Appraisal Linked to Annual Increment: LITCO is the name of a small proprietary concern manufacturing plastic buckets of different sizes.

The concern is doing good business and workers are paid fair wages. Total strength of employees is \ 85 including three supervisors, one assistant manager and one manager. The proprietor Mr. Shinde is a businessman cum politician but ensures that the business unit operates smoothly and makes reasonably good profit. This business unit started operations in the year 1994. The rules and practices are developed gradually with suitable modifications as and when necessary. The employees of the concern are rated by supervisors by means of graphic scale. The factors to be considered for rating are performance at work, loyalty, dependability, community activity, initiative, regularity, punctuality, potentiality to develop, relations with co-workers and creative ability. The rating factors, method of rating, time of rating, etc. are made clear to workers through notice, circular and departmental meetings. Yearly increment, promotion and annual prizes are based on the performance of workers as per this method. This system was accepted by workers for a period of six years since its introduction in 1996. There was no criticism or opposition to the scheme till 2001. However, in 2002, the situation changed and the whole performance appraisal system became a cause of conflict in the labour-management relations. In the year 2002, five employees were denied annual increment due to their low ratings. They, along with few others, met the owner Mr. Shinde and expressed their dissatisfaction with the rating they have received. They argued that some considerations in the ratings are vague and are unfair to workers. They made reference to "community service" and argue that such service is not a part of their normal job and what they do off - the job is none of the employer's business. They also argued that loyalty and relations with co-workers as considerations for rating are confusing. In addition, they argued that annual increment should not be linked with this performance appraisal. Annual increment should be given to all workers as a reward for year's service and for meeting growi much affected when yearly increment of Rs. 100 is denied to them. For workers, wage payment is the only source of income and yearly increase in the salary

is a source of pleasure to them. They get psychological satisfaction because of such increase. Workers urge Mr. Shinde to be sympathetic in this regard. One worker also hinted that workers may be required to form a union if the injustice in regard to performance appraisal is not removed. This discussion convinced Mr. Shinde and his manager that present rating system was a dangerous source of friction and that its disadvantages out-weighed its advantages. Mr. Shinde (being a politician also) noted indirect threat of union formation in his unit and was cautious in his approach. He preferred dignified retreat. After few days, he announced the decision to delink annual increment with performance appraisal. However, the rating system was given continuation with some modifications. Moreover, the possibility of promotions were rare, the rating system was not likely to create new problems for workers and employer. This is how Mr. Shinde solved the problem relating to performance appraisal tactfully and also peacefully. Workers were happy and their respect for Mr. Shinde also increased to some extent. Questions: (1) Do you feel that annual increment should be based on performance appraisal? (2) What is your opinion about "community activity" as one consideration in rating system? (3) Do you agree with the decision taken by Mr.Shinde on the disputed issue? Is it a practical decision? (4) Do you feel that too much importance need not be given to performance appraisal in small factories/production units? (5) What are the possible consequences if Mr. Shinde had refused to amend his performance appraisal method? ng expenditure of workers. Workers and their families are very Possible Answers:

(1) At present, annual increment is given in a routine way to all categories of labour force though management can link it with performance appraisal. Annual increase in the salary has economic, social and psychological justification. Its refusal affects workers and their family members. It also makes workers angry, dissatisfied and non-co-operative. Hence, annual increment should be given to all workers and should not be linked with performance appraisal. (2) "Community Activity" as a consideration in the graphic scale appears to be redundant for appraisal purpose. This issue is not directly concerned with factory work. Secondly, reliable information on this consideration may not be available. Thirdly, majority of workers are not participating in this activity and naturally their marking will be "below average". Finally, there is opposition to this consideration and may lead to controversy if the management remains adamant on the matter. (3) The decision taken by Mr. Shinde on the issue was wise and practical. Increment need not be linked with performance as it is not a normal practice. Similarly, minor adjustment in the appraisal system does not defeat its purpose. Omitting one or two considerations from the rating system will not make the system defective. Moreover, considerations which are ambiguous should not be selected for appraisal purpose. Mr. Shinde's decision is a practical one and also useful for cordial industrial relations. (4) Performance appraisal is important and offers many benefits particularly in large organisation which employs huge manpower. However, in small units, workers are limited,

chances of promotion are very few and there is limited scope for the use of results of performance appraisal. However, the system should be there as it is one of the rights of the management. Mr.Shinde has continued the system but too much importance is not attached to the system. The system is necessary as it keeps a check on the employees. (5) Mr. Shinde had every right to be firm on the issue of performance appraisal and refuse to accept the views expressed by workers. However, the possible consequences are likely to be serious. Here, workers may start an agitation or may not offer necessary co-operation in the production work. They may form a union in order to fight collectively. Outside leadership may also come in the picture. The cordial industrial relations may be replaced by hostile relations.

This is as good as inviting new problems. There may be stoppage of production and profitability may go down. Taking strong stand means paying heavy price on minor issue. Mr. Shinde has avoided this situation.