Practicalities of the Link Between Industrial Relations & Performance Management

Published by MBA Skool Team, Published on September 09, 2014

Management in IR settings

The industrial relations settings in India involve three main actors- the employers, the workers and the government agencies. Compared to some of the other countries, the government, in India, seems to hold a tighter control over various affairs of IR through various acts. Accordingly these acts need to be kept in mind when analyzing performance management in industrial relations setting in India.

Role of Industrial Relations:

1. To achieve sense of equality through higher wages & better working and living conditions

2. To offer responsive co-operation in improving level of production, discipline etc.

3. To make up for deficits in terms and conditions of employment

4. Counterintuitive to paternalism shown by the management (Self-esteem of the workers)

Image Courtesy:, tiramisustudio

The goal of performance management is to make workers more efficient and to align their effort towards organizations goals. At the same time it helps in certain administrative functions like succession planning, salary as well as aids learning and development of workers. With the presence of agreements between employer and union, which cover the mechanisms and processes related to most aspects of performance management, the objectives which the employers can achieve from a performance management system gets limited. For example workers in manufacturing sector have accepted variable pay now. Almost all new settlements in Pune industrial belt are being signed with variable pay schemes. But this approach has its own problems. Variability of pay appears nice when quoted in policy statements, but when you are paid a lower pay than the previous year, workers do not like it, some also revolt. Secondly a wrongly designed scheme can effectively make operations unproductive. Appreciation of performance management system comes only out of awareness of the market realities and alignment follows. Hence in this context performance management in unionized set-up appears to be important.

Performance Appraisal in unionized settings

Performance appraisal systems are less common in a unionized setting. This is because the collective agreements generally take care of most of the objectives of a performance appraisal system like pay, promotion, lay-offs, trainings etc. Moreover unions consider seniority as a more objective measure of determining who needs to be promoted, trained or laid off. For the performance management system of workers to be robust, benefits of a performance appraisal system need to be greater than the loss of solidarity among union members. Therefore unions generally oppose performance appraisal system or at least try to limit its usages. The usefulness of a performance appraisal system needs to be analyzed with respect to the benefits it will bring. Where workers more opportunity to affect the productivity of the firm, the management should invest serious efforts to put in place a performance appraisal system and should work with union to seek out strategies which is mutually agreeable. Generally unions are less likely to allow a performance appraisal system to be used for promotions and lay-offs and but tend to allow the appraisal rating to be used for development of the workforce. Moreover the acceptability of an appraisal system increases if the union is involved in the decision making. At the same time there should be grievance redressal system to hear and resolve issues related to performance appraisal.

Most importantly the performance appraisal system should be simple to understand and the workers should be clearly communicated as to how they can improve their performance. If possible necessary support system should be put in place to help workers perform better. If the workers feel that the goal of performance appraisal in developmental then they would be more than willing to accept the appraisal system.

Goal Setting

Goal setting forms one of the most essential elements of performance management. The goal setting theory states specific and difficult goal with appropriate feedback leads to better task performance. But is it possible to set individual goals in unionized settings? If not, how to set and measure group level goals? And to what extent will the union cooperate in a goal setting initiative?

It’s important that workers don’t see goals being forced upon them. A voluntary acceptance of goals and no penalties for failures is what a worker would desire. But can management afford such a deal in a competitive environment. Moreover the unions don’t favor rewards or monetary incentive for individual efforts. Therefore we see very less individual goals in unionized workforce. Where we see individual goals implemented, the union generally lays down certain precondition with respect to the usage and objective of the goal implementation. Group level group goals seem more logical in unionized settings, but administrating a group level goals and individual incentives can be a challenge for the companies.

One of the major concerns of trade unions with respect to goal-setting is the job loss or lay-offs that might happen once the productivity goals are achieved. Therefore they try to make sure that there is enough long term work before agreeing on any productivity goals.

Concluding Remarks:

While on the other hand there have been many instances where proper co-ordinations and understanding between management & unions have led to improvement in productivity. Overall it can be argued that industry differences, labor climate and relationship with the union, all have an effect on the performance of the organization.

At the end of the day the focus of industrial relations should be on productivity & innovation rather than on labor cost arbitrage. Focusing only on the cost side and not looking at the future benefits may lead to short term gains but long term losses. Unleashing the potential of labor must be accompanied by a fundamental shift in paradigm from the win-lose approach that both labor and management have had till now, to a win-win approach where performance management can be used achieve productivity gains as well as industrial peace.

This article has been authored by Margesh Wavhal & Shruti Joshi from XLRI


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[2] Ng, I., & Maki, D. (1994a). Human resource management in the Canadian manufacturing sector. The International Journal of Human Resource Management, 4(4), 897−916.

[3] McCabe, D. M. (1983). Labor relations, collective bargaining, and performance appraisal in the federal government under the civil service reform Act of 1978. Public Personnel Management Journal, 133−146.

[4] Godard, J., & Delaney, J. T. (2000). Reflections on the “high performance” paradigm's implications for industrial relations as a field. Industrial & Labor Relations Review, 53(3), 482−502.

[5] Brown, T. C., & Warren, A. M. (2011). Performance management in unionized settings. Human Resource Management Review, 21(2), 96-106.

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