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Project Report on Advertising Effectiveness [Advertising/Sales Promotion/Sales

Management]

ADVERTISING EFFECTIVENESS

CONCEPTUAL STUDY OF PROMOTION MIX

People no longer buy shoes to keep there feet warm and dry. They buy them becauseof the way the shoes make them feel masculine, feminine, rugged, different,sophisticated, young, glamorous, "in" buying shoes has become an emotionalexperience . Our business now is selling excitement rather than shoes. - Francis C.Rooney

Modern Marketing Trends : Modern marketing calls for more than developing agood product it attractively and making it accessible to target customers. Companiesmust also communicate with their present and potential customers. Every company isinevitably cast into the role of communicator and promoter.

What is communicated, however should not be left to change. To communicateeffectively; companies hire advertising agencies to develop effective ads; sales

promotion specialists to design sales incentive programmes and public relations firmsto develop the corporate image. They train their sales people to be friendly andknowledgeable. For most companies, the question is not whether to communicate butrather what to say, to whom.
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Promotion Technique :Promotion influences demand by communicatingproduct and company message to the market. A promotion Techniques involves theco-ordination of all communication efforts aimed at a specific audience; consumerand shareholder. The most critical promotional question is the proper mix ofadvertising, personal selling, sales promotion and publicity. The promotion mix isusually co-ordinated on a campaign basis, taking the campaign may efforts include atotal campaign with one unified theme. All promotion messages tie in to this theme inone way or the the, rather than conflicting with it.

ADVERTISING

What is Advertising :The word Advertising has its origin from a Latin word

Adventure which means to turn to. The dictionary meaning of the word is to

announce publicity or to give public concerned to a specific thing which has been

announced by the advertiser publicity in order to inform and influence them with theideas which the advertisement carries. In business world the terms in mainly usedwith reference to selling the product of the concern.

The advertising, as Jones defines it is "a sort of machine made mass productionmethod of selling which supplements the voice and personality of the individualsalesman, such as manufacturing the machine supplements the hands of thecraftsman." It is thus a process of buying/sponsor/identified media space or time inorder to promote a product or an idea. From a careful scrutiny of the above definition,the following points emerge :

Advertising is a paid form and hence commercial in nature. This any sponsoredcommunication designed to influence buyer behaviour advertising.

Advertising is non-personal. Unlike personal selling, advertising is done in a non-personal manner through intermediaries or media whatever the form of advertisement(Spoken, written or visual). It is directed at a mass audience and not directed at theindividual as in personal selling.

Advertising promotes idea, goods and services. Although most advertising is designedto help sell goods, it is being used increasingly to further public interest goals.

Advertising is identifiable with its sponsoring authority and advertiser. It discloses oridentifies the source of opinions and ideas.

Advertising thus is :


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1. Impersonal

2. A communication of ideas.

3. Aimed at mass audience

4. By a paying sponsor.

The two forms of mass communication that are something confused with advertisingare publicity and propaganda. If we eliminate the elements of the "paying sponsor"(The paid requirement) we would have the element of publicity left : For publicity istechnically speaking, advertisement without payment. In a similar manner. If weeliminate the requirement of an "identified sponsor", the resulting communication is

propagandistic.

It is important for us to emphasize that advertising may involve the communication ofideas or goods of service. We are all aware that advertising attempts to sell goods andservices. But we may overlook the more important fact that it often sells ideas.Advertising may persuade with information; it may persuade with emotion: morefrequently, it endeavours to persuade with some mixture of both.

(1) Electronic Media

Advertisers use two types of media to reach target consumers over the airwaves; radioor T.V.

(A) Radio :

Advertisers using the medium of radio may also be classified as National or Localadvertisers. The radio is a prominent vehicle of advertising in our country andaccounts for a large sum of the total advertising budget.

The radio serves principally local rather than national or large regional markets. Manysmall advertisers use the radio. So do some large organizations.

When T.V. became a factor in the advertising scene, some industry observers felt thatradio advertising might become insignificant or even disappear. This has not been so,for radio operators have responded to the challenge by offering programmes thatfeatures music etc. which appeal to local audience consumers have responded veryfavourably to this approach. Moreover TV does not have much coverage in ourcountry.


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(B) Television :

T.V. - Advertising Media :Late in India, a growing class of advertising media hasbeen the TV. In our country, commercial advertising on TV is severely limitedbecause broadcast timings are only in the evenings. The TV is a unique combination

timing of sight and sound and achieves a deeper impact than the other media do. Thisis particularly advantageous for advertisers whose product require demonstration. TVadvertising offers advantage of impact, mass coverage, repetition, flexibility and

prestigious. In our country not everyone has a TV set; therefore it does not reacheveryone. Moreover, in rural India where 76.31% of our population lives. There arehardly any TV sets, except at the community centres where electricity is available.Moreover, TV programmes in our country do not offer much selectivity. Thetranslation is limited, any centers do not have TV towers.

TV appeals to both the senses of sound and of sight . As a result is combines the two

to produce high-impact commercials. Finally, the fact that product or service ispromoted on TV may build a prestigious image of the product and its sponsor. Thepleasure derived from watching TV is at least potentially transferable to theadvertising message delivered through the medium.

(ii)Print Media

The print media carry their massages entirely through the visual mode. These mediaconsist of newspapers, magazines and direct mail.

(A)Newspaper :

A sizable share of the total advertising budget is spent on advertising in newspapers.

Newspapers in our country virtually reach most of the homes in the cities. Sincenewspapers are local, marketers can easily use them to reach particular markets. Thisselectivity is easily rigorous. Some are in the twelve-hour range. From the viewpointof the advertiser, newspaper offers several advantage, they are local in content andappeal and provide opportunity for direct communication between a product and itslocal dealers or distributors. Because newspapers supply news, they offer anatmosphere of factual information and of currency that may be favourable for some

advertising situations. Advertisers can reach a very broad audience throughnewspapers which offer great flexibility. The advertisers may choose the specific areato be covered and the advertisement can be placed in newspapers at very short noticeas compared with other media.

(B) Magazines :


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Magazines are also mean of reaching different market, both original and matinal andof general and specific interest. An organisation may approach national marketsthrough such publication as Business India, Famina, Sportsweek, India Today,Business World and Filmfare. Some marketers divide their market on the basis ofsuch variable as age, educational level and interest magazines. Magazines are dividedinto those parts that serve business, industrial consumers, ladies, sports etc. Thediversity of magazines is tremendous. Some offer news or together "General Interest"content to huge audience. Others are highly specialised, technical or even exotic. Ingeneral, magazines offer advertiser the opportunity to reach highly selective audience.

The primary advantage of magazine advertising are selectivity of market targets;quantity reproduction long life; the prestige associated with some magazines; and theextra service offered by many publications. The quality of magazines reproduction isusually high. Consumers sometime keep individual copies for long period of time;reread them or pass them on to other. Some magazines have prestige value. Themarketer can cover national or large regional markets at a low cost per contract (perindividual reached). Magazines generally offer high-quality printing of advertisement.

(iii) OUTDOOR AND TRANSIT MEDIA

(A) Outdoor Advertising :

Outdoor Advertising :Outdoor advertising involves the use of sign and bill-boards,posters or displays (such as those that appear on a buildings wall) and electricspectacular (large, illuminated, sometime animated sign and display). The marketers

may purchase billboards on the basis of showings. A showing indicates the percentageof the total population of a particular geographic area that will be exposed to it duringone month period. The highest showing is 100. Here the number of billboards iswould attract approximately 50% of the local population about 20 times during amonth. Sings are usually smaller than billboards and are erected and maintained bythe marketer rather than by the advertising media.

This form of advertising has the advantage of communication quick and simply ideasof repetition and of the ability to promote products that are available for sales.Outdoor advertising is particularly effective in metropolitan and other can use thismedium to bring the products to the attention of consumers or to remaining them ofthe product, while they are on shopping trips or area disposed towards shopping.Advertisers may utilize this medium to economically reach a large mass of people orsmall local markets.

(B) Transport Advertising :


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Transport advertising appears on the inside or outside of taxis, buses, railways andother modes of passenger transportation. Marketers may use transit advertisement toattain high exposure to particular groups consumers on theory way to and from workand tourists. Repeat exposure is possible for a majority of the people in our countryuse public transport basis. Transport advertising is useful in reaching consumers at anadvantageous point which they are embarking on a shopping trip. This medium is alow cost medium.

SALES PROMOTION

According to the American Marketing Association, Sales Promotion consists of thosemarketing activities other than personal advertising and publicity that stimulateconsumer purchasing and dealer effectiveness, such as displays shows and

expositions, demonstration and various non-recurrent selling efforts not in the

ordinary routine.

Sales promotion activities are impersonal and usually non-recurring and are directedat the ultimate consumers, industrial consumers and middlemen. These activities tendto supplement the advertising and personal selling efforts. Examples of sales

promotion are free product samples, trading stamps, store displays, premiums,coupons and trade shows. For many organisations, including the marketers of food,toys and clothing, store displays are an important sales promotion device. Displayexposes the promotion messages to consumers at the time and place of purchase. Suchexposure is especially important for items that are bought on impulse. Numerous

consumers products are purchased in stores that use self-service selling method's.Marketers of such items need effective display in order to distinguish their productsfrom those of their rivals.

PUBLICITY

Publicity is a means of promoting the mass market and is similar to advertising,except that it is free, is found in the editorial portion of news media and pertains tonewsworthy events. The most common type of publicity are news release (also knowas press release), photographs and feature stories. Marketers have less control over the

nature of the publicity that their organisation and products receive than they have overtheir advertising, personal selling and sales promotions messages. Upon receiving anews release, for instance, the editor or broadcast station programme director maychoose to throw the release in the waste paper basket, change the hording, or print or

broadcast it in the original form. The disposition of the news release is entirely in thehands of the media and cannot be dictated by the marketer. Publicity may be negativeas well as positive. Some products and brands have received bad publicity; for


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example cigarettes, wings, artificial sweeteners have been branded unsafe orunhealthy in the publicity which they would rather have done without. Many acompanies and trade association officials attempt to develop favourable workingrelationships, with the media in order to minimise bad publicity. They realize thatsuch communications to the public may have every adverse impact upon the image ofthe organisation.

PERSONAL SELLING

Personal selling consists of persons to communication between the sales persons andtheir prospects. Unlike advertising, it involves personal interactions between thesources and the destination. Advertising aims at grouping the shotgun approach, while

personal selling aims at individuals the right approach. Sales persons are in theposition to tailor their messages according to the unique characteristics of eachprospect. Further, by observing and listening, sales persons receive immediate

feedback on the extent to which their messages are getting across. If feedbackindicates that the message is not getting across, the sales person may quickly adjust itor the method of its presentation.

Personal Selling :Personal selling may be a very intense means of promotion.Consumers can easily leave the room-during a TV commercial, ignore a store display.The most effective method of promotion probably is to have sales person providedthat the organisation has sufficient funds. The most effective method of promotion

probably is to have sales person call upon every target consumers, for manyinstitutions, especially those that appeal to the mass market, this would be terriblyinefficient. As a result, they employ mass marketing techniques such as advertising,

personal selling is very important in industrial marketing.

PUBLIC RELATIONS

Marketers engage in public relations in order to develop a favourable image of theirorganisation and products join the eyes of the public. They direct this activity to

parties other than target consumers. These "other" include the public at large labour

unions, the press and environmental groups. Public relations activities includesponsoring, lobbying and using promotion message to persuade members of the publicto take up a desired position. The term public relations refers to a firm'scommunication and relationships with the various sections of the public. Thesesections include the organisation customers, suppliers, share holders, employees, thegovernment, the general public and the society in which the organisation operates.Public relations programme may higher be formal or informal. The critical point is


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that every organisation, whether or not it has a formalized (organised, programme,should be concerned about its public relations.

ADVERTISING EFFECTIVENESS

Advertising is an art not a science. Effectiveness of which cannot be measured with amathematical or empirical formula some advertisers argue that advertising efforts goto waste, but every advertiser is keenly interested in measuring or in evaluation of ad.effectiveness. Testing for the effectiveness of ad. will lead advertisement testing must

be done either before or after the ad has done in the media. It is of two types,pretesting which is done before the ad. has been launched and one is referred to ascost testing which is done before the ad. has been launched and one is referred to ascost testing which is done after launching the advertising campaign. The basic

purpose of advertising effectiveness is to avoid costly mistakes, to predict the relativestrength of alternative strength of alternative advertising strategies and to increase

their efficiency. In measurement of ad. effectiveness feed back is always useful evenif it costs some extra expenditure to the advertiser.

Sales-Effect :

Communication-effect advertising research helps advertisers assess advertising'scommunication effects but reveals little about its sales impact. What sales aregenerated by an ad that increases brand awareness by 20% and brand preference by10%?

Advertising's sales effect is generally harder to measure than its communicationeffect. Sales are influenced by many factors besides advertising, such as the product'sfeatures, price, availability and competitors' actions. The fewer or more controllablethese other factors are, the easier it is to measure advertising's effect on sales. Thesales impact is easiest to measure in direct-marketing's effect on sales. The salesimpact is easiest it is to measure in direct-marketing situations and hardest measure in

brand or corporate-image-building advertising.

PROGRESS TESTS

These assess the various stages of buyer awareness, preference, buying intention andthe actual purchase in relation to ad. effort. They are called sales effect tests.

Measuring Sales Response to Advertising :

Though increase in sales in the true measure of advertising effectiveness, in reality itis difficult to measure the increase that is due to a particular advertisement. It is rather


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difficult to correlate the response in sales with the advertising programme. However, afew methods have ben discalled in the following paragraphs which are generally usedto measure the sales response to advertising.

The Netapps Method :

The term Netapps has been framed from the term net-ad-produce-purchases. Thismethod, which has been developed by Daniel Starch and Staff company, requires themeasurement of both readers and non-readers who purchased and who did not

purchase the brand under investigation. The netapps method is useful in the relativemeasurement of the sales-effectiveness of various advertising approaches. But themethod is subject to a high level of false reporting and open to interviewer bias.Moreover, we have considered advertising influence as the only factor which resultsin a purchase. There may be, and often are, other variables which affect purchases.

Sales Results Tests :

The additional sales generated by the ads are recorded, taking several routes.

Past Sales before the ad and sales after the ad are noted. The difference is attributed toad impact.

Controlled Experiment : In experimental market, any one element of marketing mix ischanged. It is compared with the sales of another similar market. The element's

presence observance is a reason for difference in sales.

Instead of two markets, the experiment can be carried on the two groups ofconsumers.

The inventory audit is dealers inventory before and after the ad is run.

Attitude Tests

This is an indirect measurement of the post-testing effects of ads on attitudes towardsthe advertised product or brands. The change in attitude as a result of advertising is

assessed. The assumption is that favourable attitude towards the product may lead topurchases.

Most ads are designed to either reinforce or change existing attitudes. An attitude is afavourable or unfavourable feeling about a product.

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HRD MANAGEMENT IN IT INDUSTRY

1.0 INTRODUCTION

1.0.1 Success of every business enterprise depends on its human resource. Money, material andmachines are inert factors; but man with his ability to feel, think, conscience and plan is the mostvaluable resource. At the same time human elements are most difficult to be inspired, controlledand motivated. The upcoming competition in India, will demand high motivational level of itsemployees.

1.0.2 Growth of an enterprise is vital for the economic development of the country. This is possibleonly by maintaining the enthusiasm and motivation of the employees, which is vital for carryingout the operations in most efficient manner. The most successful companies, all over the worldhave designed their business policies to achieve higher productivity by using potentiality andstrength of people.

1.0.3 The basic aim of human policies is the genuine concern for the people. Proper design ofhuman policies is based on the higher responsibilities, personal and positive approach in the totalperspective of organisational interest. The world's best companies have established their strengthwith their people. The employees identify themselves with the company they are working for. Thisalso help in building up their spirit, morale and espirit-de-cops which becomes strength of thecompany. The culture of excellence thus nurtured contribute to growth with stability andcontinuous improvement in productivity.

1.0.4 Finding the right man for the job and developing him into a valuable resource is anindispensable requirement of every organisation. Human resources are capable of enlargement i.e.capable of providing an output that is greater than the sum of the inputs. Proper recruitment helpsthe line managers to work most effectively in accomplishing the primary objective of theenterprise. In order to harness the human energies in the service or organisational goals, everymanager is expected to pay proper attention to recruitment, selection, training, developmentactivities in an organisation. Proper promotional avenues must also be created so as to motivateemployees to peak performance. Thus, personnel functions such as manpower planningrecruitment, selection and training, when carried out properly, would enable the organisation tohire and retain the services of the best brains in the market.

1.0.5 The human resource management is very crucial in respect of information technologyservices than other manufacturing or marketing enterprises. The IT services are technical in natureand at every stage the human touch is involved. Hence it is well motivated and devoted manpowerwhich is very much essential for the success of IT industry.


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1.1 ROLE OF HR MANAGERS

1.1.1. And Some industry commentators call the Human Resources function the last bastion ofbureaucracy. Traditionally, the role of the Human Resource professional in many organizations hasbeen to serve as the systematizing, policing arm of executive management. In this role, the HR

professional served executive agendas well, but was frequently viewed as a road block by much ofthe rest of the organization. While some need for this role occasionally remains you would no wantevery manager putting his own spin on a sexual harassment policy, as an examplemuch of theHR role is transforming itself. The role of the HR manager must parallel the needs of his changingorganization. Successful organizations are becoming more adaptable, resilient, quick to changedirection, and customer-centered. Within this environment, the HR professional, who is considerednecessary by line managers, is a strategic partner, an employee sponsor or advocate, and a changementor.

1.1.2 Strategic Partner:-In todays organizations, to guarantee their viability and ability tocontribute, HR managers need to think of themselves as strategic partners. In this role, the HR

person contributes to the development of and the accomplishment of the organization-widebusiness plan and objectives. The HR business objectives are established to support the attainmentof the overall plan and objectives. The tactical HR representative is deeply knowledgeable aboutthe design of work systems in which people succeed and contribute. This strategic partnershipimpacts HR services such as the design of work positions, hiring; reward, recognition, andstrategic pay; performance development and appraisal systems; career and succession planning;and employee development.

1.1.3 Employee Advocate:-As an employee sponsor or advocate, the HR manager plays an integralrole in organizational success via his knowledge about and advocacy of people. This advocacyincludes expertise in how to create a work environment in which people will choose to be

motivated, contributing, and happy. Fostering effective methods of goal setting, communication,and empowerment through responsibility build employee ownership of the enterprise. The HRprofessional helps establish the organizational culture and climate in which people have thecompetency, concern, and commitment to serve customers well. In this role, the HR managerprovides employee development opportunities, employee assistance programs, gain sharing andprofit-sharing strategies, organization development interventions, due process approaches toproblem solving, and regularly scheduled communication opportunities.

1.1.5 Change Champion:-The constant evaluation of the effectiveness of the organization results inthe need for the HR professional to frequently champion change. Both knowledge about and theability to execute successful change strategies make the HR professional exceptionally valued.Knowing how to link change to the strategic needs of the organization will minimize employeedissatisfaction and resistance to change. The HR professional contributes to the organization byconstantly assessing the effectiveness of the HR function. He also sponsors change in otherdepartments and in work practices. To promote the overall success of his organization, hechampions the identification of the organizational mission, vision, values, goals, and action plans.Finally, he helps determine the measures that will tell his organization how well it is succeeding inall of this.


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1.2 LEADERSHIP AND EMPLOYEE INVOLVEMENT.

1.2.1 The main role of leadership was seen as creating a participatory process for employeeinvolvement, to build collective wisdom. Control has given way to collaboration and the oldparadigm of promoting competition and motivating through incentives shifted to creating co-

operation and oneness amongst people. This is a marked shift to build effective teams. Researchshows that six out of every 10 employees like to work in teams. 87 per cent of all Fortune 500companies use parallel teams and about 100 per cent of all companies use project teams.

1.2.2 Story telling and appreciative enquiry are emerging as a new dimension in positivemotivation. Finding out what's wrong seems to be the trend. In Walt Disney, telling success storiesis one of the important methods used to remind people of greatness and goodness of theorganisation. Leaders in Disney concentrate on quality, values and involvement. Speaking in theplenary sessions, Tom Peters said, " We have transitioned from an asset-based economy to a talent-based economy. The new definition of lay-off is untalented go talented stay. Leaders must realisethat talent is equal to brand". His new theory is EVP which means "Employee Value Proposition".

1.2.3 Rosabeth Moss Kanter said, " Human beings are good raw material, they become assetswhen you train them to increase their knowledge and skills". She added that only a feworganisations really train people to make them a success. Seconding this, Mr Peters pointed outhow most organisations are not serious about developing people. They spend on an average 26.3hours per person per year on training. A surgeon, a pilot or an athlete on the other hand spends 10-15 times more on training.

1.2.4 He also stated that the HRD department should be renamed TDFD (TalentDevelopment Fanatic Department) and wealth for this new regime will flow from innovation, notorganisation. Quoting Gary Hamel he said, only those employees will succeed who are "certified

radical". Only those companies will succeed who create a cause, not a business. Leaders accordingto him are living individuals, whom people can smell, feel and touch. Their passion for work mustbe infectious.

1.2.5 Another aspect of leadership if the decision to introduce fun in the work place.Research shows that this reduces absenteeism and builds stronger, deeper and longer lastingrelationships. It appears out of every 100 Fortune companies in the last decade, 69 are dead andonly 31 are alive. In a Forbes Magazine study of around 100 companies from '17 to '87, only 39companies were found to survive. Management of Change:-Research proves that many changemodels don't consider the human experience during change. The overriding concern seems to be todownsize. It was found that most change processes go through four fundamental stages.

People try to resist or deny change They adapt, participate in the change They attempt to add value The culmination or formation of a new status-quo

1.2.6 A number of presentations revealed that leaders who initiate change must do so with one footin the future and the other planted in past values. Forgetting tradition must can devalue existing


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strengths. The success of a change process depends on the skill of the facilitator to create aparticipatory process to enlist the support of people and address the issue of grief.

1.2.7 E-Learning :- Organisations like Ford Motor, Hewlett Packard, Intel and IBM are using e-learning to increase the knowledge of their people. Companies like Fordstar even manage time

differences between countries while conducting virtual class rooms, chats, demos, presentations tocommunicate new concepts, product details, core values, issues of governance and corporatecommunities.

1.2.8 CEO's are talking to their people about new ideas and enlisting their support through forumsand message boards. This is changing the way people behave and work. The advantages of e-learning are many: It is self-paced, flexible, less expensive, modular and has a huge reach.

1.2.9 Universities like Cornell, MIT, Stanford, etc, have started emphasizing e-learning to attract aworldwide audience. Web-centric universities are becoming the order of the day. William Taylor,editor and managing partner of the Fast Pace magazine, said, "There is no going back from back

from dotcoms". He was of the opinion that there is a merger taking place between computers andhuman beings.

1.3 INNOVATIVE PRACTICES IN HR

1.3.1 The Innovative Practices in Human Resources study uncovered 12 practices that are reducingHR costs and improving service quality to employees. Key findings from this research included theneed for HR managers to streamline processes, lower overhead costs, and enable their departmentsto advance from transactional organizations to strategic partners in the business.

1.3.2 Practices and technologies include:

Internet and intranet employee services Strategic human resources Centralized HR departments and call centers 360-degree performance appraisals HRIS systems Employee self-service Voice response systems (VRUs) Resume scanning and Internet recruitment Kiosks Automated time and attendance systems

Team policies and development Outsourcing Business process reengineering (BPR)

1.4 LINKING PAY TO PERFORMANCE


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1.4.1 Most Human Resource professionals are familiar with the concept of strategy. There is muchmore concentration and focus today on the strategic outcomes of human resource activity than everbefore. The area of compensation is no exception.

1.4.2 Pay for performance systems are becoming more and more popular as senior managers reach

beyond the use of compensation systems to deliver pay. There is far more interest in more closelylinking the reward mechanisms to the achievement of corporate objectives. Motivation for superiorperformance is the goal.

1,4.3 In experience, most organizations will profess to a "pay-for-performance" philosophy as akeystone of their compensation system. Such a system requires solid grounding in a clear anddocumented link between performance and salary increases. Unfortunately, the link betweenindividual performance and pay is frequently nonexistent - "merit" pay is a hollow concept in thisregard.

1.4.4 A merit system demands that managers be willing to make distinctions in merit increases

based on performance. However, several factors get in the way of this happening. First, the annualsalary change is usually a small percentage. Giving the better performer 2% more than the cost ofliving has little motivation or recognition attached to it. Similarly giving the poor performers 2%less than the cost of living increase is not that much of a penalty. So many managers don't makethat distinction - it is too much hassle. So everybody gets the same increase.

1.4.5 Second, most performance appraisal systems are after-the-fact appraisals. In other words, atappraisal time, which is usually toward the end of the year, managers are required to evaluate theperformance of their staff. It means sitting down and trying to reconstruct what each staff memberdid, capturing it in a non-threatening way, communicating the evaluation without a fuss andfinally, making a merit increase recommendation. Sound like a familiar pattern? It is a process that

repeats itself year after year.

1.4.6 The end result is usually a lot of avoidance behavior. Managers avoid the appraisal processlike the plague. Although employees profess to want to "know where they stand" they often takeissue with the appraisal. Besides, they don't listen to the evaluation, they wait until the pennyliterally "drops". "What is my rating and how much do I get?" is a constant theme in merit systemswhere salary decisions are tied so closely with the appraisal process.

1.4.7 You might well ask is there any way out of this mess? The answer is fortunately yes.Organizations that are the best and want to separate themselves from the rest, are turning awayfrom the merit system and toward an annual incentive system, particularly for middle and upper

management positions but increasingly for teams and individuals lower down in the organizationas well.

1.4.8 They are adopting a system of annual incentive bonuses linked directly to the achievement ofcorporate and individual objectives in three specific areas. The areas are corporate revenues andgains, cost containment and behavioral changes. The first two areas are quantitative and the thirdarea, which is gaining in importance, is qualitative in nature, and has a great deal to do withbuilding managerial and individual competence.


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1.4.9 Why Is This Transition Occurring? :-Well, there are many challenges facing businesses todayand these challenges are driving them to find better ways of linking pay and performance to theachievement of corporate results..

1.5 CHANGING JOB DESIGN IN IT COMMUNITY

1.5.1 The California State University (CSU) system is being challenged to meet increasingdemands for educational and administrative services through the innovative use of technology andhuman resource systems. Even though funding levels for higher education have been cut in recentyears, public/taxpayer expectations and the demands for quality education, access, service, andaccountability have grown. Technology initiatives within the CSU have resulted in significantadvances and improved technical capabilities and efficiency. Human resource and organizationalsystems are also needed to capitalize on and thrive in this rapidly changing work environment.

1.5.2 In 1991, the CSU began a study to look at alternative work and job design approaches tomeet these challenges. The study focused on the information technology community and how work

processes and activities could be better organized to remove artificial barriers and improveorganizational effectiveness, a process often associated with the term "reengineering." Secondly,the study focused on developing a job design approach that could adapt to changing skillrequirements and that would promote the continuous acquisition of skills for knowledge-basedemployees in information technology. The goal of improved organizational effectiveness and anorientation towards reengineering and skills guided the development of the proposed job designapproach.

1.5.3 This article begins by identifying several trends that led to the study, then describes theoverall project within the context of an organizational effectiveness equation. A new job designapproach that was proposed as a result of the study is presented, including a new classification

structure and competency dimensions and measures for defining and evaluating positions. Finally,other supporting systems are described for an integrated human resources approach. Thedevelopment phase of the project has been completed, and the CSU anticipates entering intonegotiations with its employee representatives in the near future.

1.5.4 Three trends have had a direct impact on the development of a strategic job design approachfor the information technology community at the CSU: (a) diversification and convergence oftechnology, increased demand for educational access and (b) changes in instructional deliverymethods; and changing work place demands and priorities.

1.5.5 The technology demands within higher education lead to a complex and dynamic computing

environment. Academic and administrative computing strategies tend to be at cross-purposes interms of defining systems requirements. This has resulted in widely diverse systems andtechnology within and across the CSU's twenty campuses. Increasingly, however, campus systemsare becoming more integrated, as data are shared across multiple platforms on a network"highway" that is linked to external information sources. Networking and desktop computing haveremoved traditional boundaries for information access, research, and decision-support purposes.Data, voice, and video technologies continue to be combined in more interactive and user-friendlyformats.


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1.5.6 In terms of educational trends, many institutions offer distance learning using varioustransmission media and are incorporating instructional technology into curriculum development.Students expect guaranteed access to technology and to research databases, and this access hasbecome an issue of social responsibility.[1] Library and computing functions are becomingincreasingly interdependent in "an infrastructure of scholarly communication" within higher

education.[2] Workplace trends, as presented in Sustaining Excellence in the 21st Century: AVision and Strategies for College and University Administration, well represent the outlook for theCSU. Two key issues are identified:

(1) Economics. There is increasing pressure to constrain administrative costs within the "laborintensive cost structure" that exists in higher education. Reductions in staff are occurring at thesame time as transaction volume and service expectations are growing.

(2) Decentralization of responsibility. With fewer people and greater access to information,organizations are moving responsibility for decision-making downward to the point of service.Work organization is shifting away from job specialization and a task/procedure orientation, to

more generalized job responsibilities focused on outcome and greater participation on cross-functional teams

(3) Another central workplace trend is the "earning and learning" environment described by theU.S. Department of Labor in its Secretary's Commission on Achieving Necessary Skills (SCANS)report. To quote Thomas P. Foley, Secretary of the Pennsylvania Department of Labor andIndustry:"We've changed from the idea of "one skill, one job" to the reality of a range of skills thathave to apply to a number of different kinds of professions. More to the point, workers mustpossess a skill that they continually upgrade just to keep pace in the professions they choose."

(4) The influx of new technology and applications has created a demand for continual learning and

adaptation. Due to the CSU's relatively stable workforce, maintaining skills to keep pace withchanging technology was identified as a critical goal. Knowledge requirements are expanding toencompass a greater breadth of technologies and subject expertise, as well as including process-oriented capabilities such as communication and negotiation skills.

1.5.7 The implications of these technological , educational, and workplace trends point directly tothe need to reengineer organizational structures, work design, and processes. Based on these trendsand overall organizational goals, two key objectives were established for a new job designapproach for the CSU: flexibility and skill development. Fundamentally, each campus needs theflexibility to achieve its goals by distributing work assignments in a way that optimizes itsavailable skill mix and promotes individual skill development and initiative.

1.6 OBJECTIVES OF STUDY

1.6.1 Following were the objectives of the study:-

1. To enlist emerging HR trends in Indian IT Industry


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2. To review literature and research done in this area.

3. To find out lacking areas regarding the HRD in IT sector.

4. To measure the perceptions of IT sector employees in respect of application of HRD in their

organisation.

5. To suggest the measures to fill the gaps and improve motivation level of employees and HRmanagement in IT industry.

1.7 RESEARCH METHODOLOGY

1.7.1 The study was exploratory in nature. All published and unpublished available on the subjectmatter was consulted. Interview and discussions were held with the various executive/ Managers/

staff employed in IT sector. The HRD functions/ activities being undertaken in different ITorganisations were also studied. Primary and secondary data available with these organisations wasalso used for this project study.

1.7.2 In order to measure the employees perceptions of emerging HR trends in different ITorganisation, the survey was undertaken. The survey was based on structured questionnaire. Thequestionnaire was mainly based on objective type close-ended question, but few open endedquestions were also included.

1.7.3 Firstly, the pilot survey on ten randomly selected respondents was undertaken. Then thequestionnaire was modified accordingly, if desired.

1.7.4 The final questionnaire was administered in person to the extent possible and through mail ifneeded. The 100 respondents were selected among the executives and staff working in various ITorganizations. The convenient random sampling technique was used for the selection of therespondents.

1.7.5 Finally, the results of the survey has been presented in Tabular form, analyzed andinterpreted to meet the required needs of this project study and presented in Report form.

CHAPTER -2

HR TRENDS IN IT INDUSTRY


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2.0 HR IT SCENARIO

2.0.1 The web is altering the HRD landscape beyond recognition. The key to corporate

success in the fast changing information era is thinking on your knees.

2.0.2 What is this thinking on your knees?Normally as the HR person you know what

the situation is and operate from there. A repositioning is required in your decision

process with questions like why, how and when and not just what. At this point you

operate on your knee i.e. with far more dynamism and with a lot more effectiveness

than thinking on your feet.

2.0.3 The employees are like gypsies, on the move all the time. They camp at some

location, enhance their skills, responsibility levels and move on. This is particularly

true of the professional from Software Industry. Opportunities are plenty and the

next job opening is only a mouse click away. The question is not about what else

you can do to retain an employee but it is about making him productive, while he is

with you. The value addition will then happen for both the employee as well as the

employer resulting in a win-win situation. This means that the new strategy calls for

the recognition that no employee is expected to be permanently with you. Normal

tenure in any organisation is likely to be between two to three years.

2.1 INNOVATION IS THE KEY

2.1.1 Information technology and Internet have changed several equations. Reaching

out to the world market place is no more the challenge in achieving corporate

victories. Out thinking the competition at electronic speed is the key to winning


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corporate battles. The corporate success is sum total of entrepreneurship practiced

by your staff.

2.1.2 The key to employee longevity :-Todays most successful organisations

recognize that to fuel growth and sustain a competitive advantage, they must make

recruiting, hiring and retaining top talent, as the organisations major thrust area.

Competent people deliver the rest dont matter. Successful business organisations

have no choice but to promote the performers and let non-performers go.

2.1.2 Organisations recognize that that their ability to gather, manage, analyse, distribute

information and transform themselves into a learning organisation will provide

continuity and ensure for them their leadership role. Systematic organizational

learning should be central corporate philosophy. Learning, must be obviously

followed by changes, which may not necessarily be welcomed by veterans in the

organisation. But change is the only Constant for guaranteed success.

2.1.3 Points to note: The following points are important and must be properly

understood.

People have a great deal of informational knowledge to contribute to the

organisation.

People are responsible

People desire opportunities to effect change, not just being expected to

change.

Organisations need to create awareness amongst their employees

about their vision and then empower them to act on that vision.

Establishing a sense of urgency well ahead of the problem surfacing.


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Form inter-functional core group. Encourage the group to work together

as a team.

Plan and create short-term win targets reward employees and

recognise achievers.

Consolidate improvements through a knowledge base driven system

and institutionalise proven new methodologies.

2.1.5 New Paradigms In HR

Business plans must consider HR issues, focus and adapt.

Corporate goals must factor in individual career growth and personal

growth must be tied to corporate growth and vice versa

2.1.6 Job responsibilities must facilitate personal development and learning

should be institutionalized with well-established knowledge bases.

Capturing experience and making it available corporate wide should be

a permanent feature of an organizations.

2.2 WAR FOR TALENT

2.2.1 The worlds most popular people resource base seems to be falling short of numbers

to meet its own demands. With added pressures of migration and attrition, can

Indias IT industry achieve its software and services revenue target of $87 billion

by 2008?

2.2.2 Country: India. Population: 1 billion-plus. If that sounds like too many people, think

again. Plug in English-speaking and low labor costs, and suddenly we can envision

$50-billion software exports target by the end of this decade. Not impossible, if we

consider the scarcity of IT manpower across the world. Take a look at the US,


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already with a 10- million-strong IT workforce, which needs to fill 1.6 million new

jobs in the next one year.

2.2.3 Japan is no different and estimates close to a million new jobs. Germany is looking

for 20,000 IT specialists and Italy is seeking 15,000 additional manpower. Their

choice destinationIndia.

2.2.4 Ironically, the country which has been such a popular people resource for the IT

industry the world over, is struggling with numbers to meet its own demand. To

meet the overall software and services (domestic and export) target of $87 billion

by 2008, according to the Nasscom-McKinsey report, the country will require a

minimum of 2.2 million knowledge workers for its domestic needs. This implies

that the present strength, which stands at 12,00,000 (December 2004), has to

increase about twice, not just in quantity but in quality as well.

2.2.5 According to industry estimates, majority of the demand for manpower will be in the

area of IT-enabled services. While Nasscom puts the requirement at 11,00,000,

MIT says IT-enabled services and e-business will need 12,70,000 workers by 2007.

Experts insist that since this sector does not require very highly skilled manpower,

we can easily meet this demand. "IT-enabled services is a wonderful opportunity

for India and for such services you dont need highly skilled professionals. You just

need smart graduates who can speak English, all you need to do is train them. For

instance, in a call center, they need to be trained on accents and customer services,"

2.3 4 Rs of HR in IT

Table 2.1

Recruiting Retaining Retraining Restructuring


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Signing bonus

Finders Fee

Alumni

connections

Non-techs

Students

Interns

Retention bonus

Project pay

Reduct FTE/same pay

Telecommuting

Externs

Job sharing

Recognition programs

Job rotation

Team assignments

Skill inventories

Competency

development

Certification

Broad job descriptions

Flexible compensation

programs

Flexible jobs

Positive problem-

solving spirit

2.3.1 OBSTACLES

Denial (This is and long term)

Misalignment (Ramping up/Ramping down)

Timing

Treating everyone the same

Navigating the bureaucracy

Demographics

2.3.2 WHAT OTHERS ARE DOING Pooling recruitment efforts

Increasing freedom at the dept level

(on-the-spot hiring, broadbanding, etc.)

Recruiting/retaining students

Identifying tech skills in all jobs/people

(Skill Inventories/assessment)

Sharing staff

2.3.3 RETENTION FACTORS

1. Quality of boss

2. Direction of department

3. Exposure to new technologies

4. Confidence in the company


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5. Job security

6. Challenging work

7. Location

8. Access to capital resources

9. Caliber of co-workers

10. Empowerment

11. Department leadership

12. Ability to influence department success

2.3.4 TAKING THE LEAD

See ourselves as problem-solvers

Develop critical skills and competencies in ourselves, then others

Build compensation around results not tasks; competencies, not

seniority

Involve everyone. Constantly align and balance resources to meet

changing needs

2.3.5 SEARCH FOR TOMORROW

Attract, retain and reward the bestperformers (Encourage all to be the best) Increase flexibility Reduce fixed costs

Reduce administrative effort (Simplify, simplify, simplify) Utilize the full range of individual talents

2.3.6 THE CRISIS

Shortage of IT workers

2.3.6 COMPETITION

Compensation stock options, profit sharing, incentives

Alternatives outsourcing

2.3.7 ATTRACTING

Recruiting sign on bonuses

Relocation incentives


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Recruiters

Reduced cycle time for hiring

Campus/ job fairs / referrals/ internet

2.3.8 RETAINING

Work environment

Communication forums

Telecommuting

Flexible staffing

Exciting projects

2.3.9 PRACTICES

Focus on value

Financial and human value

Commitment to core strategy

Linkage between culture an system

Multi dimension communication

Stakeholders partnerships

Mutual support and collaboration ( teamwork)

Risk and innovativeness


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Passion

2.3.10 DEVELOPING

Internship programs

Training programs

Career development programs

2.3.11 LONG TERM SOLUTIONS

Education, government, industry partnerships

Curricula: technical skills and career skills ( teamwork and

communication)

2.3.12 KEY SUCCESS FACTORS

Understand people

What they want

Long term perspective

Innovative

Co ordinated approach

Career development I

2.4 OUT SOURCING

2.4.1 In the last few years, more and more companies around the world are looking

towards India for outsourcing their software requirements. The changing business

environment is demanding new applications. In particular, the spread of client-

server computing in decentralised organisations involves the development of

applications specific to a user's business.


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2.4.2 Outsourcing is becoming a strategy for forward thinking IS managers. It is no longer

just a means for reducing costs, but a tool for adding value to business. It enables

organisations to concentrate on their core business, carry out business re-

engineering and provide information that is valid, timely and adequate to assist

decision making at the management level and quality and cost control at the middle

and lower levels.

2.4.3 As a result, outsourcing has gradually grown beyond the traditional idea of "having a

third party running the data centre". It has come to mean, "any use of an outside

contractor to replace or extend in-house resources".

2.4.4 Outsourcing is closely linked with corporate strategy, since it must support the

organisation's major initiative in using IS. It should enhance and add value to the

business. A rule of thumb to start and gain experience is, "if IS is low cost and of

high value addition, keep it within the organisation, i.e. in-source. If IS is high cost

and of low value addition, consider outsourcing".

2.4.5 In the past few years, whenever organisations around the world have outsourced to

India, the Indian software companies have substantially helped to cut costs in

software development projects or MIS environments, while maintaining high

quality. Moreover, all these cost and quality advantages are coupled with the use of

state-of-the-art technologies.

2.4.6 In 2004-05 more than US$ 2500 million worth of software development work was

outsourced to India (The total software exports from India during the year was US$

4085 million). This was 56% higher than outsourcing orders in 2003-04. It is

estimated that the quantum of outsourcing may jump to US$ 5 billion and reach as

high as US$ 10 billion by 2010 A.D.


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CHAPTER - 3

HR PROBLEMS OF INDIAN IT PROFESSIONALS

3.0 OVERVIEW OF PROBLEMS

3.0.1 The IT revolution is sweeping the world, particularly the western world in for

nearly a decade now, creating enormous employment opportunities in this area.

India joined the bandwagon well in time and smoothly though it is yet to entrench

itself strongly in terms of corporate identity and significant share of global revenues

in IT.

3.0.2 Our main contribution seems to be in the less glamorous areas of value addition,

maintenance, Y2K, quality assurance and customisation of existing packages. The

sudden eruption of opportunities in this area left no time for development of human

resources in a planned manner and also software solutions which tended to be more

ad hoc than being assured of quality.

3.0.3 With the enormous opportunities for employment, entrepreneurship with low capital

investment and low gestation period for turning profitable, higher returns per

employee and large return on investment/EPS, sustained encouragement from

government, a very large number of organisations - large, medium, small - have

been established. Correspondingly a large number of training establishments and

cyber cafes have come up, most of which are in the cities and towns to cash in on

the enthusiasm of the urban middle class.


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3.0.4 A number of higher level courses have also been started mainly through private

organisations besides the existing government (State/Central), university and

autonomous institutions. There are about 500 private engineering colleges besides

IITs, RECs, universities, colleges offering courses such as MCA, M.Sc., M.E., and

M.Tech. In view of the apparent demand that appears to be exaggerated, most of

the programmes (barring a few by government institutions and IITs) are very

expensive, almost beyond the reach of a middle-class student. Yet candidates and

their parents strain themselves financially to pursue the courses hoping to get an

attractive job (financially) which remains a mirage by and large. The problems are

further compounded by a lack of proper teaching faculty in most colleges and

franchises.

3.0.5 Except in well-established institutions, job-placements are poor. Even those trained

in reputed institutions find their jobs monotonous, leading to depression. Jobs

offered by the software industry have demonstrated the above factors as they are

able to carry out the projects with persons of any background and levels of

attainment, but with a few months training either prior to employment or a short

training during probation.

3.0.6 Despite these deficiencies, students prefer software jobs mainly with an eye on the

pay-package and urban locations. The employee- retention period even in good

companies has been shrinking and is found to be three to six months. The

companies also try to devise methods to make their employees almost captive with

surety bonds, bank guarantees, employee's stock option (ESOP) and housing

facilities, among others. The employees, for their part, resort to innovative methods

to wriggle out of their contracts. There does not appear to be any respectable ethics

even among companies as well as the employees in this type of free for all market.

To go abroad and become rich has become the motive of most of the employees


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even if the job does not offer any intellectual satisfaction. The manufacturing and

hard-core engineering sector has also shrunk in terms of job opportunities and

attractiveness.

3.0.7 Even those software professionals, who are offered good financial packages, spend

their earnings on expensive lifestyles, vehicles, and credit card syndrome and find

themselves disenchanted on all fronts including the intellectual front. It should also

be a cause for concern to project beyond the present software boom as to what

happens to all these if the opportunities decline. The scenario appears to be quite

fluid with a predominant western bias in all the activities concerning software

profession with scores of Indian boys getting lured and sucked into the vortices

created by the opportunities in this area

3.1 MAIN PROBLEM AREAS

3.1.1 The significant problem areas which may be contributing to the present scenario and

can be addressed can be identified as given in the succeeding paragraphs.

3.1.2 Recruitment process :-Without going into the deficiencies of the present practices,

the following suggestions are made to improve the process in terms of efficiency,

availability of manpower and equity to all the aspirants irrespective of the fact

where they got educated. The various steps of the proposed approach are as

follows:

i. Aptitude tests could be conducted by reputed institutes like IITs/ private

organizations/HR agencies for prospective professionals preferably ``on-line'' like

GRE, GMAT etc. or physically at regular intervals and scores are given. If it is no

on-line, the periodicity can be a month or two and the validity can be for an year or

so which can also be fixed based on general agreement.


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ii. Based on scores and preferences of the candidates (career counselling), companies

can ask for a video clip for subsequent interview if required. Interviews can also be

conducted simultaneously either physically or over the phone or by video

conference and selections completed.

iii. Once selected and the candidate joins the organizations, all member organizations

should adopt a code of conduct such that the candidates stays at least for a period of

one year.

iv. Small companies can form some kind of a cooperative society wherein software

professionals' services can be tapped and steer clear and manpower shortage (less

than critical mass levels).

v. The selection can be conditional that he acquires certified skills in the required

areas either through training in house or through approved training agencies and

establishments. This will also avoid the unnecessary expenses for (which are high)

the candidates, who are presently spending lot of money with a hope of

employment. This will also ensure that there is a focus on proper training and

optimal deployment of time, effort and finances.

vi. The selection process can thus be continuous and commensurate with the

requirements thus avoiding idle inventory.

vii. There can be general norms of pay packages depending on the reputation of the

companies (classifying them as A, B, C, D by any reputed management institute

like IIM etc.) with the ratio of maximum pay within reasonable and realistic limits.


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3.1.2 Post employment care:- The companies/organizations should take adequate interest

in the career development of the employee by suitable HRD approaches which

should include the following:

i. Opportunities for creative work in the first phase particularly for those who are

bright, and have an aptitude and come with a good pedigree say from IITs.

ii. Opportunities to lessen the monotony and improve interpersonal relationship and

mixing and group activities.

iii. Periodic rotation of the rolls and jobs if possible.

iv. Opportunities for retraining and upgrading the skills.

v. Conducting effective career development programs regularly.

vi. Incentives like ESOP, lucrative assignments and challenging projects, opportunities

of higher education.

vii. Make the employee more versatile with wider perspective and flexible for easy

deployment in areas needing strengthening.

viii. Encouraging simplicity and excellence.

3.1.3 Advantages:- The suggested processes in 4 and 5 above can be expected to have the

following significant advantages:

i. Cost effective and efficient process.

ii. Proper deployment of skills optimally.

iii. Idle employment can be minimized.


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iv. Retention can be improved.

v. Particularly useful for small firms which can also operate in the cooperative society

mode.

vi. The candidate's skills are moulded to suit the needs of the job and need not waste

time, money and efforts.

vii. Equitable opportunities to all aspirants irrespective of location, pedigree and

background.

viii. Reduces the mushrooms of training shops with inadequate faculty.

ix. This may also give the manufacturing and core engineering sector jobs reasonable

chance to attract willing and bright candidates.

x. The process is ideally suited for candidates to plan their careers with adequate

preparation in core areas.

xi. The process also enables a realistic assessments of needs and demands regularly

and meeting them even at short notices.

xii. The aptitude tests can become richer and more representative over a few years and

as the question bank becomes larger and random on-line questioning can be

introduced which is more objective like GRE, GMAT

3.2 LONG TERM PERSPECTIVE

3.2.1 These tests can be conducted at the end of 10+2 level or B.Sc. level also and train

the candidate with or without stipend in courses where he could get admission for

his degree. This will help in decreasing the pressure on engineering education as


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otherwise the skills acquired by the candidate at a great cost in branches other than

computer sciences are wasted and lost for good if employed by the software

industry.

3.2.2 It may be a good idea to have a National Test for Software Talent similar to science

talent test which can be sponsored by NASSCOM and such other interested groups

3.2.3 The idea of forming a cooperative society by small firms may prove to be

beneficial as the facilities and manpower can be shared optimally. While otherwise

they may face the problems of lack of adequate manpower (below the critical mass

level) because of less attractive pay and perks they are able to offer.

3.2.4 Renowned organizations like IITs, IIMs and MNCs, and can play a catalytic roll in

streamlining the processes for an efficient HRD in this vital area of software

manpower which is a national resource.

CHAPTER - 4

IT SECTOR COMPENSATION METHODS

4.0 EMPLOYEE STOCK OWNWERSHIP PLAN

4.0.1 Employee Stock Ownership Plan(ESOP): is a defined contribution

employee benefit plan that allows employees to become owners of stock

in the company they work for.

4.0.2 How does ESOP work?


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1. The ESOP operates through a trust, setup by the company, that

accepts tax deductible contributions from the company to purchase

company stock

2. The contributions made by the company are distributed to individual

employee accounts within the trust.

3. The amount of stock each individual receives may vary according to

pre-established formulas based on salary, service, or position.

4. The employees may cash out after vesting in the program or when

they leave the company. The amount they may cash out may depend on

the vesting requirements.

4.1 STOCK OPTIONS

4.1.1 Stock Options: The right to purchase stock at a given price at

some time in the future. Stock Options come in two types:

1. Incentive stock options (ISOs) in which the employee is able to

defer taxation until the shares bought with the option are sold. The

company does not receive a tax deduction for this type of option.

2. Nonqualified stock options (NSOs) in which the employee must

pay income tax on the 'spread' between the value of the stock and the

amount paid for the option. The company may receive a tax deduction

on the 'spread'.

4.1.2 How do Stock options work? An option is created that specifies that the owner of

the option may 'exercise' the 'right' to purchase a companys stock at a certain price

(the 'grant' price) by a certain (expiration) date in the future. Usually the price of the

option (the 'grant' price) is set to the market price of the stock at the time the option

was sold. If the underlying stock increases in value, the option becomes more


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valuable. If the underlying stock decreases below the 'grant' price or stays the same

in value as the 'grant' price, then the option becomes worthless.

4.2 MERIT PAY

4.2.1 Merit Pay is an incentive plan implemented on an institutional wide

basis to give all employees an equal opportunity for consideration,

regardless of funding source. The merit increase program is

implemented when funds are designated for that purpose by the

institution's administration, dependent upon the availability of funds and

other constraints. .

4.2.2 Advantages OF Merit Pay :-

Allows the employer to differentiate pay given to high performers.

Allows a differentiation between individual and company performance.

Allows the employer to satisfactorily reward an employee for

accomplishing a task that might not be repeated (such as

implementation of new systems).

4.3 GAIN SHARING

4.3.1 Gainsharing is a technique that compensates workers based on

improvements in the company's productivity.

4.3.2 How does Gainsharing work? A Company shares productivity gains with the

workforce. Workers voluntarily participate in management to accept responsibility

for major reforms. This type of pay is based on factors directly under a workers

control (i.e., productivity or costs). Gains are measured and distributions are made


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frequently through a predetermined formula. Because this pay is only implemented

when gains are achieved, gainsharing plans do not adversely affect company costs.

4.3.2 What are the 'Gains' that are measured?

Increases in production with equal or less effort.

Equal levels of production with less effort.

4.3.3 What are examples of Gainsharing formulas?

Calculate gain in hours: The actual hours worked minus the expected

hours (for the given level of output) equals the gain in hours.

4.4 PROFIT SHARING

4.4.1 Profit Sharing is an incentive based compensation program to award

employees a percentage of the company's profits.

4.4.2 How does Profit sharing work? The company contributes a portion of its pre-

tax profits to a pool that will be distributed among eligible employees. The amount

distributed to each employee may be weighted by the employee's base salary so that

employees with higher base salaries receive a slightly higher amount of the shared

pool of profits. Generally this is done on an annual basis

4.4.3 How to Choose an Employee Stock Plan for Your Company:-Many

companies we encounter have a pretty good idea of what kind of employee

ownership plan they want to use, usually based on specific needs and goals.

However, sometimes they might be better served by another kind of stock plan. And

yet others say they'd like to have an employee ownership plan, but they're not sure

what it might be. This article will start you down the path to choosing and

implementing the plan or plans best suited to your company.


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4.5 ASSESSMENT OF PLANS FOR BROAD-BASED

EMPLOYEE OWNERSHIP

4.5.1 Let us begin by quickly reviewing the main possibilities for broad-based

employee ownership. A "broad-based" plan is one in which most or all employees

can participate.

4.5.2 An employee stock ownership plan (ESOP) is a type of tax-qualified

employee benefit plan in which most or all of the assets are invested in stock of the

employer. Like profit sharing and 401(k) plans, which are governed by many of the

same laws, an ESOP generally must include at least all full-time employees

meeting certain age and service requirements. Employees do not actually buy

shares in an ESOP. Instead, the company contributes its own shares to the plan,

contributes cash to buy its own stock (often from an existing owner), or, most

commonly, has the plan borrow money to buy stock, with the company repaying

the loan. All of these uses have significant tax benefits for the company, the

employees, and the sellers. Employees gradually vest in their accounts and receive

their benefits when they leave the company (although there may be distributions

prior to that). Over 8 million employees in over 11,000 companies, mostly closely

held, participate in ESOPs.

4.5.3 A stock option plan grants employees the right to buy company stock at a

specified price during a specified period once the option has vested. So if an

employee gets an option on 100 shares at $10 and the stock price goes up to $20,

the employee can "exercise" the option and buy those 100 shares at $10 each, sell

them on the market for $20 each, and pocket the difference. But if the stock price

never rises above the option price, the employee will simply not exercise the


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option. Stock options can be given to as few or as few employees as you wish.

Perhaps 7 to 10 million or more employees in thousands of companies, both public

and private, presently hold stock options.

4.5.4 An employee stock purchase plan (ESPP) is a little like a stock option plan. It

gives employees the chance to buy stock, usually through payroll deductions over a

3- to 27-month "offering period." The price is usually discounted up to 15% from

the market price. Frequently, employees can choose to buy stock at a discount from

the lower of the price either at the beginning or the end of the ESPP offering period,

which can increase the discount still further. As with a stock option, after acquiring

the stock the employee can sell it for a quick profit or hold onto it for awhile.

Unlike stock options, the discounted price built into most ESPPs means that

employees can profit even if the stock price has gone down since the grant date.

Companies usually set up ESPPs as tax-qualified "Section 423" plans, which means

that almost all full-time employees with 2 years or more of service must be allowed

to participate (although in practice, many choose not to). Many millions of

employees, almost always in public companies, are in ESPPs.

4.5.5 Section 401(k) plan is a retirement plan that, unlike an ESOP, is designed to

provide the employee with a diversified portfolio of investments. Like an ESOP,

however, a 401(k) plan is a tax-qualified plan that generally must include all full-

time employees meeting age and service requirements. The employees can choose

among several or more choices for investments, and the company may make a

matching contribution. Perhaps several million employees in a few thousand

companies participate in plans with a heavy company stock component; company

stock may be an investment choice for the employees and/or the means by which

the company makes matching contributions. 401(k) plans may be combined with


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ESOPs (these are called "KSOPs"), where the company match is an ESOP

contribution.

4.6 EMPLOYEE OWNERSHIP : COMPANIES PAY LESS FOR

WORKERS' COMPENSATION COSTS

4.6.1 A study has found that employee ownership companies have lower workers'

compensation insurance rates than comparable non-employee ownership firms.

Leslie Hakala authored the study. She began the project as an NCEO research

intern and completed it for a thesis requirement at Harvard University. The study

was unable to ascribe a specific causal relationship between employee ownership

and lower workers' compensation costs, but it did find that these costs declined as

employee ownership plans matured.


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4..6.2 Background:- In 1989, the last year for which we have data,

U.S. employers spent over $48 billion on workers' compensation

costs. These costs grew at 16.9% per year in the mid-1980s. Cost

increases were partly attributable to increased benefits mandated

by state workers' compensation insurance reforms. At the same

time, as employer provided health care coverage has declined,

more employees sought to cover health problems under workers'

compensation. Many people believe there has been increased

fraud as well.

4.6.3 Workers' compensation programs vary from state to state,

but in most programs, insurers attempt to provide employers with

an incentive to limit safety problems by developing an experience

rating. The ratings compare an individual firm's experience with

other firms of its type. If the rating is better than average,

insurance premiums will be lower; if it is worse, they will go up.


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4.6.4 In this study, we looked only at California firms. In

California, employers are assigned a "manual rate," an insurance

rate expressed as a percentage of every $100 of payroll. Rates are

assigned to all companies based on their industry classification.

These rates are then adjusted for companies with a premium above

a certain level according to their actual experience. This means

smaller and less risky firms are not assigned an experience

modification rating. The experience modification rate is set for each

year based on three years of past experience, excluding the most

recent year (because data are generally not yet available). Theexperience modification rate is determined by looking at actual

experience modified by a size weighting factor. For larger firms, the

adjustment may be very small; for smaller firms, actual experience

is given a lower weight because a single incident can skew results

dramatically. This weighted experience rating now becomes the

"experience modification" figure.

4.6.4 Theoretically, the average experience modification factor for any

business classification should be 100%. A company with a good record

would have a rating under 100%; a bad record would rate higher. These

numbers are then multiplied by the manual rate to set the premium. In

practice, the average rating is somewhat under 100.

4.7 IT COMPANIES WRITE NEW ESOP STORY

4.7.1 Will I ever get to exercise my stock options? It's the one question

haunting IT industry professionals sitting on piles of employee stock

options. All those who happily grabbed at ESOP's issued by their


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companies last year, have now been left holding pieces of paper that are,

in some cases, worth a fraction of the price at which employees brought

into them. Except for a few who have benefitted from older schemes like

Infosys 1994 scheme, the great ESOPs dream is turning out to be a

nightmare. Last year, if you were given ESOPs in an IT company, your

friends, neighbours and everyone else went up like a blimp, companies

issued ESOPs in cartloads. And employees brought into them, even at

the higher prices that the grants came from.

4.7.2 According to a study carried out by Nasscom , there were more

than 10,000 IT staff last year holding around 18 million ESOPs valued at

roughly Rs 12,000 crore($3 billion) at February '00 prices. But all this was

merely on paper.

4.7.3 A year later, the situation's something like this. Employees who

were given ESOPs at the prices prevailing during the IT boom, had to sit

back and watch their share prices hit the roof while they waited out the

lock-in period. Now, they can exercise their options that is sell them, and

pocket the difference between the exercise price at the time of the grant,

and the current market price. It's resulted in a situation where employees

have been left holding NIIT options which they would have to exercise at

a price of Rs 1,593 or Silverline options, which they would have to

exercise at a price of $25. At VisualSoft, for instance, all employees who

were granted options have returned them to the company.

Consequently, the company has terminated the ESOP scheme.

4.7.4 Theoretically, an employee who exercised his option now, would

have to buy at the exercise price, sell at the current market price, and

pay out the difference.


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4.8 ESOPs HARDLY BENEFICIAL -

4.8.1 At the height of the IT euphoria in the markets, those employees

saw their company's scrips scaling new heights, they could not benefit asthe ESOP's had 1-2 year lock-in periods, and could not be sold. The lock-

in period, also known as the vesting period in industry jargon, in the

period during which the employee cannot convert his or her option into

shares. To make matters worse, some companies has specified that the

option had to be exercised, that is converted into shares, within a

specified time frame after the lockin period expired. For instance, this

was one year in the case of Silverline, and 10 in the case of Aptech.

Table 4.1

ESOP IN INDIAN CONTEXT

Recent ESOPs

No of

Shares

(Lakh)

Plan Exercise

Plans

(Rs)

Vesting

Period

(Yrs)

Current

Price

(Rs)

NIIT 18.1 Aug '04 1,593 1 162

Silverline 10.0 Nov '04 425 1.5-3.5 41

Patni 5.5 Dec '04 245* 1 54

HCL Infosys 30.2 Aug '04 289 NA 72

SSI 1.5 Sep '04 555 3 164

Wipro 3.5 Oct '04 2,397 1-2 1,485

Infosys 19.6 Oct '04 6,249 5 3,532

VisualSoft 0.2 Aug '04 NA 1 116

Polaris 8.5 Aug '04 480 5 120


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4.9 EMPLOYEE STOCK PURCHASE PLANS

(ESPPS)

4.9.1 Employee stock purchase plans (ESPPs) include both tax-qualified "423

plans," which about 2,400 companies offer, and nonqualified plans, which about

1,500 companies offer. Our estimates are based on data from ShareData's Equity

Compensation Trends in America (1991), Hewitt Associates' On Employee Stock

Ownership (1996), Hewitt Associates' Survey Findings: Employee Stock Purchase

Plans (1998), and the National Association for Stock Plan Professionals' Stock Plan

Design and Administration Survey (1998), especially the more recent studies. To

estimate the number of employees covered under the plans, we took the total

number of companies offering plans, multiplied those numbers by the average

number of employees in the companies (13,207 for 423 plans and 17,790 for

nonqualified plans), and multiplied that number by the average percentage of

participation in the plans (34% for 423 plans and 17% for nonqualified ESPPs).

Almost all companies with ESPPs are public.

4.9.2 Multiple Plans: Many companies offer multiple e plans, and many employees

participate in more than one plan. For example, many ESPP participants are also in

401(k), stock option, or other equity compensation plans. Hence, the total number

of participants in all these plans is definitely not the total of the numbers in the

"Number of participants" column.

4.10 ESOPS AND CORPORATE GROWTH

4.10.1. A 2000 study by Joseph Blasi and Douglas Kruse at Rutgers Univerity found

that ESOP companies grow 2.3% to 2.4% faster than would have been expected

without an ESOP for sales, employment, and sales per employee. The study looked

at all ESOP plans set up between 1988 and 1994 for which data was available. A

1987 NCEO study of 45 ESOP and 225 non-ESOP companies found that


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companies that combine employee ownership with a participative management

style grow 8% to 11% per year faster than they would otherwise have been

expected to grow based on how they had performed before these plans.

4.10.2 Subsequent studies by the General Accounting Office and by academics in

Washington State and New York found the same relationship. A 1999 study for

Hewitt Associates by Hamid Mehran of Northwestern University found that the

returns on assets for 382 publicly traded ESOP companies was 2.7% per year

greater than what a model of their predicted performance would have been.

4.10.3 Studies on participative management alone find a small positive impact on

performance, but not nearly enough to explain the synergy between ownership and

participation these other studies have found.

CHAPTER 5

SURVEY ANALYSIS

5.0 SURVEY BACKGROUND

5.0.1 HR management gets best out of its employees to meet the organisation's goals. And

employees are the best judge of the HR policies of any organisations. IT sector is

fastly growing industry in India and HR requirements of Indian IT Industry are quit

different from traditional industrial sectors.., A major characteristic of modern


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socio-economic development has been the increasingly dominant role of servic

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