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MGT601 - SME Management - Lecture Handout 27

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It involves a number of activities which may be performed either by the owner-manager himself or with the assistance of specialists. Following is the process of selection.

  • Application Blank
    It contains a written record of candidates qualifications, name, experience, references etc. from a perusal of the record, a broad idea can be formed about the applicant’ potential.
  • Personal Interview
    The purpose of this interview is to ascertain technical competence of the candidate and his capacity to meet the requirements of the position. The fundamental mistakes committed in interviewing are;
    1. Not spending enough time analyzing the requirements of the job to be filled.
    2. Failing to ask right questions to test strengths and weaknesses of the candidate,
    3. Relying too much on gut reaction instead of making an objective analysis.
  • Checking References
    References listed by the applicant should be cross – checked through telephone and preferably through a written letter.
  • Employment Tests
    Though not a sole criterion of selection, these tests are making the employee selection more efficient. These are;-
    1. Aptitude test to measure mechanical, electrical, manual dexterity and other potential talent.
    2. Achievement test to measure performance (skill proficiency)
    3. Intelligence test to measure general mental abilities e.g. verbal ability, reasoning, comprehension etc.
    4. Personality test to select managers.
  • Final Interview
    It is designed to final impression based on earlier assessments and particularly to ascertain interpersonal competence (capability to go along well with others), whether he has autocratic/democratic disposition, cooperativeness, rigidity flexibility. The interviewer should do well to adopt a balanced approach. He should guard against “Halo effect” i.e. forming rational judgment on the basis of first impression. What happens is that the interviewer forms a favorable or unfavorable impression of the applicant very early and searches for confirmation. To guard against it, the interviewer should withhold judgement until after the interview.

  • Physical Examination
    Physical examination to determine whether the prospect meets health standards demanded by the job.
  • Orientation
    The new employee should be provided thorough orientation regarding company policies and specific nature of the job. It markedly reduces apprehension during the first few days of the employee. He should be introduced to colleagues, explained as to how the job fits into overall goals of the company, the operations and conditions of employment. Some employers have” Employee Handbooks” containing written information about salient aspects of company e.g. company’s expectations of employees, pay-policies, working conditions, fringe benefits etc.
  • Wage and Salary Administration
    Principal object of a compensation plan is to motivate employees to achieve higher levels of performance. Following are the elements of wage and salary administration.
    1. Wage & Salary Level.
    2. Wage & Salary Structure.
    3. Individual Wage Determination.
    4. Method of Payment.
    5. Individual Compensation or fringe benefits.
    6. Management Control.

Wage & Salary Levels and Structure

The wages should be established by reference to the following:-

  1. Prevalent Wage Levels in Industry.
  2. Compliance with Minimum Wages Laws and other enactments governing compensation.
  3. Standards and Values of the entrepreneur.
  4. Consent of Trade Union.

By adhering to the above, a small firm can hire and retain productive work force.

Wage Determinations and Method of Payment

Determination of compensation for each position is the second step in salary administration. More responsibilities and more difficult a job, higher should be the pay-packet. Also establish a range of compensation for each position. The wage structure must be such that the staff has the motivation to work for vertical movement. The incentives and fringe benefits associated with each position should also be settled. To attract qualified, hardworking and loyal staff, small firms may introduce special awards. Benefits to be offered to managers pose special problem. The popular forms of benefits given to them include:

  1. Stock Option.
  2. Profit Sharing.
  3. Use of Company Vehicle.
  4. Club Membership.

Small firm should use its limited resources carefully and devise a productive salary administration. Broad objectives of a good salary program include; maintenance of competitiveness, capacity to attract managers of superior caliber, rewarding superior performance and motivating staff to achieve higher production levels. Two more ingredients of efficient compensation plan are:-

  1. It should link reward and performance,
  2. It should ensure payment of reward as soon as after achievement.

Compensation plans suitable for small businesses are:-

  1. Straight salary.
  2. Hourly wage-to reward employees whose work is difficult to measure or where employer has no control over output.
  3. Piece rate.
  4. Commission based on sales.
  5. Combination of salary and commission.

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