effectiveness.
2. Efficiency is encouraged, recognized and rewarded.
3. Competent employees are retained.
4. It motivates the competent employees to exert all their resources and contribute them to the organizational efficiency and effectiveness.

Disadvantages:

1. This creates unhappiness among the senior employees.
2. Many senior and experienced employees leave the organization.
3. This basis of promotion leads to favouritism and jealousy.
4. It is not easy to measure merit. Personal prejudices, biases and union pressures usually come in the way of promoting the best performer.
5. Loyalty and length of service are not rewarded.

Seniority-Cum-Merit/Merit-Cum-Seniority:

Managements mostly prefer merit as the basis of promotion as they are interested in enriching organizational effectiveness by enriching its human resources. But trade unions favour seniority as the sole basis for promotion in order to satisfy the interests of majority of their members. Both seniority and merit as the bases of promotions have their advantages and disadvantages.

Hence it is necessary for the organizations to give due weightage to both seniority and merit while promoting their employees. A combination of both seniority and merit can be considered as the basis of promotions, there by satisfying the management for organizational effectiveness and the employees and trade unions for respecting the length of service.

There are various ways for striking a balance between seniority and merit which are as follows:

1. Minimum Length of Service and Merit:

Under this method all those employees who complete the minimum years of service, say five years, are made eligible for promotion and then merit is taken into consideration for selecting the employees for promotion from the eligible employees. Most of the commercial banks in India follow this method of promoting employees from clerk positions to officers.

1. Measurement of Seniority and Merit through a Common Factor:
2. Due weightage is given to seniority and merit (for example 30% for seniority and 70% for merit).
3. Length of service is measured by points with the help of assigned weightage (for example one point for every six months of completed service) with a maximum of 40 points.
4. Merit is also measured by points with the help of assigned weightage.
5. Points assigned to a candidate under both the heads of seniority and merits are added up.
6. Merit list is prepared and employees for promotion are selected on the basis of their ranks(for example if there are four employees for one post i.e. A, B, C and D and if their merit points are 50,60,85, and 65 respectively then the third employee i.e. C is selected for promotion.
7. Minimum Merit and Seniority:

A minimum score of merit which is necessary for the acceptable performance on the future job is determined and all those employees who secure minimum score are declared eligible. Employees are selected for promotion based on their seniority only from the eligible pool.

The National Commission on Labour has suggested that as a general rule, particularly among the operative and clerical categories i.e. lower levels, seniority should be the basis of promotion. In respect of middle management, technical, supervisory and administrative personnel, seniority- cum-merit should be the criterion for promotion. For the top level management, merit should alone be the guiding factor for promotion.

Employee Transfer is the process of moving an employee from one position, department, or location to another within the same organization, without changing the overall job level or salary. It can be voluntary or involuntary, depending on the company’s needs or the employee’s request. Transfers can occur for various reasons, such as filling vacancies, addressing skill shortages, improving employee morale, or providing developmental opportunities. While transfers typically do not involve a change in compensation, they can offer employees new challenges and growth prospects, fostering a more dynamic and flexible workforce.

Reasons for Employee Transfer:

• Filling Vacant Positions

One of the primary reasons for employee transfers is to fill vacancies in different departments or locations. If an employee leaves or is promoted, organizations often transfer an existing employee who possesses the required skills and experience to take over the vacant role. This helps ensure continuity within the organization and minimizes the time it takes to fill the position.

• Employee Development and Career Growth

Transfers can be a part of an employee’s career development plan. By moving employees to different roles or departments, organizations provide them with new challenges and learning opportunities. This exposure to diverse functions can help employees expand their skills, experience different aspects of the business, and prepare for higher-level positions in the future.

• Addressing Skill Gaps

When certain departments or teams experience a shortage of specific skills, employees can be transferred from areas where they are underutilized to those in need. This helps balance workloads and ensures that employees with specialized skills are utilized where they can contribute most effectively, thus improving overall productivity.

• Improving Work-Life Balance

Sometimes, employees may request a transfer for personal reasons, such as relocation needs or to reduce commute time. Transfers can help employees maintain a healthier work-life balance by moving them to a more convenient work location or a role that better suits their personal circumstances, which in turn can lead to increased job satisfaction and retention.

• Organizational Restructuring

During times of restructuring or changes in business strategy, employee transfers may be necessary to realign resources and meet the new objectives. Transfers can help the organization adapt to new roles, responsibilities, or locations that better align with the company’s long-term goals. Employees may be moved to different departments or roles to ensure optimal resource allocation.

• Performance Improvement

If an employee is struggling to perform in their current role, a transfer may be seen as a way to help them succeed. For example, an employee who faces challenges in a highly technical role may be transferred to a position that better matches their abilities. This gives the employee an opportunity to start fresh, build confidence, and improve their performance in a more suitable environment.

• Job Enrichment and Employee Motivation

Transferring employees to different roles can add variety to their work, reduce monotony, and provide a new set of challenges. Job enrichment through transfers helps to keep employees engaged and motivated. A change of environment or responsibility can reignite an employee’s passion for their work, leading to improved morale and productivity.

• Retaining Talent

Employee transfers can also help organizations retain top talent. When an employee feels stagnant or bored in their current position, they may look for new opportunities elsewhere. A transfer allows the organization to keep the employee engaged and satisfied, which prevents turnover. By offering employees a fresh perspective or new responsibilities, organizations can show that they are invested in their growth and success.

Types of Employee Transfer:

• Lateral Transfer

Lateral transfer involves moving an employee to a different position at the same level, without a change in salary, job title, or status. It typically occurs when an employee is moved to a different department or location to gain new experience, take on different responsibilities, or address a specific organizational need. The primary objective is to provide variety or solve problems within the organization.

• Promotional Transfer

Promotional transfer occurs when an employee is moved to a new position with a higher level of responsibility, salary, or job title. This type of transfer is typically linked to an employee’s performance and development. It’s a form of recognition for the employee’s growth, where they take on a more challenging role within the organization, often leading to career advancement.

• Demotion Transfer

Demotion transfer happens when an employee is moved to a position of lower responsibility, salary, or rank. This is usually the result of performance issues, behavioral concerns, or operational restructuring. Demotion transfers allow employees to retain employment with the organization while adjusting to a role that better suits their capabilities.

• Temporary Transfer

Temporary transfer involves moving an employee to a different position or location for a specific period, often to fill a temporary vacancy or manage a short-term business need. The employee’s role may revert back to its original position once the transfer period ends. These transfers are commonly seen in cases like maternity leave replacements or project-specific roles.

• Voluntary Transfer

In a voluntary transfer, the employee requests or expresses interest in being moved to a different role, department, or location. This is often done to align with the employee’s career goals, personal circumstances, or professional development. Such transfers are usually based on mutual agreement between the employee and the organization.

• Involuntary Transfer

An involuntary transfer occurs when the organization initiates the transfer without the employee’s consent. This could happen for various reasons, such as a change in business needs, restructuring, or the employee’s performance issues. While involuntary transfers are less popular, they are sometimes necessary for organizational efficiency.

• Geographical Transfer

Geographical transfer involves moving an employee from one location or office to another, typically across different cities, regions, or even countries. Such transfers may be initiated for business expansion, the need for expertise in a new location, or personal employee requests, such as relocation due to family reasons.

• Cross-functional Transfer

In a cross-functional transfer, an employee is moved from one department or function to another. The aim is to diversify the employee’s skills, enhance their experience, and make them more versatile within the organization. This transfer may be part of a broader talent development strategy, as it helps employees gain exposure to different aspects of the business.

• Rotational Transfer

Rotational transfer is a type of transfer in which employees are periodically rotated across different roles, departments, or locations within the organization. The goal is to give employees a broader range of experiences and ensure they develop a comprehensive understanding of the business. Rotational transfers are often used in leadership development programs or employee training initiatives.

Drawbacks of Employee Transfers:

• Employee Resistance and Discomfort

One of the most common drawbacks of employee transfers is the resistance employees may show to change. Employees who are comfortable in their current role or location may feel unsettled or demotivated by a transfer. They might resist the move due to personal reasons, reluctance to change, or fear of the unknown, leading to decreased morale and job dissatisfaction.

• Disruption of Personal Life

Transfers, particularly geographical ones, can cause significant disruption to an employee’s personal life. Relocating to a new city or office may require an employee to uproot their family, change schools for children, or find new housing. These disruptions can cause stress and dissatisfaction, especially if the transfer is involuntary, which may lead to lower employee engagement and a potential decline in productivity.

• Increased Costs for the Employee and Organization

Transferring employees, especially across regions or countries, can incur significant costs. The organization may need to cover relocation expenses such as moving, temporary accommodation, or transportation. These costs can add up, especially in cases of multiple transfers, and the organization may also face administrative costs in managing the logistics. Additionally, employees might face personal costs, such as adjusting to a new cost of living.

• Loss of Expertise in the Original Role

When an employee is transferred from one department or role to another, the original role may be left vacant, leading to a temporary loss of expertise. This disruption can affect the productivity and performance of the team or department left behind, especially if the transfer was not planned properly, resulting in a gap in knowledge or skills in the previous role.

• Adjustment Period and Reduced Productivity

Even though a transfer may offer new challenges, it typically comes with an adjustment period. During this time, the employee may not be as productive as they were in their previous role, as they need time to learn new tasks, adjust to a different team dynamic, or understand the nuances of a new location or department. This temporary dip in productivity can affect team performance and organizational efficiency.

• Potential for Career Stagnation

While transfers can sometimes be beneficial for career growth, they can also lead to stagnation if the transfer is perceived as a move to a less important role or department. In some cases, employees may feel that a transfer is a step backward, especially if it’s due to underperformance or disciplinary issues. If the transfer leads to less challenging work or fewer opportunities for advancement, it may harm the employee’s career development and motivation.

• Negative Impact on Team Dynamics

When an employee is transferred to a new department or team, it can disrupt existing team dynamics. The employee may not fit well into the new team, causing friction or a breakdown in communication. This can also create feelings of resentment among team members who feel the new person is receiving preferential treatment or that their established working relationships have been disturbed. Managing the new dynamics can require extra effort from management, and if not handled carefully, it can lead to tension within the team.