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30 M.COIn. (Part 1) Examination, Apri/2004 Human Resource Management 31

of the socio-technical approach to job design. Q.5. AttE:mpt any two: (a) What is career planning"? Why is career management important in today's corporate environment? . (b) Why is human resource safety necessary? Explain various measures for HR safety and health. (c) What is succession planning? How does the organization plan for succession to its employees'! . Ans. (a) Career planning is the systematic process by which one selects career goals. From the organisation's viewpoint it means helping the employees to plan their career in terms of their capacities within the context of organisation's needs. It involves designing an organisational system of career movement and growth opportunities for employees from the empioyment stage to the retirement stage. Individuals who can fill planned future positions are identified and prepared to take up these positions. It is a managerial technique for mapping out the entire career of young employees. It requires discovery, development, planned employment an_dreemployment of taICnts. The philosophy ofHRD is that people perform better when they feel trusted and see meaning in what they are doing. In the HRD system, corporate growth plans are not kept secret. Long-range plans. for the organisation are made known to the employees. Employees are helped to prepare for change whenever such change is planned. In fact, the employees help to facilitate the change. Major changes are discussed at all levels to increase employee .understanding and commitment. . Most ofthe people want to know the possibilities for their own growth and career 0PPOItunities. Because. managers and supervisors have information about the growth plans of the company, it is their responsibility to transmit information to their sub-ordinates and to help them in planning their careers within the organisation. Of course, the plans may not become a reality, but all are aware of the possibilities and are prepared for them.

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Career Management: Career management is the process of designing and implementing goals, plans and strategies to enable the organisation to satisfy employee needs while allowing individuals to achieve their career goals. Career management i.snecessary due to the following reasons: 1. To attract competent persons and to retain them in the organisation. 2. To provide suitable promotional opportunities. 3. To enable the employees to develop and make them ready to meet future challenges. 4. To increase the utilisation of managerial reserves within an organisation. 5. To correct employee placement. 6. To reduce employee dissatisfaction and turnover. 7. To improve moti vation and morale. Career management has assumed significant impOitance in today'~ cOt:Porate,envirJnment '.v~crcgreater training needs are bound to be intensified for updating the technological and behavioural skills. Human resource has gained greater importance due to the requirements of greater skills and technological expertise. Trained workers would expect higher remuneration. As a result of increase in standards, intellectual and educational levels and potentiality, higher le':'els of need like self-aetuaiisation needs, esteem needs and social recognition needs may supercede primary needs like physiological needs. Hence, organisations should be able to provide ways and means for satisfying such higher needs. Human treatment, avenues for self actualisation, T-group formation, facilities to maintain uninterrupted communication with the top management (top boss), etc., therefore, become necessary .. Quality of work life and quality circle programmes may receive greater acceptance. Computerised information system will be increasingly used in human resources management, and hence effective appraisal system will be in usc increasingly; and .Enlightened management will realise more and more the need

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Q.5. Attempt any two questions: 20 (a) What is .lob Analysis? Explain its importance and contents of Well Written Job Analysis. (b) Why is it necessary to have health and safety measures of employees? Explain. , (e) Explain stages in career path. Ans. (a) Job analysis is essentially a process of collecting and anal ysing data relati ng to a job. It is a part of overall work planning called 'work design'. A job can be analysed only after it has been designed and someone is already performing it. Job analysis is therefore performed upon ongoing jobs. Asjobs are always subject to change, ajob analysis may beCOmeobsolete within a short period of time. Uses of Job Analysis: A job analysis determines both the ,minimum and the 'desirable qu;iifications necessary to perform in ajob. Such information is crucial in putting together a recruitment plan. In the selection process, an employee's relative abilities and skills must be evaluated. A job analysis may indicate what tasks, duties, and responsibilities the job will entail, how repetitive the job may be, or how much independence the job requires. By using that information during im interview, the HR interviewer can evaluate the qualifications of the person being considered for the job. Ajob analysis informs the new employee about what must be learned to complete the job successfully. Often management will give new employees such infonnation when hired. A complete job analysis wtII reveal if a new employee needs additional training in certain areas to complete the job successfully. This can usually be ,discerned by comparing the employee's past work history and trainingto the tasks specified in the job analysis. Job analysis can also help management determine an equitable pay system. Almost ~ll organizations desire to base a pay system on the relative value of each job to the organization. Difficult jobs,' those that require specific abilities, or those that are more hazardous should receive more pay than less difficult jobs.

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Through job analysis, management can find out exactly what tasks are performed on each job and can compare individual tasks for similar jobs in the organization. Performance appraisal - detelmining how well employees have , performed their jobs in the past - as well as promotion decisions can be facilitated by a system that evaluates specific tasks that employees perform. Job analYSIScan be helpful in determining which duties and responsibilities should be considered in an evaluation. A good job-analysis ~ystem is important to the HR function, the primary focus of which is to maintain a high level of employee productivity and efficiency. Job analysis affect most areas of employment and therefore indirectly 'affect performance appraisal, compensation, and training, which in turn affect employee performance and productivity. Ans. (b) Please refer answer to Q.5.(b) of April 2004. Ans. (c) Career path is the sequential pattern of jobs that form a career. Career path basically refers to opportunities for-growth' in the organisation. Availability of such opportunities has tremendous motivational value. It also helps in designing salary structures, identifying training needs and developing second line in eominand. Career paths can be of two types : 1. Change in Position without Change in Job: Some jobs,' involve a change in designations to a higher level position without involving significant change in job. A good example of this is found in teaching institutions, where an assistant, professor may grow to become associate professor and a professor, but the nature of job (teaching and research) remains the same. Career path in sllch situationrtieans a change in status, better salary and benefits and perhaps less load and better working condition. , 2. Change in Position bring about Changes in Job: Those where change in position bring about changes in job along with ine~eased salary, status and better benefits and working conditions. In many engiFleering organisations, an empioyee may grow in the
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102

M,Com, (Part I) Examination, A,pri/2005

Human Resource Management

103

Ans. (b) It is true that personnel management of yesteryears has hecome human resource management today, Despite tremendous technical development ihe Imin still remains the main factor of production, He plans, thinks, pro,duces and sells the products and so on, Thus production, marketing, finance, accounting, products research and development all the functions are performed by people, As Peter Drucker says, "The proper or improper use of different factors of production depends upon the wishes of the' human resource, Hence, besides other resources, '.human resources need more development." If employees are satisfied and motivated they will contribute their best towards the attainment of organisational goals. Without this no objective of organisation can be realised. Management and personnel administration cannot be separated, though in a relatively large organisation, personnel management activities are characteristically. carried out by a separate departmcnt having atitle such as Personnel Department or Personnel Management, Industrial Rclations Department and so on, its specific designation may vary from company to company, Personnel dllpartment is primarily interested in the selection, training, development and motivation of employees. The activities involved in personnel management pervade the entire organisation. As every manager has to deal with his subordinate employees so he must know the techniques to deal with them successfully. A major change in personnel practices came on the surface which has givcn way to the modem concept of human reSOUl'ce, Human Resource Management is concerned with the managing people as an organizational resources rather than as factors of production. Ii involvcs a system to bc followed in business firm to ' reclUit, seleCt, hire, train and develop human assets. It is concerned with the people dimension of an organization. The awiinment of . organizational objectives depends, to a great extent, on the way in which people arc recruited, developed and utilized by the management. Therefore, proper co-ordination of human efforts and

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effecti ve utilisation of human and others material resources is necessary, Ans. (c) As a result of globalization and liberalization, HRiv1 functions have acquired strategic impQrtance. This is because globalization has opened doors for global giants to enter into Indian market and liberalization has provided opportunity to Indian business community to enter into global market. Liberalization has removed unwanted restrictions on free flow of trade including direct foreign investment and portfolio inve~tment. This has required additional responsibilities for existing manpower to be conversant with foreign conventions, foreign exchange reg\,lations, treasury management and so on. In view of globalization and liberalization human resource management functions have acquired strategic importance. 1. Rapid Change: Many organizations face a volatile environment in which change is nearly constant. If they are to survive and prosper they need to adapt to change quickly and effectively. Human resources are almost always at the heart of an effective response system. Here are a few examples of how human resource policies can help or hinder a firm grappling with external change. . 2. Legislation: Much of lhe growth in the human resource function over the past three decades may be attrihuted to its Cn)Ci,11 role in keeping the company out of trouble with the law. Most firms are deeply concerned with potential liability resulting from personnel decisions that may violate laws. These laws are constantly interpreted in thousands of cases brought before govcl'llmcnt agencies and courts. In other words, legal intell1retations concel'lling such human resource issues as discrimination, testing, disability, . labour practices, and the like arc in a state of flux. How successfully a fiim manages its human resources depends to a large extCnt on its ability to deal effectively with govelllnient regulations. Operating within the leg,d frHmework requires keeping track of the external legal environment and developing intelllal

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M.e"m. (Part J) Examination; Oct"ber 2008

Illlma". Re.\'ource Management

265

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to a person violating the provisions of this Act. Ans. (f) .ESOPS : Employee Stock Ownership Plan is an employee benefit plan which makes the employees of company owners of stock in that company. ESOPs arc utilized by company to offer an alternative and more lucrative profit sharing plan so that the employees g\;t more motivated and in the long run contribute in increasing the productivity ofthe company. Also it has some major fringe benefits like tax benefits, financing options etc. which makes .it an attractive investment both from employers and employee point. of view. The need for ESOPs arose as with passing times sticking to one organization has become a passe. Earlier people used to join an organization and envision a future there for'a lifetime. Butin the present era employee retention has become a key issue as employees are not willing to stay in the same company for life unless they arc satisfied with the returns they get from their jobs. These returns can be in the form of better remuneration, to growth prospects, to a better working environment. Also in the current trend employees arc not satisfied by their salary alone but they also want to have an increased involvement in the company's decisions. The organization wants to recruit people who are best fit for the job. For implementation of ESOPs the company creates a trust to which it makes annual contributions. These contributions are then allocated to the individual employee accounts within the trust. Allocations can be done in proportion to compensation, years cif service or a combination of both. The most utilizcd is allocation through compensation. Usually, employees might join the plan and begin receiving allocations aftcr completing a year of service with thc company, where any year in which an employee works at least WUUhours is counted as a year of service. Within limits, company contributions to the trust are tax deductible. Usually, an employee can join the plan after completing I year of service or 1000 hours of service within the year. The company allocates cash and shares to the trust, which are

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then distributed among the employees. These shares and other plan assets must vest before employees are entitled to receive them. Vesting is a process whereby employees become entitled to an increasing percentage of their accounts over time. The least liberal vesting schedule allowed by law is 20% per year until employees are fully vested after 7 years of service. But some companies vest the employees account from the word go. Employees receive the vested portion of their accounts at termination, disability, death or retirement. These distributions may be made in a lump sum or in installments over a period of years. If employees become disabled or die, they or their beneficiaries receive the vested portion oftheir ESOP accounts right away. The option to acquire shares is generally exercisable over a period of time i.e .. vesting period which is generally a period of 1 to 5 years. Since options lapse if the employee leaves employment before the vesting period is over, ESOPs work as an incenti ve for the employee to stick around for that time. In a publicly-traded company employees may sell their distributed shares on the market. In a privately held firm, the company must give the employees a put option on the stock for 60 days after the distribution. If the employee chooses not to sell at that time, the company must offer another put option for a secol)d sixty day period starting one year after the distribution date. After this period the company has no further obligation to repurchase the shares. Q.2. Answer the following questions :20 (a) "Environmental influences have construined HRM practices". Discuss. (b) What are the essentials of a good human resource planning? Ans. (a) Please refer answer to Q.2.(b) of April 2004 .. Ans. (b) Please refer answer to Q.3.(b) of October 2U07. Q.3. Answer the following questions :20 (a) What is Job Design? Explain its Techniques. (b) Explain the various sources of Recruitment. Ans. (a) Job design is the process of deciding on the content

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Hum~n Resource Management

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to themselves. It is estimated that7-10 percent of companies are the world, speaking different languages dealing in different using self appraisal. Self appraisal technique records the employee's currencies. and having different working conditions. self ratings (E) as well as the ratings given by the supervisor (S) on Advantages of Outsourcing : The benefits of outsourcing are each factor on which he is being appraised. The rating scales shown as follows: . are "for employee and supervisor to answer separately, then meet '1.eost Reduction: Reduction of cost for outsourcing and dialogue about any perceived differences. It is not to rate or companies. . ". . , judge the person but to encourage employee development, build , 2. Creation of Employment Opportunities: Creation of genuine teamwork, and to connect job performance with company employment opportunities in countries where the work is out goals. Many personnel consultants believe that effecti ve use of self ... i sourced. appraisal is critical to success in appraising white-collar employees. 3. Increase in Demand: Increase in demand for products due Research suggests that supervisors react to employees self. Ii' to reduction in cost. ratings. Supervisors who learned that certain employees; self 4. Domestic Consumption: Increase in domestic consumption appraisals were higher than their own changed their initial ratings. due to increase in employment. Supervisors generally changed the ratings in a positive direction .. ;. 5. Bilateral Relation: Improvement in bilateral relation , gave these employees larger raises, and were less willing to sit down between nation due to increase in business. and discuss the appraisal with these high self appraisers. This finding , 6. Support to Globalisation : Outsourees is a positi ve support suggests that some negotiation or posturing may be taking place in to globalisation. such PA procedures. The primary benefit of the approach' can be; 7. Government Policy: Posi tive policy of the Government has . turned into a constructive, positive experience for supervisor and encourages outsourcing. employee alike. It helps to eliminate disagreements on the specific 8. Technology : Technolqgical development has encourage aspects of performance. Perhaps, one useful feature of this system outsourcing. which helps in creating the right environment is that the difference The countries involved in global outsourcing enjoy many II: of one point rating is always expected at the higher point regardless benefits and their surplus labour is profitably deployed. Though of who has assigned the higher ratings. The assumption is that the outsourcing activityhas been ongoing for quite sometime, the pace employees would ordinary not rate themselves better than what they of outsourcing process has assumed significant changesin coverage are. 'i' and scope in the era ofliberalisation, privatisation and globalisation. ' i! Ans. (e) Outsotircing : The system of getting business related I' Ans. (0 Grievance Procedure: Grievance means any real or"work done through jobbers and contract workers rather than own imaginary feeling of dissatisfaction and injustice which an employee . employees is known as Outsourcing. Outsourcing "is the work done . has about his employment relationship. According to Dale S. Beach, for a company by people other than the company's employees". "grievance is any dissatisfaction or feeling of injustice in connection Transnational business firms generally get their work done' with one's employment situation that is brought to the attention of through contract system in the overseas market where labour and management. overheard cost is low The agencies undertaking overseas jobs could The best approach towards grievances is to anticipate them and be located anywhere and they may have their offices in any patt of .,. take steps to tackle them before the grievances assume dangerous

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M.Com. (Part I) Examination,

Al?ri/2008

II

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Human Resource Management 241

proportions. An ordinary manager redresses grievances as and when they arise. An excellent manager anticipates and prevents them. Managers can know and understand grievances with the help of the following methods: 1. Exit Interview: An interview of every employee who quits the organisation can reveal employee grievances. Most of the employees quit the company due to some dissatisfaction. Great amount of care and empathy is necessary for a successful exit interview. . 2. Opinion Surveys: A survey may be conducted to elicit the opinions of employees regarding the organisation and its management. Group meetings, periodical interviews with workers and collective bargaining sessions are also helpful in knowing' employee discontent before it becomes a grievance. 3. Gripe Boxes : In these boxes employees can drop their anonymous complaints. These are different from the suggestion boxes in which employees drop their suggestions with their names written on them. 4. Open Door Policy: It implies a general invitation to the employees to informally drop in the manager's room any time and talk over their grievances. This policy is useful in keeping touch with employee feelings. Q.2. Answer the following questions :20. (a) Compare and contrast the personnel management of yesteryears and the present day Human Resource ManagemenL (b) What do you mean by job analysis? How is it done in a manufacturing firm? Ans. (a) Please refer answer to Q.2.(b) of April 2005. Ans. (b) The term job analysis has been discussed in answer to Q.5.(a) of April 2005. Job analysis is done in a manufacturing unit by various methods. The main methods are given below: 1. Job Performance: Under this method, the job analyst actually performs the job under study to obtain a first hand

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experience of the actual tasks, physical and social demands and the environment of the job. This method can be used only for jobs where skill requirements are low and can, therefore, be learnt quickly and easily. This is a time-consuming method and is not appropriate for jobs requiring extensive training. 2. Personal Observation: Here the anal yst directl y observes the worker or a group engaged in doing the job. The tasks petformed, the pace at which activities are carried out, the working conditions, the hazards involved, etc. are observed during a complete work cycle. The information thus obtained is recorded in a standard format. This method is appropriate for jobs which involve manual/ physical, standardised and short job cycle activities. Draftsman, mechanic, weaver, are examples of such jobs. There are, however, many aspects of a job involving mental process and unforeseen circumstances which can not be directly observed. Such jobs do not have an easily observable and complete job cycles. Observation method can be effective only when the job analyst is skilled enough to know what to observe and how to analyse what is observed. 3. Interview: The analyst personality interviews the employee, his.supervisor and other concerned persons and records answer to relevant questions. A standard format is used to record the data so that the data collected from different employees can be compared to identify the Common and critical aspects of the job. The interviewer uses standardised interview schedule and asks job related questions, in'the interview. Interview is a widely used method particularly for jobs wherein dircct observation or actual performance is not feasible. Interview can also be used in conjunction with observation to scck clarifications on job related aspects.lntcrview is, however, a time-consuming and costly method. Another problem with this method is that inaccurate information may be collected. If the purpose of interview is not clear, the employee may provide information to prote'ct his own interest. Success of this method depends upon the rapp'ort between the analyst and the employee.

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M.Com. (Part I) Examinat/oll, April 2.008

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4. Questionnaire: In this method properly drafted questionnaires are sent out to jobholders. After completion these are returned to supervisors. As the data is often incoherent and disorganised .it is discussed with the jobholders. After due corrections the same is submitted to the job analyst. Structured questionnaires on different aspects of a job e.g. manual and mental processes, coordimiting and negotiating behaviour, etc. are developed. Each task or behaviour is described in terms of characteristics such as frequency, significance, difficulty and relationshipto overall performance. The jobholders give their ratings of these dimensions. The ratings thus obtained are analysed and a profile of actual job is developed. Comprehensive Occupational Data Analysis Programme (CODAP), Position Analysis Questionnaire (PACS), Functional Job Analysis (FJA) and Job Analysis Information Format (JAIF) are examples of standard questionriaires used for job analysis. Thc questionnaire method provides' comprehensi ve information aboutajob. It also enables the analyst to.cover a large: number of jobholders in the shortest possible time. Data obtained through a questionnaire can be quantified and proccssed with the help of a computer. But it is time consuming and costly to develop standardised questionnaires. Direct rapport between the analyst and respondents .is not possible. In the absence of a personal touch the cooperation and motivation of respondents tend to be low. 5. Critical Incidents: In this method jobholdcrs are asked to describe incidents concerning the job on the basis of their past experience. The incidents so collected are analysed and classified according to the job areas they describe. A fairly clear picture of actual job requirements can be obtained by distinguish between effective and ineffective behaviours of workers on thejob. However, .this method istime-consuming. The analyst rcquires a high degree of skill to' analyse the content of descriptions given by workers. 6. Log Records : In this method, a diary or logbook is given to each jobholder. The Job holder daily records the dinies performed

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making the time at whiCh each task is started and finished. The record so maintained provides information about the job. This method is time-consuming. Moreover, it provides incomplete data because information concerning working conditions, equipment used and supervisory relationship is not available from the diary. But if kept up-to-date, the diary provides useful information on the job. This method is useful for job that are difficult to observe e.g. engineers, scientists, research men, senior managers, etc. . 20 Q.3. Answer the following questions :(a) Define selection. Explain the process of selection. (b) Mention any four methods for appraising the performance of individuals. Explain, how, they help in maximising the potential of the employees. Ans. (a) Selection is the proce<s of choosing qualified individuals to fill vacant positions in an organization. Selection involves choosing the best applicant to fill a position. After the position opens, the HR manager reviews the available, qualified applicants and fills the position from that pool. The ideal situation, however, seldom occurs. The selection process involves making a judgment - not about the applicant, but about the fit between this person and this job. The process of selection has been explained in answer to QA,(a) of April 2005, Ans. (b) The methods for appraising the performance of individuals have been explained in answer to QA.(b) of October 2007. Performance appraisal measures serve many different purposes within an organization. Basically, the uses of these measures fall into two main categories administrative and individual employee development. Some of the major uses of performance appraisal measures in each category arc given below , Performance Potential of an Employee : Performance appraisal is considered useful for examining performance potential of an e~ployee. Performance appraisal is : . (i)'A means of identifying employee weakness that might be

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M.Com. (Part I) Examination, Apri/2009

Human Resource Management

293

the total process to enlist their support and acceptance. Besides, it must be well thought out and planned for systematic implementation. Ans. (b) There are several incenti ve schemes for the employees like Slock options and Employee Stock Ownership Plan (ESOPs). We shall discuss these incentive schemes for the employees as .follows; 1. Employee Stock Option Plans : Employee stock option plans have become increasingly popular particularly in global economy. Under these schemes employees are offered the company's shares at a concessional price. When the market price of the share increases the employees earn considerable capital gains. Stock options are considered performance based incentives. An option contract is entered between employees and the company whereby one party has the right to buy or sell a particular security at a predetermined price on or before a predetermined date for a consideration. The employee who get this right is called the option buyer while the company is termed as the option writer. The price at which the deal takes place is called the strike price or exercise price and the consideration involved is the option premium. The unique feature of an option agreement lies in the fact that the option buyer possesses the right which he mayor may not exercise. In other words his right is optional but the option writer has a definite o1;Jligationunder the contract. The recent ordinance lifting 38 years ban on options trading by means of an amendment in the Securities Contract (Regulation) Act 1956 has paved the way for introduction of this technique. An option may be a call option or a put option. In call option, the option buyer has the right to buy the underlying security while in the put option, the option buyer has the right to sell the security. An option may be a European Option or an American Option. In the former, the option expires on a fixed date while in the latter it can be ellercised on or before the due date. Options havc unique characteristics which distinguished them

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for other securities. These are; (a) Buyer of an option has right but no obligations, (b) Investment involved in an option is comparatively very low'as compared to direct purchase, (c) The losses in an option contract are limited to the extent of option prernium only, (d) The option contract autornaticaIiy comes to an end on iis expiration date. Merits: The merits of stock-option scheme are ; 1. This scheme links compensation package closely to performance. 2. This scheme enables the companies to retain efficient employees with the company. 3. It encourages the employees to work even better. 4. It inculcates a sense of ownership and responsibility. 5. This scheme establishes significance of team effort among employees. . Limitations: The limitations of the scheme are; I. This scheme can be used by only the profit-making companies. 2..Share prices do not always reflect fundamentals. 3. Falling share prices result in loss to employees. 4. Unsound stock market conditions cause .inconvenience to employees in encashing their investment. 5. Lack of transparency can earn accusations of favouritism. Reasons for Writing Option Contracts : The following are the main reasons for writing option contracts; (a) Cash Additional Income :The most common reason for writing option contract is to cash additional income on a securities portfolio, the fact that option buyers are not as sophisticated as writers; and to hedge a long position. It is sometimes argued that option writing is a source of additio~al income for the portfolio of an investor with a large portfolio of securities. Such an approach assumes that the portfolio manager can guess the direction of specific stock prices closely rough to make this strategy worthwhile. What cannotbe overlooked is that the writer gi ves up certain rights

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when the option is written. For example; suppose a call optiortis written. In this case, the writer would presumably cover the call by giving up securities from his or her portfolio. Hence the writer is giving up any appreciation beyond the striking price plus the option premium. (b) Option Premiums: Second, it is believed by some that the buyers of options are not as sophisticated as the writers. The proponents of this .view argue that option writers are the most sophisticated participants in the securities market and view the. option premiums simply as additional income. Howevcr, it should bc held that this view presupposes that the buyers are "lambs ready to be shorn", whether this view is correct or not is unclear, but it follows that over the long-term they may find option writing an unprofitable undertaking. (c) Hedge a Long-term Position: A third reason for writing optIons is to hedge a long-term position in a stock portfolio. A typical situation would be where the portfolio manager is concerned that a stock may decline if the stock is sold he or she will have to pay a capital-gains tax. Selling a option Would involve a minimum risk of having. the stock called away. Valuation of Options: The value of an option is dependent on many factors like the market price of the share, the.exercise price, the term to cxpiration, the prevalent interest rate and volati Iity of the share price etc. The value of an option on the expiration date is simply the differcnee between the exercise price and the market price. If the market pricc is more than the exercise price, a call option has a value which is known as economic value. The buyer of option shall thcrefore, exercise his right and will not be allowed the' call to expire. Similarly, the put option has a value when the exercise price is more than the market price. But during the term to expiry a call option has a value even if its market price is less than or equal to the exercise price, which is on account of the time value of an option. It depends on the time remaining to expiry, expected volatility in the price of the stock and level of interest rate.

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The options are beneficial both to the writ~r and the buyer. Stock options are looked upon as a speculati ve vehicle asin any option. There isa risk of loss to both contracting parties i.e. a buyer who uses the option and a seller who makes good the option terms .. Options are now traded on many exchanges throughout the world. Huge volumes of options are also traded over the counter by banks and other financial institutions. The undedying assets include stocks, stock indices, foreign currencies, debt instruments, commodities and future contracts. 2. Employee Stock Ownership Plan (ESOPs) : Please refer answer to Q.l.(f) of October 2008. Q.7.Case Study :20 The Vice President, Human Resources Department of Global Health Care Ltd., is in a difficult decision making situation. He has to fix up the remuneration package for a senior manager from Rand D department and another senior manager from marketing department. Both have been promoted to the current position due to their excellent performance in the proceeding years. Till recently, these decisions, i.e. decisions related to the remuneration paid to ,the top exec uti ves were taken by the managing director. He used to rely on his discretionary powcrs ~hile doing so. Hence his decisions were never questioned. This situation has changed since last year when HR department was made more powerful. Cleareut HR policies were designed .under this the policy related to employee compensation. discriminated line executives and staff executives. As per the new policy line executi ves are to be gi ven two advance increments alongwith performance linked bonus whenever they are promoted. The policy, however, was silent about staff executives. Unfortunately the policy was not widely publicised within the company. This issue of discriminating line executives and staff executi ves with reference to compensation during promotion is now questioned by the senior manager, Rand D department. He alongwith other members from his department not only questioned the policy but pointed out the deficiency in not recognising the role

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